American shale EampP growth is creating
a global energy independence transformation
What does the Mars Lander tell us about our industry
Edition Seven - October 2012
1 OilVoice Magazine | OCTOBER 2012
Issue 7 ndash October 2012
OilVoice Acorn House 381 Midsummer Blvd Milton Keynes MK9 3HP Tel +44 208 123 2237 Email pressoilvoicecom Skype oilvoicetalk Editor James Allen Email jamesoilvoicecom Sales Gabby Kotosoba Email gabbyoilvoicecom Manager Technical Director Adam Marmaras Email adamoilvoicecom Social Network
Google+
Linked In
Read on your iPad You can open PDF documents such as a PDF attached to an email with iBooks
Adam Marmaras
Manager Technical Director
Welcome to the 7th Edition of the
OilVoice Magazine
Having the magazine in a PDF only
format is a great way to distribute the
editions No printing costs no shipping
costs - just click and read But there
are a number of people who prefer
having a printed magazine in their
hands The beloved late Ray
Bradbury summed it up best ldquoA
computer does not smell if a book is
new it smells great If a book is old it
smells even betterrdquo Im not claiming
that a printed version of the OilVoice
magazine will have an enchanting
bouquet but I think you get the idea
Were currently investigating the
logistics of getting a few copies printed
and shipped If your business thinks it
would like a few printed copies sent to
it It will help us please let us know
with our plans
As always we have advertising
availability in the magazine Get in
touch with Gabby who will be happy to
talk you through our reasonable rates
Adam Marmaras
Manager Technical Director
OilVoice
2 OilVoice Magazine | OCTOBER 2012
Contents
Featured Authors Biographies of this months featured authors 3
Russias Gazprom tightens its stranglehold on Europe France falls The natural gas war gets dirty by Wolf Richter
5
Has OPEC misled us about the size of its oil reserves Does it matter by Kurt Cobb 7
The stakes get higher in the fracking debate by Keith Schaefer 12
What does the Mars Lander tell us about our industry by David Bamford 17
Why the oil industry doesnt want you to remember the last 14 years by Kurt Cobb 21
Recent Company Profiles The most recent companies added to the OilVoice directory 27
The close tie between energy consumption employment and recession by Gail Tverberg
29
Oil energy dependence and energy transition by Andrew Mckillop 43
Regulation of all of the above energy to cost 20x more on public lands by Gary Hunt 50
American shale EampP growth is creating a global energy independence transformation by Gary Hunt
53
3 OilVoice Magazine | OCTOBER 2012
Featured Authors
Andrew MacKillop
OilVoice Contributor
Andrew MacKillop is an energy and natural resource sector professional with over 30 years experience in more than 12 countries
Keith Schaefer
Oil amp Gas Investments Bulletin
Keith Schaefer editor and publisher of the Oil amp Gas Investments Bulletin
David Bamford
Finding Petroleum
David Bamford is non-executive director of Tullow Oil and a past head of exploration West Africa and geophysics with BP
Gail Tverberg
Our Finite World
Gail Tverber has an M S from the University of Illinois Chicago in Mathematics and is a Fellow of the Casualty Actuarial Society and a member of the American Academy of Actuaries
Kurt Cobb
Resource Insights
Kurt Cobb is an author speaker and columnist focusing on energy and the environment
Gary Hunt
TCLabz
Gary Hunt is President TechampCreative Labs a disruptive innovation business collaboration of software data and advanced analytics technology companies working together to integrate their products to meet the changing needs of the energy vertical
4 OilVoice Magazine | OCTOBER 2012
Wolf Richter
Testosterone Pit
Wolf Richter has over twenty years of C-level operations and finance experience including turnaround situations and start-ups He went to school and worked for two decades in Texas and Oklahoma with an interlude in France and then headed east to New York City Brussels Tokyo and finally San Francisco where he currently lives
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5 OilVoice Magazine | OCTOBER 2012
Russias Gazprom tightens its stranglehold on Europe France falls The natural gas war gets dirty
Written by Wolf Richter from Testosterone Pit
Why would France suddenly prohibit shale gas exploration Sure there are environmental issues with horizontal drilling and hydraulic fracturing the methods used to extract gas from porous shale deep underground flammable drinking water earth quakes cows that die radioactive sludge in sewage treatment plants But French governments have had letrsquos say an uneasy relationship with environmentalists Its spy service DGSE for example sank Greenpeacersquos flagship the Rainbow Warrior in the port of Auckland New Zealand killing one person No there must have been another reason why the government of Nicholas Sarkozy prohibited shale gas exploration in 2011 after having already issued permits in 2010 A mini hullabaloo had broken out stirred up by the European Ecologists and The Greens (EELV) the fringe on the French left And Sarkozy caved Without a fight Enthusiastically The government of Franccedilois Hollande just confirmed the prohibition when Environment Minister Delphine Batho declared ldquoHydraulic fracturing remains and will remain prohibitedrdquo The clue Sarkozy suddenly visited Japan on March 31 2011 a couple of weeks after the horrific earthquake and tsunami and the subsequent nuclear accident at Fukushima to declare in front of shell-shocked Japanese that there was ldquono alternativerdquo to nuclear power Hersquod been dispatched by the almighty state-owned nuclear industry to tamp down on the growing anti-nuclear sentiment at home Owned by the government nuclear power plants produce 75 of Francersquos electricity and export some of it No one who wants to be politically viable is allowed to hamper the industry If someone strays off the reservation he or she is dragged back soon While Hollande campaigned on a vague promise to reduce dependency on nuclear power to 50 it was understood
6 OilVoice Magazine | OCTOBER 2012
as one of the bones he had to toss to environmentalists Nothing would come of it
So when Batho who wants to add more renewables to the portfolio toed the party line by saying ldquoNuclear power is an industry with futurerdquo then qualified it with a ldquobutrdquo it caused an outcry even among the Socialists Thatrsquos the power the nuclear industry has over the political machines But now another powerful entity turned up Russiarsquos Gazprom Itrsquos the worldrsquos largest gas producer gas exporter and gas distribution company with nearly 100000 miles of gas trunk lines and branches The Russian government owns 5001 of it At home it has to sell gas under cost one of the Soviet leftovers It relies on high-profit sales from Europe to make up for it But Europe is diversifying away from its single most important supplier Competitors include Russiarsquos number two Novatek and Norwaymdashthe second largest natural gas exporter in the world So in April Gazprom had to lower its European sales guidance for 2012 Its market share in Europe was 27 last year and itrsquos shooting for 30 by 2020 but if the US shale-gas boom ever infects Europe those plans would become a pipedreammdashand if the high-profit sales from Europe tapered off further it would have to raise prices at home a political nightmare Hence its fight by hook or crook against shale gas in France Gazpromrsquos ldquounderhanded tacticsrdquo and ldquoscaremongering about a new technologyrdquo have Moscowrsquos nod of approval and are designed to dissuade governments from developing their own shale-gas reserves according to a report by Platts a global provider of information on energy petrochemicals and metals Efforts include all manner of operations online and through encouraging demonstrations but also paying public relation firms to spread ldquomyths and misconceptionsrdquo said Aviezer Tucker assistant director of the Energy Institute at the University of Texas A ldquoEuropean Union-wide banrdquo on shale-gas production he said would be the ldquoholy grailrdquo With France already knocked off Sergei Komlev of Gazprom Export has been bouncing around the world in his fight against European shale gas At a meeting in Qatar according to Plattsrsquo report he gave a presentation ldquoMultiple Handicaps Will Retard Shale Gas Development Outside USrdquo was the title of one of his slides ldquoFortunately it claimed ldquoEuropean shale gas development faces numerous economic regulatory and political barriers before there are significant amounts of shale gas production not sooner than in ten or more yearsrdquo Breathing room for Gazprom in the natural gas wars In the US natural gas may be the most mispriced commodity these days Its price has been below the cost of production for so long that the industry is suffering billions in losses But demand for natural gas by power producers has been boomingmdashand itrsquos killing coal one powerplant at a time Read Natural Gas Is Pushing Coal Over The Cliff And here is a highly insightful interview of James Hamilton energy economist
7 OilVoice Magazine | OCTOBER 2012
former visiting scholar at the Federal Reserve Board in Washington DC and other Federal Reserve Banks Read The Real Reason Behind Oil Price Rises by James Stafford
View more quality content from Testosterone Pit
Has OPEC misled us about the size of its oil reserves Does it matter
Written by Kurt Cobb from Resource Insights
Has OPEC misled us about the size of its oil reserves The short answer is
probably The long answer is that currently there is no way to know for sure
The next question we should ask is Does it matter The answer is most definitely
yes OPEC short for the Organization of Petroleum Exporting Countries currently
claims that its 12 members hold 813 percent of the worlds oil reserves And with
few exceptions the world believes them Trouble is these reserves are not verified
by independent auditors according to a study (PDF) done by the US Government
Accountability Office the nonpartisan investigative arm of the US Congress OPEC
reserves are simply self-reported by each country Essentially OPECs members are
asking us to take their word for it But should we
8 OilVoice Magazine | OCTOBER 2012
It ought to give us pause that the reserve numbers OPEC countries release are used
in major reports produced by the US Energy Information Administration (EIA) the
Paris-based International Energy Agency (IEA) a consortium of 28 of the worlds oil
importing nations oil giant BP which annually publishes the widely cited BP
Statistical Review of World Energy and myriad other organizations Reports from the
two agencies cited above and BP are frequently consulted by governments industry
banks and investors around the world for policy formulation long-term planning and
lending and investment decisions Yet these groups seem blissfully unaware of the
caveats surrounding the numbers in those reports and by extension surrounding
more than 80 percent of the worlds oil reserves
Keep in mind as we go along that the sometimes astronomical numbers thrown
around for world oil reserves by the uninformed or by those who intend to mislead us
either have no basis in fact or actually refer to resources Resources are only an
estimate of oil thought to be in the ground based on rather sketchy evidence And
most of that oil will never be recoverable Reserves however are what can be
produced at todays prices from known fields using existing technology It turns out
that reserves are only a tiny fraction of so-called resources
Now heres the caveat from the International Energy Agency in its World Energy
Outlook 2010
Definitions of reserves and resources and the methodologies for estimating them
vary considerably around the world leading to confusion and inconsistencies In
addition there is often a lack of transparency in the way reserves are reported many
national oil companies in both OPEC and non-OPEC countries do not use external
auditors of reserves and do not publish detailed results National oil companies
refers to government-owned companies which typically control all oil development
within a country
The BP Statistical Review of World Energy for 2012 provides this explanatory note
under a table listing oil reserves by country
The estimates in this table have been compiled using a combination of primary
official sources third-party data from the OPEC Secretariat World Oil Oil amp Gas
Journal and an independent estimate of Russian and Chinese reserves based on
information in the public domain Canadian oil sands under active development are
an official estimate Venezuelan Orinoco Belt reserves are based on the OPEC
9 OilVoice Magazine | OCTOBER 2012
Secretariat and government announcements The key words are OPEC Secretariat
which refers to the OPEC staff located in an office in Vienna That office is where BP
presumably gets its information about OPEC reserves The EIA lists the OPEC
Annual Statistical Bulletin put out by--you guessed it--the OPEC Secretariat Alas
the Annual Statistical Bulletin tells us under the heading Questions on data that
[a]lthough comments are welcome OPEC regrets that it is unable to answer all
enquiries concerning the data in the ASB In other words trust us So information
about OPEC reserves comes either from the OPEC offices in Vienna or from
member countries Some analysts may adjust those figures based on the few shreds
of evidence that are available outside of official government pronouncements But in
reality there are almost no hard facts when it comes to OPEC reserves
Strangely many of these countries say that a detailed audit of their fields by
independent observers is out of the question because oil reserves are a state secret
And yet those countries report their reserves to OPEC which publishes them for all
to see So are oil reserves in many OPEC countries a state secret or not
Apparently whats secret is the field-by-field data that would tell us whether the
reserves claimed by these countries are actually there Are there reasons to believe
that if we saw this data it would contradict the official overall number provided by
some countries In a word yes
First OPEC allocates production levels among its members It does this to control
the flow of oil to world markets and thus to manipulate the price OPEC bases
production quotas for its members in part on the size of each members reserves
When this policy was first established in the 1980s reported reserves for several
OPEC members jumped between roughly 40 and 200 percent within one year--not
always the same year--as each country jockeyed for a higher production quota
Based on EIA data heres what it looked like
Country Reserves in Barrels
(Year)
Reserves in Barrels
(Year)
Percentage
Increase
Iran 488 billion (1987) 929 billion (1988) 904
Iraq 471 billion (1987) 100 billion (1988) 1123
Kuwait 667 billion (1984) 927 billion (1985) 390
Saudi Arabia 1726 billion (1989) 2576 billion (1990) 493
United Arab
Emirates 331 billion (1987) 981 billion (1988) 1964
Venezuela 250 billion (1987) 563 billion (1988) 1252
10 OilVoice Magazine | OCTOBER 2012
Not every country participated in the free-for-all But the countries with the largest
exports participated with a vengeance There was no drilling program in any of these
countries that could have explained such jumps in reserves
The competition continues to this day In October 2010 Iraq announced an increase
in its oil reserves from 115 billion barrels to 1431 billion barrels No attempt was
made to hide the reason for the increase Falah al-Amri the head of the countryrsquos
State Oil Marketing Company suggested that future quota calculations might have
been a factor in the revision A week later Iran raised its reserves number from
1366 billion barrels to 1503 billion barrels presumably in order to maintain its
position within the OPEC production quota system These numbers have been
dutifully included in the latest statistical compilations of both EIA and BP as if the
two hadnt gotten the memo that Iraqs and Irans increases were reported merely for
quota reasons and not because of any particular discoveries
Perhaps even more astounding is that some OPEC members dont even take the oil
reserves reporting game seriously any more Logic dictates that there should be at
least small adjustments up or down in reserves each year as new fields are
developed and old ones decline The world of geology simply cannot yield precisely
the new reserves needed to replace exactly the amount of oil extracted from existing
fields each year
And yet the United Arab Emirates has been reporting 978 billion barrels of oil
reserves every year since 1997 Kuwait has been reporting 104 billion barrels each
year since 2008 Iraqshows long periods from 1980 onward when reserves dont
change the latest running from 2004 to 2011 during which reserves supposedly held
absolutely steady at 115 billion barrelsAlgeria has reported 122 billion barrels from
2008 onward At least Saudi Arabia has demonstrated a certain sensitivity to
appearances and has adjusted its reserves number slightly from year to year And
yet that number has remained within a narrow range of 260 to 267 billion barrels
from 1991 to the present All of these numbers suggest that depletion from existing
fields is taking absolutely no toll on OPECs reserves Even if thats true we have no
way of verifying it
The second reason to doubt OPECs official oil reserve numbers is that two insiders
have told us not to trust those numbers The now deceased A M Samsam Bakhtiari
an executive for the National Iranian Oil Company told the Oil amp Gas Journal all the
way back in 2003 the following I know from experience how reserves are
11 OilVoice Magazine | OCTOBER 2012
estimated in major Middle Eastern (and OPEC) countriesAnd the methods used
are usually far from scientific as the basic knowledge for such a complex exercise is
not at hand He estimated that Iranian reserves were about 37 billion barrels not the
90 billion that were being cited at the time
Back in 2007 Sadad al-Husseini former executive vice president for exploration and
production at Saudi Aramco the state oil company that controls all oil development
in Saudi Arabia told a conference in London that world oil reserves had been
inflated by 300 billion barrels That number almost matches the increases in OPEC
members reserves for quota reasons in the 1980s and it represented about a
quarter of all reported reserves in 2007 As a result to this day al-Husseini remains
skeptical of claims that world oil production will rise much from here
Another piece of evidence that casts doubt on OPEC members reserve claims came
to light in 2005 That year Petroleum Intelligence Weekly an industry newsletter with
worldwide reach obtained internal documents from the state-owned Kuwait Oil Co
The documents revealed that Kuwaiti reserves were only half the official number 48
billion barrels versus 99 billion Since then policymakers and the public seemed to
have ignored the entire incident The BP Statistical Review lists Kuwaits reserves as
1015 billion barrels as of 2011 The EIA shows them as 104 billion Skepticism
apparently is taking an extended holiday at BP and EIA
Measuring oil reserves remains something of an art Even large publicly traded oil
companies with armies of petroleum geologists and engineers who operate under
strict US Securities and Exchange Commission rules for estimating reserves--even
these companies dont always get it right In 2004 Royal Dutch Shell had to lower its
reserves number by 20 percent a huge and costly blunder for such a sophisticated
company If Shell can bungle its reserves estimate then how much more likely are
OPEC countries which are subject to virtually no public scrutiny to bungle or perhaps
manipulate theirs
I said in a previous piece that the rate of production is the key metric when
evaluating the success of the worlds oil production and delivery system But
sustained production of oil depends on the size and quality of reserves If the world
does indeed have 300 billion fewer barrels of reserves than it thinks it does that has
implications for how long the current rate of production can be maintained (It has
been stuck between 71 and 76 million barrels per day since 2005) And that is why
the mystery surrounding OPECs reserves which supposedly constitute 80 percent
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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Visit Titan Technologies OilVoice profile
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29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
1 OilVoice Magazine | OCTOBER 2012
Issue 7 ndash October 2012
OilVoice Acorn House 381 Midsummer Blvd Milton Keynes MK9 3HP Tel +44 208 123 2237 Email pressoilvoicecom Skype oilvoicetalk Editor James Allen Email jamesoilvoicecom Sales Gabby Kotosoba Email gabbyoilvoicecom Manager Technical Director Adam Marmaras Email adamoilvoicecom Social Network
Google+
Linked In
Read on your iPad You can open PDF documents such as a PDF attached to an email with iBooks
Adam Marmaras
Manager Technical Director
Welcome to the 7th Edition of the
OilVoice Magazine
Having the magazine in a PDF only
format is a great way to distribute the
editions No printing costs no shipping
costs - just click and read But there
are a number of people who prefer
having a printed magazine in their
hands The beloved late Ray
Bradbury summed it up best ldquoA
computer does not smell if a book is
new it smells great If a book is old it
smells even betterrdquo Im not claiming
that a printed version of the OilVoice
magazine will have an enchanting
bouquet but I think you get the idea
Were currently investigating the
logistics of getting a few copies printed
and shipped If your business thinks it
would like a few printed copies sent to
it It will help us please let us know
with our plans
As always we have advertising
availability in the magazine Get in
touch with Gabby who will be happy to
talk you through our reasonable rates
Adam Marmaras
Manager Technical Director
OilVoice
2 OilVoice Magazine | OCTOBER 2012
Contents
Featured Authors Biographies of this months featured authors 3
Russias Gazprom tightens its stranglehold on Europe France falls The natural gas war gets dirty by Wolf Richter
5
Has OPEC misled us about the size of its oil reserves Does it matter by Kurt Cobb 7
The stakes get higher in the fracking debate by Keith Schaefer 12
What does the Mars Lander tell us about our industry by David Bamford 17
Why the oil industry doesnt want you to remember the last 14 years by Kurt Cobb 21
Recent Company Profiles The most recent companies added to the OilVoice directory 27
The close tie between energy consumption employment and recession by Gail Tverberg
29
Oil energy dependence and energy transition by Andrew Mckillop 43
Regulation of all of the above energy to cost 20x more on public lands by Gary Hunt 50
American shale EampP growth is creating a global energy independence transformation by Gary Hunt
53
3 OilVoice Magazine | OCTOBER 2012
Featured Authors
Andrew MacKillop
OilVoice Contributor
Andrew MacKillop is an energy and natural resource sector professional with over 30 years experience in more than 12 countries
Keith Schaefer
Oil amp Gas Investments Bulletin
Keith Schaefer editor and publisher of the Oil amp Gas Investments Bulletin
David Bamford
Finding Petroleum
David Bamford is non-executive director of Tullow Oil and a past head of exploration West Africa and geophysics with BP
Gail Tverberg
Our Finite World
Gail Tverber has an M S from the University of Illinois Chicago in Mathematics and is a Fellow of the Casualty Actuarial Society and a member of the American Academy of Actuaries
Kurt Cobb
Resource Insights
Kurt Cobb is an author speaker and columnist focusing on energy and the environment
Gary Hunt
TCLabz
Gary Hunt is President TechampCreative Labs a disruptive innovation business collaboration of software data and advanced analytics technology companies working together to integrate their products to meet the changing needs of the energy vertical
4 OilVoice Magazine | OCTOBER 2012
Wolf Richter
Testosterone Pit
Wolf Richter has over twenty years of C-level operations and finance experience including turnaround situations and start-ups He went to school and worked for two decades in Texas and Oklahoma with an interlude in France and then headed east to New York City Brussels Tokyo and finally San Francisco where he currently lives
Jobs
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Take advantage of our free to use Noticeboard Post your events training courses and company press releases today
Free Membership
Over the past ten years weve grown to 29653 members (lets call it 30000) If youre not a member then you should start now it only takes a second Then youll be free to post job adverts events and press releases
5 OilVoice Magazine | OCTOBER 2012
Russias Gazprom tightens its stranglehold on Europe France falls The natural gas war gets dirty
Written by Wolf Richter from Testosterone Pit
Why would France suddenly prohibit shale gas exploration Sure there are environmental issues with horizontal drilling and hydraulic fracturing the methods used to extract gas from porous shale deep underground flammable drinking water earth quakes cows that die radioactive sludge in sewage treatment plants But French governments have had letrsquos say an uneasy relationship with environmentalists Its spy service DGSE for example sank Greenpeacersquos flagship the Rainbow Warrior in the port of Auckland New Zealand killing one person No there must have been another reason why the government of Nicholas Sarkozy prohibited shale gas exploration in 2011 after having already issued permits in 2010 A mini hullabaloo had broken out stirred up by the European Ecologists and The Greens (EELV) the fringe on the French left And Sarkozy caved Without a fight Enthusiastically The government of Franccedilois Hollande just confirmed the prohibition when Environment Minister Delphine Batho declared ldquoHydraulic fracturing remains and will remain prohibitedrdquo The clue Sarkozy suddenly visited Japan on March 31 2011 a couple of weeks after the horrific earthquake and tsunami and the subsequent nuclear accident at Fukushima to declare in front of shell-shocked Japanese that there was ldquono alternativerdquo to nuclear power Hersquod been dispatched by the almighty state-owned nuclear industry to tamp down on the growing anti-nuclear sentiment at home Owned by the government nuclear power plants produce 75 of Francersquos electricity and export some of it No one who wants to be politically viable is allowed to hamper the industry If someone strays off the reservation he or she is dragged back soon While Hollande campaigned on a vague promise to reduce dependency on nuclear power to 50 it was understood
6 OilVoice Magazine | OCTOBER 2012
as one of the bones he had to toss to environmentalists Nothing would come of it
So when Batho who wants to add more renewables to the portfolio toed the party line by saying ldquoNuclear power is an industry with futurerdquo then qualified it with a ldquobutrdquo it caused an outcry even among the Socialists Thatrsquos the power the nuclear industry has over the political machines But now another powerful entity turned up Russiarsquos Gazprom Itrsquos the worldrsquos largest gas producer gas exporter and gas distribution company with nearly 100000 miles of gas trunk lines and branches The Russian government owns 5001 of it At home it has to sell gas under cost one of the Soviet leftovers It relies on high-profit sales from Europe to make up for it But Europe is diversifying away from its single most important supplier Competitors include Russiarsquos number two Novatek and Norwaymdashthe second largest natural gas exporter in the world So in April Gazprom had to lower its European sales guidance for 2012 Its market share in Europe was 27 last year and itrsquos shooting for 30 by 2020 but if the US shale-gas boom ever infects Europe those plans would become a pipedreammdashand if the high-profit sales from Europe tapered off further it would have to raise prices at home a political nightmare Hence its fight by hook or crook against shale gas in France Gazpromrsquos ldquounderhanded tacticsrdquo and ldquoscaremongering about a new technologyrdquo have Moscowrsquos nod of approval and are designed to dissuade governments from developing their own shale-gas reserves according to a report by Platts a global provider of information on energy petrochemicals and metals Efforts include all manner of operations online and through encouraging demonstrations but also paying public relation firms to spread ldquomyths and misconceptionsrdquo said Aviezer Tucker assistant director of the Energy Institute at the University of Texas A ldquoEuropean Union-wide banrdquo on shale-gas production he said would be the ldquoholy grailrdquo With France already knocked off Sergei Komlev of Gazprom Export has been bouncing around the world in his fight against European shale gas At a meeting in Qatar according to Plattsrsquo report he gave a presentation ldquoMultiple Handicaps Will Retard Shale Gas Development Outside USrdquo was the title of one of his slides ldquoFortunately it claimed ldquoEuropean shale gas development faces numerous economic regulatory and political barriers before there are significant amounts of shale gas production not sooner than in ten or more yearsrdquo Breathing room for Gazprom in the natural gas wars In the US natural gas may be the most mispriced commodity these days Its price has been below the cost of production for so long that the industry is suffering billions in losses But demand for natural gas by power producers has been boomingmdashand itrsquos killing coal one powerplant at a time Read Natural Gas Is Pushing Coal Over The Cliff And here is a highly insightful interview of James Hamilton energy economist
7 OilVoice Magazine | OCTOBER 2012
former visiting scholar at the Federal Reserve Board in Washington DC and other Federal Reserve Banks Read The Real Reason Behind Oil Price Rises by James Stafford
View more quality content from Testosterone Pit
Has OPEC misled us about the size of its oil reserves Does it matter
Written by Kurt Cobb from Resource Insights
Has OPEC misled us about the size of its oil reserves The short answer is
probably The long answer is that currently there is no way to know for sure
The next question we should ask is Does it matter The answer is most definitely
yes OPEC short for the Organization of Petroleum Exporting Countries currently
claims that its 12 members hold 813 percent of the worlds oil reserves And with
few exceptions the world believes them Trouble is these reserves are not verified
by independent auditors according to a study (PDF) done by the US Government
Accountability Office the nonpartisan investigative arm of the US Congress OPEC
reserves are simply self-reported by each country Essentially OPECs members are
asking us to take their word for it But should we
8 OilVoice Magazine | OCTOBER 2012
It ought to give us pause that the reserve numbers OPEC countries release are used
in major reports produced by the US Energy Information Administration (EIA) the
Paris-based International Energy Agency (IEA) a consortium of 28 of the worlds oil
importing nations oil giant BP which annually publishes the widely cited BP
Statistical Review of World Energy and myriad other organizations Reports from the
two agencies cited above and BP are frequently consulted by governments industry
banks and investors around the world for policy formulation long-term planning and
lending and investment decisions Yet these groups seem blissfully unaware of the
caveats surrounding the numbers in those reports and by extension surrounding
more than 80 percent of the worlds oil reserves
Keep in mind as we go along that the sometimes astronomical numbers thrown
around for world oil reserves by the uninformed or by those who intend to mislead us
either have no basis in fact or actually refer to resources Resources are only an
estimate of oil thought to be in the ground based on rather sketchy evidence And
most of that oil will never be recoverable Reserves however are what can be
produced at todays prices from known fields using existing technology It turns out
that reserves are only a tiny fraction of so-called resources
Now heres the caveat from the International Energy Agency in its World Energy
Outlook 2010
Definitions of reserves and resources and the methodologies for estimating them
vary considerably around the world leading to confusion and inconsistencies In
addition there is often a lack of transparency in the way reserves are reported many
national oil companies in both OPEC and non-OPEC countries do not use external
auditors of reserves and do not publish detailed results National oil companies
refers to government-owned companies which typically control all oil development
within a country
The BP Statistical Review of World Energy for 2012 provides this explanatory note
under a table listing oil reserves by country
The estimates in this table have been compiled using a combination of primary
official sources third-party data from the OPEC Secretariat World Oil Oil amp Gas
Journal and an independent estimate of Russian and Chinese reserves based on
information in the public domain Canadian oil sands under active development are
an official estimate Venezuelan Orinoco Belt reserves are based on the OPEC
9 OilVoice Magazine | OCTOBER 2012
Secretariat and government announcements The key words are OPEC Secretariat
which refers to the OPEC staff located in an office in Vienna That office is where BP
presumably gets its information about OPEC reserves The EIA lists the OPEC
Annual Statistical Bulletin put out by--you guessed it--the OPEC Secretariat Alas
the Annual Statistical Bulletin tells us under the heading Questions on data that
[a]lthough comments are welcome OPEC regrets that it is unable to answer all
enquiries concerning the data in the ASB In other words trust us So information
about OPEC reserves comes either from the OPEC offices in Vienna or from
member countries Some analysts may adjust those figures based on the few shreds
of evidence that are available outside of official government pronouncements But in
reality there are almost no hard facts when it comes to OPEC reserves
Strangely many of these countries say that a detailed audit of their fields by
independent observers is out of the question because oil reserves are a state secret
And yet those countries report their reserves to OPEC which publishes them for all
to see So are oil reserves in many OPEC countries a state secret or not
Apparently whats secret is the field-by-field data that would tell us whether the
reserves claimed by these countries are actually there Are there reasons to believe
that if we saw this data it would contradict the official overall number provided by
some countries In a word yes
First OPEC allocates production levels among its members It does this to control
the flow of oil to world markets and thus to manipulate the price OPEC bases
production quotas for its members in part on the size of each members reserves
When this policy was first established in the 1980s reported reserves for several
OPEC members jumped between roughly 40 and 200 percent within one year--not
always the same year--as each country jockeyed for a higher production quota
Based on EIA data heres what it looked like
Country Reserves in Barrels
(Year)
Reserves in Barrels
(Year)
Percentage
Increase
Iran 488 billion (1987) 929 billion (1988) 904
Iraq 471 billion (1987) 100 billion (1988) 1123
Kuwait 667 billion (1984) 927 billion (1985) 390
Saudi Arabia 1726 billion (1989) 2576 billion (1990) 493
United Arab
Emirates 331 billion (1987) 981 billion (1988) 1964
Venezuela 250 billion (1987) 563 billion (1988) 1252
10 OilVoice Magazine | OCTOBER 2012
Not every country participated in the free-for-all But the countries with the largest
exports participated with a vengeance There was no drilling program in any of these
countries that could have explained such jumps in reserves
The competition continues to this day In October 2010 Iraq announced an increase
in its oil reserves from 115 billion barrels to 1431 billion barrels No attempt was
made to hide the reason for the increase Falah al-Amri the head of the countryrsquos
State Oil Marketing Company suggested that future quota calculations might have
been a factor in the revision A week later Iran raised its reserves number from
1366 billion barrels to 1503 billion barrels presumably in order to maintain its
position within the OPEC production quota system These numbers have been
dutifully included in the latest statistical compilations of both EIA and BP as if the
two hadnt gotten the memo that Iraqs and Irans increases were reported merely for
quota reasons and not because of any particular discoveries
Perhaps even more astounding is that some OPEC members dont even take the oil
reserves reporting game seriously any more Logic dictates that there should be at
least small adjustments up or down in reserves each year as new fields are
developed and old ones decline The world of geology simply cannot yield precisely
the new reserves needed to replace exactly the amount of oil extracted from existing
fields each year
And yet the United Arab Emirates has been reporting 978 billion barrels of oil
reserves every year since 1997 Kuwait has been reporting 104 billion barrels each
year since 2008 Iraqshows long periods from 1980 onward when reserves dont
change the latest running from 2004 to 2011 during which reserves supposedly held
absolutely steady at 115 billion barrelsAlgeria has reported 122 billion barrels from
2008 onward At least Saudi Arabia has demonstrated a certain sensitivity to
appearances and has adjusted its reserves number slightly from year to year And
yet that number has remained within a narrow range of 260 to 267 billion barrels
from 1991 to the present All of these numbers suggest that depletion from existing
fields is taking absolutely no toll on OPECs reserves Even if thats true we have no
way of verifying it
The second reason to doubt OPECs official oil reserve numbers is that two insiders
have told us not to trust those numbers The now deceased A M Samsam Bakhtiari
an executive for the National Iranian Oil Company told the Oil amp Gas Journal all the
way back in 2003 the following I know from experience how reserves are
11 OilVoice Magazine | OCTOBER 2012
estimated in major Middle Eastern (and OPEC) countriesAnd the methods used
are usually far from scientific as the basic knowledge for such a complex exercise is
not at hand He estimated that Iranian reserves were about 37 billion barrels not the
90 billion that were being cited at the time
Back in 2007 Sadad al-Husseini former executive vice president for exploration and
production at Saudi Aramco the state oil company that controls all oil development
in Saudi Arabia told a conference in London that world oil reserves had been
inflated by 300 billion barrels That number almost matches the increases in OPEC
members reserves for quota reasons in the 1980s and it represented about a
quarter of all reported reserves in 2007 As a result to this day al-Husseini remains
skeptical of claims that world oil production will rise much from here
Another piece of evidence that casts doubt on OPEC members reserve claims came
to light in 2005 That year Petroleum Intelligence Weekly an industry newsletter with
worldwide reach obtained internal documents from the state-owned Kuwait Oil Co
The documents revealed that Kuwaiti reserves were only half the official number 48
billion barrels versus 99 billion Since then policymakers and the public seemed to
have ignored the entire incident The BP Statistical Review lists Kuwaits reserves as
1015 billion barrels as of 2011 The EIA shows them as 104 billion Skepticism
apparently is taking an extended holiday at BP and EIA
Measuring oil reserves remains something of an art Even large publicly traded oil
companies with armies of petroleum geologists and engineers who operate under
strict US Securities and Exchange Commission rules for estimating reserves--even
these companies dont always get it right In 2004 Royal Dutch Shell had to lower its
reserves number by 20 percent a huge and costly blunder for such a sophisticated
company If Shell can bungle its reserves estimate then how much more likely are
OPEC countries which are subject to virtually no public scrutiny to bungle or perhaps
manipulate theirs
I said in a previous piece that the rate of production is the key metric when
evaluating the success of the worlds oil production and delivery system But
sustained production of oil depends on the size and quality of reserves If the world
does indeed have 300 billion fewer barrels of reserves than it thinks it does that has
implications for how long the current rate of production can be maintained (It has
been stuck between 71 and 76 million barrels per day since 2005) And that is why
the mystery surrounding OPECs reserves which supposedly constitute 80 percent
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
2 OilVoice Magazine | OCTOBER 2012
Contents
Featured Authors Biographies of this months featured authors 3
Russias Gazprom tightens its stranglehold on Europe France falls The natural gas war gets dirty by Wolf Richter
5
Has OPEC misled us about the size of its oil reserves Does it matter by Kurt Cobb 7
The stakes get higher in the fracking debate by Keith Schaefer 12
What does the Mars Lander tell us about our industry by David Bamford 17
Why the oil industry doesnt want you to remember the last 14 years by Kurt Cobb 21
Recent Company Profiles The most recent companies added to the OilVoice directory 27
The close tie between energy consumption employment and recession by Gail Tverberg
29
Oil energy dependence and energy transition by Andrew Mckillop 43
Regulation of all of the above energy to cost 20x more on public lands by Gary Hunt 50
American shale EampP growth is creating a global energy independence transformation by Gary Hunt
53
3 OilVoice Magazine | OCTOBER 2012
Featured Authors
Andrew MacKillop
OilVoice Contributor
Andrew MacKillop is an energy and natural resource sector professional with over 30 years experience in more than 12 countries
Keith Schaefer
Oil amp Gas Investments Bulletin
Keith Schaefer editor and publisher of the Oil amp Gas Investments Bulletin
David Bamford
Finding Petroleum
David Bamford is non-executive director of Tullow Oil and a past head of exploration West Africa and geophysics with BP
Gail Tverberg
Our Finite World
Gail Tverber has an M S from the University of Illinois Chicago in Mathematics and is a Fellow of the Casualty Actuarial Society and a member of the American Academy of Actuaries
Kurt Cobb
Resource Insights
Kurt Cobb is an author speaker and columnist focusing on energy and the environment
Gary Hunt
TCLabz
Gary Hunt is President TechampCreative Labs a disruptive innovation business collaboration of software data and advanced analytics technology companies working together to integrate their products to meet the changing needs of the energy vertical
4 OilVoice Magazine | OCTOBER 2012
Wolf Richter
Testosterone Pit
Wolf Richter has over twenty years of C-level operations and finance experience including turnaround situations and start-ups He went to school and worked for two decades in Texas and Oklahoma with an interlude in France and then headed east to New York City Brussels Tokyo and finally San Francisco where he currently lives
Jobs
The OilVoice Jobs board is fast becoming the place candidates look for their next move in the industry Featuring adverts from top draw recruiters CV upload capability and an easy application process New jobs are appearing every day so be sure to bookmark it
Advertise
OilVoice traffic numbers continue to climb and climb If youd like to reach a global audience of oil and gas professionals then its easy to run an advert with us We have solutions for every budget so get in touch with us to discuss how we can help promote your business now
Noticeboard
Take advantage of our free to use Noticeboard Post your events training courses and company press releases today
Free Membership
Over the past ten years weve grown to 29653 members (lets call it 30000) If youre not a member then you should start now it only takes a second Then youll be free to post job adverts events and press releases
5 OilVoice Magazine | OCTOBER 2012
Russias Gazprom tightens its stranglehold on Europe France falls The natural gas war gets dirty
Written by Wolf Richter from Testosterone Pit
Why would France suddenly prohibit shale gas exploration Sure there are environmental issues with horizontal drilling and hydraulic fracturing the methods used to extract gas from porous shale deep underground flammable drinking water earth quakes cows that die radioactive sludge in sewage treatment plants But French governments have had letrsquos say an uneasy relationship with environmentalists Its spy service DGSE for example sank Greenpeacersquos flagship the Rainbow Warrior in the port of Auckland New Zealand killing one person No there must have been another reason why the government of Nicholas Sarkozy prohibited shale gas exploration in 2011 after having already issued permits in 2010 A mini hullabaloo had broken out stirred up by the European Ecologists and The Greens (EELV) the fringe on the French left And Sarkozy caved Without a fight Enthusiastically The government of Franccedilois Hollande just confirmed the prohibition when Environment Minister Delphine Batho declared ldquoHydraulic fracturing remains and will remain prohibitedrdquo The clue Sarkozy suddenly visited Japan on March 31 2011 a couple of weeks after the horrific earthquake and tsunami and the subsequent nuclear accident at Fukushima to declare in front of shell-shocked Japanese that there was ldquono alternativerdquo to nuclear power Hersquod been dispatched by the almighty state-owned nuclear industry to tamp down on the growing anti-nuclear sentiment at home Owned by the government nuclear power plants produce 75 of Francersquos electricity and export some of it No one who wants to be politically viable is allowed to hamper the industry If someone strays off the reservation he or she is dragged back soon While Hollande campaigned on a vague promise to reduce dependency on nuclear power to 50 it was understood
6 OilVoice Magazine | OCTOBER 2012
as one of the bones he had to toss to environmentalists Nothing would come of it
So when Batho who wants to add more renewables to the portfolio toed the party line by saying ldquoNuclear power is an industry with futurerdquo then qualified it with a ldquobutrdquo it caused an outcry even among the Socialists Thatrsquos the power the nuclear industry has over the political machines But now another powerful entity turned up Russiarsquos Gazprom Itrsquos the worldrsquos largest gas producer gas exporter and gas distribution company with nearly 100000 miles of gas trunk lines and branches The Russian government owns 5001 of it At home it has to sell gas under cost one of the Soviet leftovers It relies on high-profit sales from Europe to make up for it But Europe is diversifying away from its single most important supplier Competitors include Russiarsquos number two Novatek and Norwaymdashthe second largest natural gas exporter in the world So in April Gazprom had to lower its European sales guidance for 2012 Its market share in Europe was 27 last year and itrsquos shooting for 30 by 2020 but if the US shale-gas boom ever infects Europe those plans would become a pipedreammdashand if the high-profit sales from Europe tapered off further it would have to raise prices at home a political nightmare Hence its fight by hook or crook against shale gas in France Gazpromrsquos ldquounderhanded tacticsrdquo and ldquoscaremongering about a new technologyrdquo have Moscowrsquos nod of approval and are designed to dissuade governments from developing their own shale-gas reserves according to a report by Platts a global provider of information on energy petrochemicals and metals Efforts include all manner of operations online and through encouraging demonstrations but also paying public relation firms to spread ldquomyths and misconceptionsrdquo said Aviezer Tucker assistant director of the Energy Institute at the University of Texas A ldquoEuropean Union-wide banrdquo on shale-gas production he said would be the ldquoholy grailrdquo With France already knocked off Sergei Komlev of Gazprom Export has been bouncing around the world in his fight against European shale gas At a meeting in Qatar according to Plattsrsquo report he gave a presentation ldquoMultiple Handicaps Will Retard Shale Gas Development Outside USrdquo was the title of one of his slides ldquoFortunately it claimed ldquoEuropean shale gas development faces numerous economic regulatory and political barriers before there are significant amounts of shale gas production not sooner than in ten or more yearsrdquo Breathing room for Gazprom in the natural gas wars In the US natural gas may be the most mispriced commodity these days Its price has been below the cost of production for so long that the industry is suffering billions in losses But demand for natural gas by power producers has been boomingmdashand itrsquos killing coal one powerplant at a time Read Natural Gas Is Pushing Coal Over The Cliff And here is a highly insightful interview of James Hamilton energy economist
7 OilVoice Magazine | OCTOBER 2012
former visiting scholar at the Federal Reserve Board in Washington DC and other Federal Reserve Banks Read The Real Reason Behind Oil Price Rises by James Stafford
View more quality content from Testosterone Pit
Has OPEC misled us about the size of its oil reserves Does it matter
Written by Kurt Cobb from Resource Insights
Has OPEC misled us about the size of its oil reserves The short answer is
probably The long answer is that currently there is no way to know for sure
The next question we should ask is Does it matter The answer is most definitely
yes OPEC short for the Organization of Petroleum Exporting Countries currently
claims that its 12 members hold 813 percent of the worlds oil reserves And with
few exceptions the world believes them Trouble is these reserves are not verified
by independent auditors according to a study (PDF) done by the US Government
Accountability Office the nonpartisan investigative arm of the US Congress OPEC
reserves are simply self-reported by each country Essentially OPECs members are
asking us to take their word for it But should we
8 OilVoice Magazine | OCTOBER 2012
It ought to give us pause that the reserve numbers OPEC countries release are used
in major reports produced by the US Energy Information Administration (EIA) the
Paris-based International Energy Agency (IEA) a consortium of 28 of the worlds oil
importing nations oil giant BP which annually publishes the widely cited BP
Statistical Review of World Energy and myriad other organizations Reports from the
two agencies cited above and BP are frequently consulted by governments industry
banks and investors around the world for policy formulation long-term planning and
lending and investment decisions Yet these groups seem blissfully unaware of the
caveats surrounding the numbers in those reports and by extension surrounding
more than 80 percent of the worlds oil reserves
Keep in mind as we go along that the sometimes astronomical numbers thrown
around for world oil reserves by the uninformed or by those who intend to mislead us
either have no basis in fact or actually refer to resources Resources are only an
estimate of oil thought to be in the ground based on rather sketchy evidence And
most of that oil will never be recoverable Reserves however are what can be
produced at todays prices from known fields using existing technology It turns out
that reserves are only a tiny fraction of so-called resources
Now heres the caveat from the International Energy Agency in its World Energy
Outlook 2010
Definitions of reserves and resources and the methodologies for estimating them
vary considerably around the world leading to confusion and inconsistencies In
addition there is often a lack of transparency in the way reserves are reported many
national oil companies in both OPEC and non-OPEC countries do not use external
auditors of reserves and do not publish detailed results National oil companies
refers to government-owned companies which typically control all oil development
within a country
The BP Statistical Review of World Energy for 2012 provides this explanatory note
under a table listing oil reserves by country
The estimates in this table have been compiled using a combination of primary
official sources third-party data from the OPEC Secretariat World Oil Oil amp Gas
Journal and an independent estimate of Russian and Chinese reserves based on
information in the public domain Canadian oil sands under active development are
an official estimate Venezuelan Orinoco Belt reserves are based on the OPEC
9 OilVoice Magazine | OCTOBER 2012
Secretariat and government announcements The key words are OPEC Secretariat
which refers to the OPEC staff located in an office in Vienna That office is where BP
presumably gets its information about OPEC reserves The EIA lists the OPEC
Annual Statistical Bulletin put out by--you guessed it--the OPEC Secretariat Alas
the Annual Statistical Bulletin tells us under the heading Questions on data that
[a]lthough comments are welcome OPEC regrets that it is unable to answer all
enquiries concerning the data in the ASB In other words trust us So information
about OPEC reserves comes either from the OPEC offices in Vienna or from
member countries Some analysts may adjust those figures based on the few shreds
of evidence that are available outside of official government pronouncements But in
reality there are almost no hard facts when it comes to OPEC reserves
Strangely many of these countries say that a detailed audit of their fields by
independent observers is out of the question because oil reserves are a state secret
And yet those countries report their reserves to OPEC which publishes them for all
to see So are oil reserves in many OPEC countries a state secret or not
Apparently whats secret is the field-by-field data that would tell us whether the
reserves claimed by these countries are actually there Are there reasons to believe
that if we saw this data it would contradict the official overall number provided by
some countries In a word yes
First OPEC allocates production levels among its members It does this to control
the flow of oil to world markets and thus to manipulate the price OPEC bases
production quotas for its members in part on the size of each members reserves
When this policy was first established in the 1980s reported reserves for several
OPEC members jumped between roughly 40 and 200 percent within one year--not
always the same year--as each country jockeyed for a higher production quota
Based on EIA data heres what it looked like
Country Reserves in Barrels
(Year)
Reserves in Barrels
(Year)
Percentage
Increase
Iran 488 billion (1987) 929 billion (1988) 904
Iraq 471 billion (1987) 100 billion (1988) 1123
Kuwait 667 billion (1984) 927 billion (1985) 390
Saudi Arabia 1726 billion (1989) 2576 billion (1990) 493
United Arab
Emirates 331 billion (1987) 981 billion (1988) 1964
Venezuela 250 billion (1987) 563 billion (1988) 1252
10 OilVoice Magazine | OCTOBER 2012
Not every country participated in the free-for-all But the countries with the largest
exports participated with a vengeance There was no drilling program in any of these
countries that could have explained such jumps in reserves
The competition continues to this day In October 2010 Iraq announced an increase
in its oil reserves from 115 billion barrels to 1431 billion barrels No attempt was
made to hide the reason for the increase Falah al-Amri the head of the countryrsquos
State Oil Marketing Company suggested that future quota calculations might have
been a factor in the revision A week later Iran raised its reserves number from
1366 billion barrels to 1503 billion barrels presumably in order to maintain its
position within the OPEC production quota system These numbers have been
dutifully included in the latest statistical compilations of both EIA and BP as if the
two hadnt gotten the memo that Iraqs and Irans increases were reported merely for
quota reasons and not because of any particular discoveries
Perhaps even more astounding is that some OPEC members dont even take the oil
reserves reporting game seriously any more Logic dictates that there should be at
least small adjustments up or down in reserves each year as new fields are
developed and old ones decline The world of geology simply cannot yield precisely
the new reserves needed to replace exactly the amount of oil extracted from existing
fields each year
And yet the United Arab Emirates has been reporting 978 billion barrels of oil
reserves every year since 1997 Kuwait has been reporting 104 billion barrels each
year since 2008 Iraqshows long periods from 1980 onward when reserves dont
change the latest running from 2004 to 2011 during which reserves supposedly held
absolutely steady at 115 billion barrelsAlgeria has reported 122 billion barrels from
2008 onward At least Saudi Arabia has demonstrated a certain sensitivity to
appearances and has adjusted its reserves number slightly from year to year And
yet that number has remained within a narrow range of 260 to 267 billion barrels
from 1991 to the present All of these numbers suggest that depletion from existing
fields is taking absolutely no toll on OPECs reserves Even if thats true we have no
way of verifying it
The second reason to doubt OPECs official oil reserve numbers is that two insiders
have told us not to trust those numbers The now deceased A M Samsam Bakhtiari
an executive for the National Iranian Oil Company told the Oil amp Gas Journal all the
way back in 2003 the following I know from experience how reserves are
11 OilVoice Magazine | OCTOBER 2012
estimated in major Middle Eastern (and OPEC) countriesAnd the methods used
are usually far from scientific as the basic knowledge for such a complex exercise is
not at hand He estimated that Iranian reserves were about 37 billion barrels not the
90 billion that were being cited at the time
Back in 2007 Sadad al-Husseini former executive vice president for exploration and
production at Saudi Aramco the state oil company that controls all oil development
in Saudi Arabia told a conference in London that world oil reserves had been
inflated by 300 billion barrels That number almost matches the increases in OPEC
members reserves for quota reasons in the 1980s and it represented about a
quarter of all reported reserves in 2007 As a result to this day al-Husseini remains
skeptical of claims that world oil production will rise much from here
Another piece of evidence that casts doubt on OPEC members reserve claims came
to light in 2005 That year Petroleum Intelligence Weekly an industry newsletter with
worldwide reach obtained internal documents from the state-owned Kuwait Oil Co
The documents revealed that Kuwaiti reserves were only half the official number 48
billion barrels versus 99 billion Since then policymakers and the public seemed to
have ignored the entire incident The BP Statistical Review lists Kuwaits reserves as
1015 billion barrels as of 2011 The EIA shows them as 104 billion Skepticism
apparently is taking an extended holiday at BP and EIA
Measuring oil reserves remains something of an art Even large publicly traded oil
companies with armies of petroleum geologists and engineers who operate under
strict US Securities and Exchange Commission rules for estimating reserves--even
these companies dont always get it right In 2004 Royal Dutch Shell had to lower its
reserves number by 20 percent a huge and costly blunder for such a sophisticated
company If Shell can bungle its reserves estimate then how much more likely are
OPEC countries which are subject to virtually no public scrutiny to bungle or perhaps
manipulate theirs
I said in a previous piece that the rate of production is the key metric when
evaluating the success of the worlds oil production and delivery system But
sustained production of oil depends on the size and quality of reserves If the world
does indeed have 300 billion fewer barrels of reserves than it thinks it does that has
implications for how long the current rate of production can be maintained (It has
been stuck between 71 and 76 million barrels per day since 2005) And that is why
the mystery surrounding OPECs reserves which supposedly constitute 80 percent
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Next generation technology from Ikon Science geological inversion geopressure prediction fast workflows and more From rock physics to reservoir properties in one powerful and connected platform RokDocQED for Quantitative Exploration amp Development
Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
3 OilVoice Magazine | OCTOBER 2012
Featured Authors
Andrew MacKillop
OilVoice Contributor
Andrew MacKillop is an energy and natural resource sector professional with over 30 years experience in more than 12 countries
Keith Schaefer
Oil amp Gas Investments Bulletin
Keith Schaefer editor and publisher of the Oil amp Gas Investments Bulletin
David Bamford
Finding Petroleum
David Bamford is non-executive director of Tullow Oil and a past head of exploration West Africa and geophysics with BP
Gail Tverberg
Our Finite World
Gail Tverber has an M S from the University of Illinois Chicago in Mathematics and is a Fellow of the Casualty Actuarial Society and a member of the American Academy of Actuaries
Kurt Cobb
Resource Insights
Kurt Cobb is an author speaker and columnist focusing on energy and the environment
Gary Hunt
TCLabz
Gary Hunt is President TechampCreative Labs a disruptive innovation business collaboration of software data and advanced analytics technology companies working together to integrate their products to meet the changing needs of the energy vertical
4 OilVoice Magazine | OCTOBER 2012
Wolf Richter
Testosterone Pit
Wolf Richter has over twenty years of C-level operations and finance experience including turnaround situations and start-ups He went to school and worked for two decades in Texas and Oklahoma with an interlude in France and then headed east to New York City Brussels Tokyo and finally San Francisco where he currently lives
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5 OilVoice Magazine | OCTOBER 2012
Russias Gazprom tightens its stranglehold on Europe France falls The natural gas war gets dirty
Written by Wolf Richter from Testosterone Pit
Why would France suddenly prohibit shale gas exploration Sure there are environmental issues with horizontal drilling and hydraulic fracturing the methods used to extract gas from porous shale deep underground flammable drinking water earth quakes cows that die radioactive sludge in sewage treatment plants But French governments have had letrsquos say an uneasy relationship with environmentalists Its spy service DGSE for example sank Greenpeacersquos flagship the Rainbow Warrior in the port of Auckland New Zealand killing one person No there must have been another reason why the government of Nicholas Sarkozy prohibited shale gas exploration in 2011 after having already issued permits in 2010 A mini hullabaloo had broken out stirred up by the European Ecologists and The Greens (EELV) the fringe on the French left And Sarkozy caved Without a fight Enthusiastically The government of Franccedilois Hollande just confirmed the prohibition when Environment Minister Delphine Batho declared ldquoHydraulic fracturing remains and will remain prohibitedrdquo The clue Sarkozy suddenly visited Japan on March 31 2011 a couple of weeks after the horrific earthquake and tsunami and the subsequent nuclear accident at Fukushima to declare in front of shell-shocked Japanese that there was ldquono alternativerdquo to nuclear power Hersquod been dispatched by the almighty state-owned nuclear industry to tamp down on the growing anti-nuclear sentiment at home Owned by the government nuclear power plants produce 75 of Francersquos electricity and export some of it No one who wants to be politically viable is allowed to hamper the industry If someone strays off the reservation he or she is dragged back soon While Hollande campaigned on a vague promise to reduce dependency on nuclear power to 50 it was understood
6 OilVoice Magazine | OCTOBER 2012
as one of the bones he had to toss to environmentalists Nothing would come of it
So when Batho who wants to add more renewables to the portfolio toed the party line by saying ldquoNuclear power is an industry with futurerdquo then qualified it with a ldquobutrdquo it caused an outcry even among the Socialists Thatrsquos the power the nuclear industry has over the political machines But now another powerful entity turned up Russiarsquos Gazprom Itrsquos the worldrsquos largest gas producer gas exporter and gas distribution company with nearly 100000 miles of gas trunk lines and branches The Russian government owns 5001 of it At home it has to sell gas under cost one of the Soviet leftovers It relies on high-profit sales from Europe to make up for it But Europe is diversifying away from its single most important supplier Competitors include Russiarsquos number two Novatek and Norwaymdashthe second largest natural gas exporter in the world So in April Gazprom had to lower its European sales guidance for 2012 Its market share in Europe was 27 last year and itrsquos shooting for 30 by 2020 but if the US shale-gas boom ever infects Europe those plans would become a pipedreammdashand if the high-profit sales from Europe tapered off further it would have to raise prices at home a political nightmare Hence its fight by hook or crook against shale gas in France Gazpromrsquos ldquounderhanded tacticsrdquo and ldquoscaremongering about a new technologyrdquo have Moscowrsquos nod of approval and are designed to dissuade governments from developing their own shale-gas reserves according to a report by Platts a global provider of information on energy petrochemicals and metals Efforts include all manner of operations online and through encouraging demonstrations but also paying public relation firms to spread ldquomyths and misconceptionsrdquo said Aviezer Tucker assistant director of the Energy Institute at the University of Texas A ldquoEuropean Union-wide banrdquo on shale-gas production he said would be the ldquoholy grailrdquo With France already knocked off Sergei Komlev of Gazprom Export has been bouncing around the world in his fight against European shale gas At a meeting in Qatar according to Plattsrsquo report he gave a presentation ldquoMultiple Handicaps Will Retard Shale Gas Development Outside USrdquo was the title of one of his slides ldquoFortunately it claimed ldquoEuropean shale gas development faces numerous economic regulatory and political barriers before there are significant amounts of shale gas production not sooner than in ten or more yearsrdquo Breathing room for Gazprom in the natural gas wars In the US natural gas may be the most mispriced commodity these days Its price has been below the cost of production for so long that the industry is suffering billions in losses But demand for natural gas by power producers has been boomingmdashand itrsquos killing coal one powerplant at a time Read Natural Gas Is Pushing Coal Over The Cliff And here is a highly insightful interview of James Hamilton energy economist
7 OilVoice Magazine | OCTOBER 2012
former visiting scholar at the Federal Reserve Board in Washington DC and other Federal Reserve Banks Read The Real Reason Behind Oil Price Rises by James Stafford
View more quality content from Testosterone Pit
Has OPEC misled us about the size of its oil reserves Does it matter
Written by Kurt Cobb from Resource Insights
Has OPEC misled us about the size of its oil reserves The short answer is
probably The long answer is that currently there is no way to know for sure
The next question we should ask is Does it matter The answer is most definitely
yes OPEC short for the Organization of Petroleum Exporting Countries currently
claims that its 12 members hold 813 percent of the worlds oil reserves And with
few exceptions the world believes them Trouble is these reserves are not verified
by independent auditors according to a study (PDF) done by the US Government
Accountability Office the nonpartisan investigative arm of the US Congress OPEC
reserves are simply self-reported by each country Essentially OPECs members are
asking us to take their word for it But should we
8 OilVoice Magazine | OCTOBER 2012
It ought to give us pause that the reserve numbers OPEC countries release are used
in major reports produced by the US Energy Information Administration (EIA) the
Paris-based International Energy Agency (IEA) a consortium of 28 of the worlds oil
importing nations oil giant BP which annually publishes the widely cited BP
Statistical Review of World Energy and myriad other organizations Reports from the
two agencies cited above and BP are frequently consulted by governments industry
banks and investors around the world for policy formulation long-term planning and
lending and investment decisions Yet these groups seem blissfully unaware of the
caveats surrounding the numbers in those reports and by extension surrounding
more than 80 percent of the worlds oil reserves
Keep in mind as we go along that the sometimes astronomical numbers thrown
around for world oil reserves by the uninformed or by those who intend to mislead us
either have no basis in fact or actually refer to resources Resources are only an
estimate of oil thought to be in the ground based on rather sketchy evidence And
most of that oil will never be recoverable Reserves however are what can be
produced at todays prices from known fields using existing technology It turns out
that reserves are only a tiny fraction of so-called resources
Now heres the caveat from the International Energy Agency in its World Energy
Outlook 2010
Definitions of reserves and resources and the methodologies for estimating them
vary considerably around the world leading to confusion and inconsistencies In
addition there is often a lack of transparency in the way reserves are reported many
national oil companies in both OPEC and non-OPEC countries do not use external
auditors of reserves and do not publish detailed results National oil companies
refers to government-owned companies which typically control all oil development
within a country
The BP Statistical Review of World Energy for 2012 provides this explanatory note
under a table listing oil reserves by country
The estimates in this table have been compiled using a combination of primary
official sources third-party data from the OPEC Secretariat World Oil Oil amp Gas
Journal and an independent estimate of Russian and Chinese reserves based on
information in the public domain Canadian oil sands under active development are
an official estimate Venezuelan Orinoco Belt reserves are based on the OPEC
9 OilVoice Magazine | OCTOBER 2012
Secretariat and government announcements The key words are OPEC Secretariat
which refers to the OPEC staff located in an office in Vienna That office is where BP
presumably gets its information about OPEC reserves The EIA lists the OPEC
Annual Statistical Bulletin put out by--you guessed it--the OPEC Secretariat Alas
the Annual Statistical Bulletin tells us under the heading Questions on data that
[a]lthough comments are welcome OPEC regrets that it is unable to answer all
enquiries concerning the data in the ASB In other words trust us So information
about OPEC reserves comes either from the OPEC offices in Vienna or from
member countries Some analysts may adjust those figures based on the few shreds
of evidence that are available outside of official government pronouncements But in
reality there are almost no hard facts when it comes to OPEC reserves
Strangely many of these countries say that a detailed audit of their fields by
independent observers is out of the question because oil reserves are a state secret
And yet those countries report their reserves to OPEC which publishes them for all
to see So are oil reserves in many OPEC countries a state secret or not
Apparently whats secret is the field-by-field data that would tell us whether the
reserves claimed by these countries are actually there Are there reasons to believe
that if we saw this data it would contradict the official overall number provided by
some countries In a word yes
First OPEC allocates production levels among its members It does this to control
the flow of oil to world markets and thus to manipulate the price OPEC bases
production quotas for its members in part on the size of each members reserves
When this policy was first established in the 1980s reported reserves for several
OPEC members jumped between roughly 40 and 200 percent within one year--not
always the same year--as each country jockeyed for a higher production quota
Based on EIA data heres what it looked like
Country Reserves in Barrels
(Year)
Reserves in Barrels
(Year)
Percentage
Increase
Iran 488 billion (1987) 929 billion (1988) 904
Iraq 471 billion (1987) 100 billion (1988) 1123
Kuwait 667 billion (1984) 927 billion (1985) 390
Saudi Arabia 1726 billion (1989) 2576 billion (1990) 493
United Arab
Emirates 331 billion (1987) 981 billion (1988) 1964
Venezuela 250 billion (1987) 563 billion (1988) 1252
10 OilVoice Magazine | OCTOBER 2012
Not every country participated in the free-for-all But the countries with the largest
exports participated with a vengeance There was no drilling program in any of these
countries that could have explained such jumps in reserves
The competition continues to this day In October 2010 Iraq announced an increase
in its oil reserves from 115 billion barrels to 1431 billion barrels No attempt was
made to hide the reason for the increase Falah al-Amri the head of the countryrsquos
State Oil Marketing Company suggested that future quota calculations might have
been a factor in the revision A week later Iran raised its reserves number from
1366 billion barrels to 1503 billion barrels presumably in order to maintain its
position within the OPEC production quota system These numbers have been
dutifully included in the latest statistical compilations of both EIA and BP as if the
two hadnt gotten the memo that Iraqs and Irans increases were reported merely for
quota reasons and not because of any particular discoveries
Perhaps even more astounding is that some OPEC members dont even take the oil
reserves reporting game seriously any more Logic dictates that there should be at
least small adjustments up or down in reserves each year as new fields are
developed and old ones decline The world of geology simply cannot yield precisely
the new reserves needed to replace exactly the amount of oil extracted from existing
fields each year
And yet the United Arab Emirates has been reporting 978 billion barrels of oil
reserves every year since 1997 Kuwait has been reporting 104 billion barrels each
year since 2008 Iraqshows long periods from 1980 onward when reserves dont
change the latest running from 2004 to 2011 during which reserves supposedly held
absolutely steady at 115 billion barrelsAlgeria has reported 122 billion barrels from
2008 onward At least Saudi Arabia has demonstrated a certain sensitivity to
appearances and has adjusted its reserves number slightly from year to year And
yet that number has remained within a narrow range of 260 to 267 billion barrels
from 1991 to the present All of these numbers suggest that depletion from existing
fields is taking absolutely no toll on OPECs reserves Even if thats true we have no
way of verifying it
The second reason to doubt OPECs official oil reserve numbers is that two insiders
have told us not to trust those numbers The now deceased A M Samsam Bakhtiari
an executive for the National Iranian Oil Company told the Oil amp Gas Journal all the
way back in 2003 the following I know from experience how reserves are
11 OilVoice Magazine | OCTOBER 2012
estimated in major Middle Eastern (and OPEC) countriesAnd the methods used
are usually far from scientific as the basic knowledge for such a complex exercise is
not at hand He estimated that Iranian reserves were about 37 billion barrels not the
90 billion that were being cited at the time
Back in 2007 Sadad al-Husseini former executive vice president for exploration and
production at Saudi Aramco the state oil company that controls all oil development
in Saudi Arabia told a conference in London that world oil reserves had been
inflated by 300 billion barrels That number almost matches the increases in OPEC
members reserves for quota reasons in the 1980s and it represented about a
quarter of all reported reserves in 2007 As a result to this day al-Husseini remains
skeptical of claims that world oil production will rise much from here
Another piece of evidence that casts doubt on OPEC members reserve claims came
to light in 2005 That year Petroleum Intelligence Weekly an industry newsletter with
worldwide reach obtained internal documents from the state-owned Kuwait Oil Co
The documents revealed that Kuwaiti reserves were only half the official number 48
billion barrels versus 99 billion Since then policymakers and the public seemed to
have ignored the entire incident The BP Statistical Review lists Kuwaits reserves as
1015 billion barrels as of 2011 The EIA shows them as 104 billion Skepticism
apparently is taking an extended holiday at BP and EIA
Measuring oil reserves remains something of an art Even large publicly traded oil
companies with armies of petroleum geologists and engineers who operate under
strict US Securities and Exchange Commission rules for estimating reserves--even
these companies dont always get it right In 2004 Royal Dutch Shell had to lower its
reserves number by 20 percent a huge and costly blunder for such a sophisticated
company If Shell can bungle its reserves estimate then how much more likely are
OPEC countries which are subject to virtually no public scrutiny to bungle or perhaps
manipulate theirs
I said in a previous piece that the rate of production is the key metric when
evaluating the success of the worlds oil production and delivery system But
sustained production of oil depends on the size and quality of reserves If the world
does indeed have 300 billion fewer barrels of reserves than it thinks it does that has
implications for how long the current rate of production can be maintained (It has
been stuck between 71 and 76 million barrels per day since 2005) And that is why
the mystery surrounding OPECs reserves which supposedly constitute 80 percent
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
Recent Company Profiles
The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
4 OilVoice Magazine | OCTOBER 2012
Wolf Richter
Testosterone Pit
Wolf Richter has over twenty years of C-level operations and finance experience including turnaround situations and start-ups He went to school and worked for two decades in Texas and Oklahoma with an interlude in France and then headed east to New York City Brussels Tokyo and finally San Francisco where he currently lives
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Over the past ten years weve grown to 29653 members (lets call it 30000) If youre not a member then you should start now it only takes a second Then youll be free to post job adverts events and press releases
5 OilVoice Magazine | OCTOBER 2012
Russias Gazprom tightens its stranglehold on Europe France falls The natural gas war gets dirty
Written by Wolf Richter from Testosterone Pit
Why would France suddenly prohibit shale gas exploration Sure there are environmental issues with horizontal drilling and hydraulic fracturing the methods used to extract gas from porous shale deep underground flammable drinking water earth quakes cows that die radioactive sludge in sewage treatment plants But French governments have had letrsquos say an uneasy relationship with environmentalists Its spy service DGSE for example sank Greenpeacersquos flagship the Rainbow Warrior in the port of Auckland New Zealand killing one person No there must have been another reason why the government of Nicholas Sarkozy prohibited shale gas exploration in 2011 after having already issued permits in 2010 A mini hullabaloo had broken out stirred up by the European Ecologists and The Greens (EELV) the fringe on the French left And Sarkozy caved Without a fight Enthusiastically The government of Franccedilois Hollande just confirmed the prohibition when Environment Minister Delphine Batho declared ldquoHydraulic fracturing remains and will remain prohibitedrdquo The clue Sarkozy suddenly visited Japan on March 31 2011 a couple of weeks after the horrific earthquake and tsunami and the subsequent nuclear accident at Fukushima to declare in front of shell-shocked Japanese that there was ldquono alternativerdquo to nuclear power Hersquod been dispatched by the almighty state-owned nuclear industry to tamp down on the growing anti-nuclear sentiment at home Owned by the government nuclear power plants produce 75 of Francersquos electricity and export some of it No one who wants to be politically viable is allowed to hamper the industry If someone strays off the reservation he or she is dragged back soon While Hollande campaigned on a vague promise to reduce dependency on nuclear power to 50 it was understood
6 OilVoice Magazine | OCTOBER 2012
as one of the bones he had to toss to environmentalists Nothing would come of it
So when Batho who wants to add more renewables to the portfolio toed the party line by saying ldquoNuclear power is an industry with futurerdquo then qualified it with a ldquobutrdquo it caused an outcry even among the Socialists Thatrsquos the power the nuclear industry has over the political machines But now another powerful entity turned up Russiarsquos Gazprom Itrsquos the worldrsquos largest gas producer gas exporter and gas distribution company with nearly 100000 miles of gas trunk lines and branches The Russian government owns 5001 of it At home it has to sell gas under cost one of the Soviet leftovers It relies on high-profit sales from Europe to make up for it But Europe is diversifying away from its single most important supplier Competitors include Russiarsquos number two Novatek and Norwaymdashthe second largest natural gas exporter in the world So in April Gazprom had to lower its European sales guidance for 2012 Its market share in Europe was 27 last year and itrsquos shooting for 30 by 2020 but if the US shale-gas boom ever infects Europe those plans would become a pipedreammdashand if the high-profit sales from Europe tapered off further it would have to raise prices at home a political nightmare Hence its fight by hook or crook against shale gas in France Gazpromrsquos ldquounderhanded tacticsrdquo and ldquoscaremongering about a new technologyrdquo have Moscowrsquos nod of approval and are designed to dissuade governments from developing their own shale-gas reserves according to a report by Platts a global provider of information on energy petrochemicals and metals Efforts include all manner of operations online and through encouraging demonstrations but also paying public relation firms to spread ldquomyths and misconceptionsrdquo said Aviezer Tucker assistant director of the Energy Institute at the University of Texas A ldquoEuropean Union-wide banrdquo on shale-gas production he said would be the ldquoholy grailrdquo With France already knocked off Sergei Komlev of Gazprom Export has been bouncing around the world in his fight against European shale gas At a meeting in Qatar according to Plattsrsquo report he gave a presentation ldquoMultiple Handicaps Will Retard Shale Gas Development Outside USrdquo was the title of one of his slides ldquoFortunately it claimed ldquoEuropean shale gas development faces numerous economic regulatory and political barriers before there are significant amounts of shale gas production not sooner than in ten or more yearsrdquo Breathing room for Gazprom in the natural gas wars In the US natural gas may be the most mispriced commodity these days Its price has been below the cost of production for so long that the industry is suffering billions in losses But demand for natural gas by power producers has been boomingmdashand itrsquos killing coal one powerplant at a time Read Natural Gas Is Pushing Coal Over The Cliff And here is a highly insightful interview of James Hamilton energy economist
7 OilVoice Magazine | OCTOBER 2012
former visiting scholar at the Federal Reserve Board in Washington DC and other Federal Reserve Banks Read The Real Reason Behind Oil Price Rises by James Stafford
View more quality content from Testosterone Pit
Has OPEC misled us about the size of its oil reserves Does it matter
Written by Kurt Cobb from Resource Insights
Has OPEC misled us about the size of its oil reserves The short answer is
probably The long answer is that currently there is no way to know for sure
The next question we should ask is Does it matter The answer is most definitely
yes OPEC short for the Organization of Petroleum Exporting Countries currently
claims that its 12 members hold 813 percent of the worlds oil reserves And with
few exceptions the world believes them Trouble is these reserves are not verified
by independent auditors according to a study (PDF) done by the US Government
Accountability Office the nonpartisan investigative arm of the US Congress OPEC
reserves are simply self-reported by each country Essentially OPECs members are
asking us to take their word for it But should we
8 OilVoice Magazine | OCTOBER 2012
It ought to give us pause that the reserve numbers OPEC countries release are used
in major reports produced by the US Energy Information Administration (EIA) the
Paris-based International Energy Agency (IEA) a consortium of 28 of the worlds oil
importing nations oil giant BP which annually publishes the widely cited BP
Statistical Review of World Energy and myriad other organizations Reports from the
two agencies cited above and BP are frequently consulted by governments industry
banks and investors around the world for policy formulation long-term planning and
lending and investment decisions Yet these groups seem blissfully unaware of the
caveats surrounding the numbers in those reports and by extension surrounding
more than 80 percent of the worlds oil reserves
Keep in mind as we go along that the sometimes astronomical numbers thrown
around for world oil reserves by the uninformed or by those who intend to mislead us
either have no basis in fact or actually refer to resources Resources are only an
estimate of oil thought to be in the ground based on rather sketchy evidence And
most of that oil will never be recoverable Reserves however are what can be
produced at todays prices from known fields using existing technology It turns out
that reserves are only a tiny fraction of so-called resources
Now heres the caveat from the International Energy Agency in its World Energy
Outlook 2010
Definitions of reserves and resources and the methodologies for estimating them
vary considerably around the world leading to confusion and inconsistencies In
addition there is often a lack of transparency in the way reserves are reported many
national oil companies in both OPEC and non-OPEC countries do not use external
auditors of reserves and do not publish detailed results National oil companies
refers to government-owned companies which typically control all oil development
within a country
The BP Statistical Review of World Energy for 2012 provides this explanatory note
under a table listing oil reserves by country
The estimates in this table have been compiled using a combination of primary
official sources third-party data from the OPEC Secretariat World Oil Oil amp Gas
Journal and an independent estimate of Russian and Chinese reserves based on
information in the public domain Canadian oil sands under active development are
an official estimate Venezuelan Orinoco Belt reserves are based on the OPEC
9 OilVoice Magazine | OCTOBER 2012
Secretariat and government announcements The key words are OPEC Secretariat
which refers to the OPEC staff located in an office in Vienna That office is where BP
presumably gets its information about OPEC reserves The EIA lists the OPEC
Annual Statistical Bulletin put out by--you guessed it--the OPEC Secretariat Alas
the Annual Statistical Bulletin tells us under the heading Questions on data that
[a]lthough comments are welcome OPEC regrets that it is unable to answer all
enquiries concerning the data in the ASB In other words trust us So information
about OPEC reserves comes either from the OPEC offices in Vienna or from
member countries Some analysts may adjust those figures based on the few shreds
of evidence that are available outside of official government pronouncements But in
reality there are almost no hard facts when it comes to OPEC reserves
Strangely many of these countries say that a detailed audit of their fields by
independent observers is out of the question because oil reserves are a state secret
And yet those countries report their reserves to OPEC which publishes them for all
to see So are oil reserves in many OPEC countries a state secret or not
Apparently whats secret is the field-by-field data that would tell us whether the
reserves claimed by these countries are actually there Are there reasons to believe
that if we saw this data it would contradict the official overall number provided by
some countries In a word yes
First OPEC allocates production levels among its members It does this to control
the flow of oil to world markets and thus to manipulate the price OPEC bases
production quotas for its members in part on the size of each members reserves
When this policy was first established in the 1980s reported reserves for several
OPEC members jumped between roughly 40 and 200 percent within one year--not
always the same year--as each country jockeyed for a higher production quota
Based on EIA data heres what it looked like
Country Reserves in Barrels
(Year)
Reserves in Barrels
(Year)
Percentage
Increase
Iran 488 billion (1987) 929 billion (1988) 904
Iraq 471 billion (1987) 100 billion (1988) 1123
Kuwait 667 billion (1984) 927 billion (1985) 390
Saudi Arabia 1726 billion (1989) 2576 billion (1990) 493
United Arab
Emirates 331 billion (1987) 981 billion (1988) 1964
Venezuela 250 billion (1987) 563 billion (1988) 1252
10 OilVoice Magazine | OCTOBER 2012
Not every country participated in the free-for-all But the countries with the largest
exports participated with a vengeance There was no drilling program in any of these
countries that could have explained such jumps in reserves
The competition continues to this day In October 2010 Iraq announced an increase
in its oil reserves from 115 billion barrels to 1431 billion barrels No attempt was
made to hide the reason for the increase Falah al-Amri the head of the countryrsquos
State Oil Marketing Company suggested that future quota calculations might have
been a factor in the revision A week later Iran raised its reserves number from
1366 billion barrels to 1503 billion barrels presumably in order to maintain its
position within the OPEC production quota system These numbers have been
dutifully included in the latest statistical compilations of both EIA and BP as if the
two hadnt gotten the memo that Iraqs and Irans increases were reported merely for
quota reasons and not because of any particular discoveries
Perhaps even more astounding is that some OPEC members dont even take the oil
reserves reporting game seriously any more Logic dictates that there should be at
least small adjustments up or down in reserves each year as new fields are
developed and old ones decline The world of geology simply cannot yield precisely
the new reserves needed to replace exactly the amount of oil extracted from existing
fields each year
And yet the United Arab Emirates has been reporting 978 billion barrels of oil
reserves every year since 1997 Kuwait has been reporting 104 billion barrels each
year since 2008 Iraqshows long periods from 1980 onward when reserves dont
change the latest running from 2004 to 2011 during which reserves supposedly held
absolutely steady at 115 billion barrelsAlgeria has reported 122 billion barrels from
2008 onward At least Saudi Arabia has demonstrated a certain sensitivity to
appearances and has adjusted its reserves number slightly from year to year And
yet that number has remained within a narrow range of 260 to 267 billion barrels
from 1991 to the present All of these numbers suggest that depletion from existing
fields is taking absolutely no toll on OPECs reserves Even if thats true we have no
way of verifying it
The second reason to doubt OPECs official oil reserve numbers is that two insiders
have told us not to trust those numbers The now deceased A M Samsam Bakhtiari
an executive for the National Iranian Oil Company told the Oil amp Gas Journal all the
way back in 2003 the following I know from experience how reserves are
11 OilVoice Magazine | OCTOBER 2012
estimated in major Middle Eastern (and OPEC) countriesAnd the methods used
are usually far from scientific as the basic knowledge for such a complex exercise is
not at hand He estimated that Iranian reserves were about 37 billion barrels not the
90 billion that were being cited at the time
Back in 2007 Sadad al-Husseini former executive vice president for exploration and
production at Saudi Aramco the state oil company that controls all oil development
in Saudi Arabia told a conference in London that world oil reserves had been
inflated by 300 billion barrels That number almost matches the increases in OPEC
members reserves for quota reasons in the 1980s and it represented about a
quarter of all reported reserves in 2007 As a result to this day al-Husseini remains
skeptical of claims that world oil production will rise much from here
Another piece of evidence that casts doubt on OPEC members reserve claims came
to light in 2005 That year Petroleum Intelligence Weekly an industry newsletter with
worldwide reach obtained internal documents from the state-owned Kuwait Oil Co
The documents revealed that Kuwaiti reserves were only half the official number 48
billion barrels versus 99 billion Since then policymakers and the public seemed to
have ignored the entire incident The BP Statistical Review lists Kuwaits reserves as
1015 billion barrels as of 2011 The EIA shows them as 104 billion Skepticism
apparently is taking an extended holiday at BP and EIA
Measuring oil reserves remains something of an art Even large publicly traded oil
companies with armies of petroleum geologists and engineers who operate under
strict US Securities and Exchange Commission rules for estimating reserves--even
these companies dont always get it right In 2004 Royal Dutch Shell had to lower its
reserves number by 20 percent a huge and costly blunder for such a sophisticated
company If Shell can bungle its reserves estimate then how much more likely are
OPEC countries which are subject to virtually no public scrutiny to bungle or perhaps
manipulate theirs
I said in a previous piece that the rate of production is the key metric when
evaluating the success of the worlds oil production and delivery system But
sustained production of oil depends on the size and quality of reserves If the world
does indeed have 300 billion fewer barrels of reserves than it thinks it does that has
implications for how long the current rate of production can be maintained (It has
been stuck between 71 and 76 million barrels per day since 2005) And that is why
the mystery surrounding OPECs reserves which supposedly constitute 80 percent
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
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Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
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Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
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Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
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NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
5 OilVoice Magazine | OCTOBER 2012
Russias Gazprom tightens its stranglehold on Europe France falls The natural gas war gets dirty
Written by Wolf Richter from Testosterone Pit
Why would France suddenly prohibit shale gas exploration Sure there are environmental issues with horizontal drilling and hydraulic fracturing the methods used to extract gas from porous shale deep underground flammable drinking water earth quakes cows that die radioactive sludge in sewage treatment plants But French governments have had letrsquos say an uneasy relationship with environmentalists Its spy service DGSE for example sank Greenpeacersquos flagship the Rainbow Warrior in the port of Auckland New Zealand killing one person No there must have been another reason why the government of Nicholas Sarkozy prohibited shale gas exploration in 2011 after having already issued permits in 2010 A mini hullabaloo had broken out stirred up by the European Ecologists and The Greens (EELV) the fringe on the French left And Sarkozy caved Without a fight Enthusiastically The government of Franccedilois Hollande just confirmed the prohibition when Environment Minister Delphine Batho declared ldquoHydraulic fracturing remains and will remain prohibitedrdquo The clue Sarkozy suddenly visited Japan on March 31 2011 a couple of weeks after the horrific earthquake and tsunami and the subsequent nuclear accident at Fukushima to declare in front of shell-shocked Japanese that there was ldquono alternativerdquo to nuclear power Hersquod been dispatched by the almighty state-owned nuclear industry to tamp down on the growing anti-nuclear sentiment at home Owned by the government nuclear power plants produce 75 of Francersquos electricity and export some of it No one who wants to be politically viable is allowed to hamper the industry If someone strays off the reservation he or she is dragged back soon While Hollande campaigned on a vague promise to reduce dependency on nuclear power to 50 it was understood
6 OilVoice Magazine | OCTOBER 2012
as one of the bones he had to toss to environmentalists Nothing would come of it
So when Batho who wants to add more renewables to the portfolio toed the party line by saying ldquoNuclear power is an industry with futurerdquo then qualified it with a ldquobutrdquo it caused an outcry even among the Socialists Thatrsquos the power the nuclear industry has over the political machines But now another powerful entity turned up Russiarsquos Gazprom Itrsquos the worldrsquos largest gas producer gas exporter and gas distribution company with nearly 100000 miles of gas trunk lines and branches The Russian government owns 5001 of it At home it has to sell gas under cost one of the Soviet leftovers It relies on high-profit sales from Europe to make up for it But Europe is diversifying away from its single most important supplier Competitors include Russiarsquos number two Novatek and Norwaymdashthe second largest natural gas exporter in the world So in April Gazprom had to lower its European sales guidance for 2012 Its market share in Europe was 27 last year and itrsquos shooting for 30 by 2020 but if the US shale-gas boom ever infects Europe those plans would become a pipedreammdashand if the high-profit sales from Europe tapered off further it would have to raise prices at home a political nightmare Hence its fight by hook or crook against shale gas in France Gazpromrsquos ldquounderhanded tacticsrdquo and ldquoscaremongering about a new technologyrdquo have Moscowrsquos nod of approval and are designed to dissuade governments from developing their own shale-gas reserves according to a report by Platts a global provider of information on energy petrochemicals and metals Efforts include all manner of operations online and through encouraging demonstrations but also paying public relation firms to spread ldquomyths and misconceptionsrdquo said Aviezer Tucker assistant director of the Energy Institute at the University of Texas A ldquoEuropean Union-wide banrdquo on shale-gas production he said would be the ldquoholy grailrdquo With France already knocked off Sergei Komlev of Gazprom Export has been bouncing around the world in his fight against European shale gas At a meeting in Qatar according to Plattsrsquo report he gave a presentation ldquoMultiple Handicaps Will Retard Shale Gas Development Outside USrdquo was the title of one of his slides ldquoFortunately it claimed ldquoEuropean shale gas development faces numerous economic regulatory and political barriers before there are significant amounts of shale gas production not sooner than in ten or more yearsrdquo Breathing room for Gazprom in the natural gas wars In the US natural gas may be the most mispriced commodity these days Its price has been below the cost of production for so long that the industry is suffering billions in losses But demand for natural gas by power producers has been boomingmdashand itrsquos killing coal one powerplant at a time Read Natural Gas Is Pushing Coal Over The Cliff And here is a highly insightful interview of James Hamilton energy economist
7 OilVoice Magazine | OCTOBER 2012
former visiting scholar at the Federal Reserve Board in Washington DC and other Federal Reserve Banks Read The Real Reason Behind Oil Price Rises by James Stafford
View more quality content from Testosterone Pit
Has OPEC misled us about the size of its oil reserves Does it matter
Written by Kurt Cobb from Resource Insights
Has OPEC misled us about the size of its oil reserves The short answer is
probably The long answer is that currently there is no way to know for sure
The next question we should ask is Does it matter The answer is most definitely
yes OPEC short for the Organization of Petroleum Exporting Countries currently
claims that its 12 members hold 813 percent of the worlds oil reserves And with
few exceptions the world believes them Trouble is these reserves are not verified
by independent auditors according to a study (PDF) done by the US Government
Accountability Office the nonpartisan investigative arm of the US Congress OPEC
reserves are simply self-reported by each country Essentially OPECs members are
asking us to take their word for it But should we
8 OilVoice Magazine | OCTOBER 2012
It ought to give us pause that the reserve numbers OPEC countries release are used
in major reports produced by the US Energy Information Administration (EIA) the
Paris-based International Energy Agency (IEA) a consortium of 28 of the worlds oil
importing nations oil giant BP which annually publishes the widely cited BP
Statistical Review of World Energy and myriad other organizations Reports from the
two agencies cited above and BP are frequently consulted by governments industry
banks and investors around the world for policy formulation long-term planning and
lending and investment decisions Yet these groups seem blissfully unaware of the
caveats surrounding the numbers in those reports and by extension surrounding
more than 80 percent of the worlds oil reserves
Keep in mind as we go along that the sometimes astronomical numbers thrown
around for world oil reserves by the uninformed or by those who intend to mislead us
either have no basis in fact or actually refer to resources Resources are only an
estimate of oil thought to be in the ground based on rather sketchy evidence And
most of that oil will never be recoverable Reserves however are what can be
produced at todays prices from known fields using existing technology It turns out
that reserves are only a tiny fraction of so-called resources
Now heres the caveat from the International Energy Agency in its World Energy
Outlook 2010
Definitions of reserves and resources and the methodologies for estimating them
vary considerably around the world leading to confusion and inconsistencies In
addition there is often a lack of transparency in the way reserves are reported many
national oil companies in both OPEC and non-OPEC countries do not use external
auditors of reserves and do not publish detailed results National oil companies
refers to government-owned companies which typically control all oil development
within a country
The BP Statistical Review of World Energy for 2012 provides this explanatory note
under a table listing oil reserves by country
The estimates in this table have been compiled using a combination of primary
official sources third-party data from the OPEC Secretariat World Oil Oil amp Gas
Journal and an independent estimate of Russian and Chinese reserves based on
information in the public domain Canadian oil sands under active development are
an official estimate Venezuelan Orinoco Belt reserves are based on the OPEC
9 OilVoice Magazine | OCTOBER 2012
Secretariat and government announcements The key words are OPEC Secretariat
which refers to the OPEC staff located in an office in Vienna That office is where BP
presumably gets its information about OPEC reserves The EIA lists the OPEC
Annual Statistical Bulletin put out by--you guessed it--the OPEC Secretariat Alas
the Annual Statistical Bulletin tells us under the heading Questions on data that
[a]lthough comments are welcome OPEC regrets that it is unable to answer all
enquiries concerning the data in the ASB In other words trust us So information
about OPEC reserves comes either from the OPEC offices in Vienna or from
member countries Some analysts may adjust those figures based on the few shreds
of evidence that are available outside of official government pronouncements But in
reality there are almost no hard facts when it comes to OPEC reserves
Strangely many of these countries say that a detailed audit of their fields by
independent observers is out of the question because oil reserves are a state secret
And yet those countries report their reserves to OPEC which publishes them for all
to see So are oil reserves in many OPEC countries a state secret or not
Apparently whats secret is the field-by-field data that would tell us whether the
reserves claimed by these countries are actually there Are there reasons to believe
that if we saw this data it would contradict the official overall number provided by
some countries In a word yes
First OPEC allocates production levels among its members It does this to control
the flow of oil to world markets and thus to manipulate the price OPEC bases
production quotas for its members in part on the size of each members reserves
When this policy was first established in the 1980s reported reserves for several
OPEC members jumped between roughly 40 and 200 percent within one year--not
always the same year--as each country jockeyed for a higher production quota
Based on EIA data heres what it looked like
Country Reserves in Barrels
(Year)
Reserves in Barrels
(Year)
Percentage
Increase
Iran 488 billion (1987) 929 billion (1988) 904
Iraq 471 billion (1987) 100 billion (1988) 1123
Kuwait 667 billion (1984) 927 billion (1985) 390
Saudi Arabia 1726 billion (1989) 2576 billion (1990) 493
United Arab
Emirates 331 billion (1987) 981 billion (1988) 1964
Venezuela 250 billion (1987) 563 billion (1988) 1252
10 OilVoice Magazine | OCTOBER 2012
Not every country participated in the free-for-all But the countries with the largest
exports participated with a vengeance There was no drilling program in any of these
countries that could have explained such jumps in reserves
The competition continues to this day In October 2010 Iraq announced an increase
in its oil reserves from 115 billion barrels to 1431 billion barrels No attempt was
made to hide the reason for the increase Falah al-Amri the head of the countryrsquos
State Oil Marketing Company suggested that future quota calculations might have
been a factor in the revision A week later Iran raised its reserves number from
1366 billion barrels to 1503 billion barrels presumably in order to maintain its
position within the OPEC production quota system These numbers have been
dutifully included in the latest statistical compilations of both EIA and BP as if the
two hadnt gotten the memo that Iraqs and Irans increases were reported merely for
quota reasons and not because of any particular discoveries
Perhaps even more astounding is that some OPEC members dont even take the oil
reserves reporting game seriously any more Logic dictates that there should be at
least small adjustments up or down in reserves each year as new fields are
developed and old ones decline The world of geology simply cannot yield precisely
the new reserves needed to replace exactly the amount of oil extracted from existing
fields each year
And yet the United Arab Emirates has been reporting 978 billion barrels of oil
reserves every year since 1997 Kuwait has been reporting 104 billion barrels each
year since 2008 Iraqshows long periods from 1980 onward when reserves dont
change the latest running from 2004 to 2011 during which reserves supposedly held
absolutely steady at 115 billion barrelsAlgeria has reported 122 billion barrels from
2008 onward At least Saudi Arabia has demonstrated a certain sensitivity to
appearances and has adjusted its reserves number slightly from year to year And
yet that number has remained within a narrow range of 260 to 267 billion barrels
from 1991 to the present All of these numbers suggest that depletion from existing
fields is taking absolutely no toll on OPECs reserves Even if thats true we have no
way of verifying it
The second reason to doubt OPECs official oil reserve numbers is that two insiders
have told us not to trust those numbers The now deceased A M Samsam Bakhtiari
an executive for the National Iranian Oil Company told the Oil amp Gas Journal all the
way back in 2003 the following I know from experience how reserves are
11 OilVoice Magazine | OCTOBER 2012
estimated in major Middle Eastern (and OPEC) countriesAnd the methods used
are usually far from scientific as the basic knowledge for such a complex exercise is
not at hand He estimated that Iranian reserves were about 37 billion barrels not the
90 billion that were being cited at the time
Back in 2007 Sadad al-Husseini former executive vice president for exploration and
production at Saudi Aramco the state oil company that controls all oil development
in Saudi Arabia told a conference in London that world oil reserves had been
inflated by 300 billion barrels That number almost matches the increases in OPEC
members reserves for quota reasons in the 1980s and it represented about a
quarter of all reported reserves in 2007 As a result to this day al-Husseini remains
skeptical of claims that world oil production will rise much from here
Another piece of evidence that casts doubt on OPEC members reserve claims came
to light in 2005 That year Petroleum Intelligence Weekly an industry newsletter with
worldwide reach obtained internal documents from the state-owned Kuwait Oil Co
The documents revealed that Kuwaiti reserves were only half the official number 48
billion barrels versus 99 billion Since then policymakers and the public seemed to
have ignored the entire incident The BP Statistical Review lists Kuwaits reserves as
1015 billion barrels as of 2011 The EIA shows them as 104 billion Skepticism
apparently is taking an extended holiday at BP and EIA
Measuring oil reserves remains something of an art Even large publicly traded oil
companies with armies of petroleum geologists and engineers who operate under
strict US Securities and Exchange Commission rules for estimating reserves--even
these companies dont always get it right In 2004 Royal Dutch Shell had to lower its
reserves number by 20 percent a huge and costly blunder for such a sophisticated
company If Shell can bungle its reserves estimate then how much more likely are
OPEC countries which are subject to virtually no public scrutiny to bungle or perhaps
manipulate theirs
I said in a previous piece that the rate of production is the key metric when
evaluating the success of the worlds oil production and delivery system But
sustained production of oil depends on the size and quality of reserves If the world
does indeed have 300 billion fewer barrels of reserves than it thinks it does that has
implications for how long the current rate of production can be maintained (It has
been stuck between 71 and 76 million barrels per day since 2005) And that is why
the mystery surrounding OPECs reserves which supposedly constitute 80 percent
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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Visit Titan Technologies OilVoice profile
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Visit GOSHs OilVoice profile
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29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
6 OilVoice Magazine | OCTOBER 2012
as one of the bones he had to toss to environmentalists Nothing would come of it
So when Batho who wants to add more renewables to the portfolio toed the party line by saying ldquoNuclear power is an industry with futurerdquo then qualified it with a ldquobutrdquo it caused an outcry even among the Socialists Thatrsquos the power the nuclear industry has over the political machines But now another powerful entity turned up Russiarsquos Gazprom Itrsquos the worldrsquos largest gas producer gas exporter and gas distribution company with nearly 100000 miles of gas trunk lines and branches The Russian government owns 5001 of it At home it has to sell gas under cost one of the Soviet leftovers It relies on high-profit sales from Europe to make up for it But Europe is diversifying away from its single most important supplier Competitors include Russiarsquos number two Novatek and Norwaymdashthe second largest natural gas exporter in the world So in April Gazprom had to lower its European sales guidance for 2012 Its market share in Europe was 27 last year and itrsquos shooting for 30 by 2020 but if the US shale-gas boom ever infects Europe those plans would become a pipedreammdashand if the high-profit sales from Europe tapered off further it would have to raise prices at home a political nightmare Hence its fight by hook or crook against shale gas in France Gazpromrsquos ldquounderhanded tacticsrdquo and ldquoscaremongering about a new technologyrdquo have Moscowrsquos nod of approval and are designed to dissuade governments from developing their own shale-gas reserves according to a report by Platts a global provider of information on energy petrochemicals and metals Efforts include all manner of operations online and through encouraging demonstrations but also paying public relation firms to spread ldquomyths and misconceptionsrdquo said Aviezer Tucker assistant director of the Energy Institute at the University of Texas A ldquoEuropean Union-wide banrdquo on shale-gas production he said would be the ldquoholy grailrdquo With France already knocked off Sergei Komlev of Gazprom Export has been bouncing around the world in his fight against European shale gas At a meeting in Qatar according to Plattsrsquo report he gave a presentation ldquoMultiple Handicaps Will Retard Shale Gas Development Outside USrdquo was the title of one of his slides ldquoFortunately it claimed ldquoEuropean shale gas development faces numerous economic regulatory and political barriers before there are significant amounts of shale gas production not sooner than in ten or more yearsrdquo Breathing room for Gazprom in the natural gas wars In the US natural gas may be the most mispriced commodity these days Its price has been below the cost of production for so long that the industry is suffering billions in losses But demand for natural gas by power producers has been boomingmdashand itrsquos killing coal one powerplant at a time Read Natural Gas Is Pushing Coal Over The Cliff And here is a highly insightful interview of James Hamilton energy economist
7 OilVoice Magazine | OCTOBER 2012
former visiting scholar at the Federal Reserve Board in Washington DC and other Federal Reserve Banks Read The Real Reason Behind Oil Price Rises by James Stafford
View more quality content from Testosterone Pit
Has OPEC misled us about the size of its oil reserves Does it matter
Written by Kurt Cobb from Resource Insights
Has OPEC misled us about the size of its oil reserves The short answer is
probably The long answer is that currently there is no way to know for sure
The next question we should ask is Does it matter The answer is most definitely
yes OPEC short for the Organization of Petroleum Exporting Countries currently
claims that its 12 members hold 813 percent of the worlds oil reserves And with
few exceptions the world believes them Trouble is these reserves are not verified
by independent auditors according to a study (PDF) done by the US Government
Accountability Office the nonpartisan investigative arm of the US Congress OPEC
reserves are simply self-reported by each country Essentially OPECs members are
asking us to take their word for it But should we
8 OilVoice Magazine | OCTOBER 2012
It ought to give us pause that the reserve numbers OPEC countries release are used
in major reports produced by the US Energy Information Administration (EIA) the
Paris-based International Energy Agency (IEA) a consortium of 28 of the worlds oil
importing nations oil giant BP which annually publishes the widely cited BP
Statistical Review of World Energy and myriad other organizations Reports from the
two agencies cited above and BP are frequently consulted by governments industry
banks and investors around the world for policy formulation long-term planning and
lending and investment decisions Yet these groups seem blissfully unaware of the
caveats surrounding the numbers in those reports and by extension surrounding
more than 80 percent of the worlds oil reserves
Keep in mind as we go along that the sometimes astronomical numbers thrown
around for world oil reserves by the uninformed or by those who intend to mislead us
either have no basis in fact or actually refer to resources Resources are only an
estimate of oil thought to be in the ground based on rather sketchy evidence And
most of that oil will never be recoverable Reserves however are what can be
produced at todays prices from known fields using existing technology It turns out
that reserves are only a tiny fraction of so-called resources
Now heres the caveat from the International Energy Agency in its World Energy
Outlook 2010
Definitions of reserves and resources and the methodologies for estimating them
vary considerably around the world leading to confusion and inconsistencies In
addition there is often a lack of transparency in the way reserves are reported many
national oil companies in both OPEC and non-OPEC countries do not use external
auditors of reserves and do not publish detailed results National oil companies
refers to government-owned companies which typically control all oil development
within a country
The BP Statistical Review of World Energy for 2012 provides this explanatory note
under a table listing oil reserves by country
The estimates in this table have been compiled using a combination of primary
official sources third-party data from the OPEC Secretariat World Oil Oil amp Gas
Journal and an independent estimate of Russian and Chinese reserves based on
information in the public domain Canadian oil sands under active development are
an official estimate Venezuelan Orinoco Belt reserves are based on the OPEC
9 OilVoice Magazine | OCTOBER 2012
Secretariat and government announcements The key words are OPEC Secretariat
which refers to the OPEC staff located in an office in Vienna That office is where BP
presumably gets its information about OPEC reserves The EIA lists the OPEC
Annual Statistical Bulletin put out by--you guessed it--the OPEC Secretariat Alas
the Annual Statistical Bulletin tells us under the heading Questions on data that
[a]lthough comments are welcome OPEC regrets that it is unable to answer all
enquiries concerning the data in the ASB In other words trust us So information
about OPEC reserves comes either from the OPEC offices in Vienna or from
member countries Some analysts may adjust those figures based on the few shreds
of evidence that are available outside of official government pronouncements But in
reality there are almost no hard facts when it comes to OPEC reserves
Strangely many of these countries say that a detailed audit of their fields by
independent observers is out of the question because oil reserves are a state secret
And yet those countries report their reserves to OPEC which publishes them for all
to see So are oil reserves in many OPEC countries a state secret or not
Apparently whats secret is the field-by-field data that would tell us whether the
reserves claimed by these countries are actually there Are there reasons to believe
that if we saw this data it would contradict the official overall number provided by
some countries In a word yes
First OPEC allocates production levels among its members It does this to control
the flow of oil to world markets and thus to manipulate the price OPEC bases
production quotas for its members in part on the size of each members reserves
When this policy was first established in the 1980s reported reserves for several
OPEC members jumped between roughly 40 and 200 percent within one year--not
always the same year--as each country jockeyed for a higher production quota
Based on EIA data heres what it looked like
Country Reserves in Barrels
(Year)
Reserves in Barrels
(Year)
Percentage
Increase
Iran 488 billion (1987) 929 billion (1988) 904
Iraq 471 billion (1987) 100 billion (1988) 1123
Kuwait 667 billion (1984) 927 billion (1985) 390
Saudi Arabia 1726 billion (1989) 2576 billion (1990) 493
United Arab
Emirates 331 billion (1987) 981 billion (1988) 1964
Venezuela 250 billion (1987) 563 billion (1988) 1252
10 OilVoice Magazine | OCTOBER 2012
Not every country participated in the free-for-all But the countries with the largest
exports participated with a vengeance There was no drilling program in any of these
countries that could have explained such jumps in reserves
The competition continues to this day In October 2010 Iraq announced an increase
in its oil reserves from 115 billion barrels to 1431 billion barrels No attempt was
made to hide the reason for the increase Falah al-Amri the head of the countryrsquos
State Oil Marketing Company suggested that future quota calculations might have
been a factor in the revision A week later Iran raised its reserves number from
1366 billion barrels to 1503 billion barrels presumably in order to maintain its
position within the OPEC production quota system These numbers have been
dutifully included in the latest statistical compilations of both EIA and BP as if the
two hadnt gotten the memo that Iraqs and Irans increases were reported merely for
quota reasons and not because of any particular discoveries
Perhaps even more astounding is that some OPEC members dont even take the oil
reserves reporting game seriously any more Logic dictates that there should be at
least small adjustments up or down in reserves each year as new fields are
developed and old ones decline The world of geology simply cannot yield precisely
the new reserves needed to replace exactly the amount of oil extracted from existing
fields each year
And yet the United Arab Emirates has been reporting 978 billion barrels of oil
reserves every year since 1997 Kuwait has been reporting 104 billion barrels each
year since 2008 Iraqshows long periods from 1980 onward when reserves dont
change the latest running from 2004 to 2011 during which reserves supposedly held
absolutely steady at 115 billion barrelsAlgeria has reported 122 billion barrels from
2008 onward At least Saudi Arabia has demonstrated a certain sensitivity to
appearances and has adjusted its reserves number slightly from year to year And
yet that number has remained within a narrow range of 260 to 267 billion barrels
from 1991 to the present All of these numbers suggest that depletion from existing
fields is taking absolutely no toll on OPECs reserves Even if thats true we have no
way of verifying it
The second reason to doubt OPECs official oil reserve numbers is that two insiders
have told us not to trust those numbers The now deceased A M Samsam Bakhtiari
an executive for the National Iranian Oil Company told the Oil amp Gas Journal all the
way back in 2003 the following I know from experience how reserves are
11 OilVoice Magazine | OCTOBER 2012
estimated in major Middle Eastern (and OPEC) countriesAnd the methods used
are usually far from scientific as the basic knowledge for such a complex exercise is
not at hand He estimated that Iranian reserves were about 37 billion barrels not the
90 billion that were being cited at the time
Back in 2007 Sadad al-Husseini former executive vice president for exploration and
production at Saudi Aramco the state oil company that controls all oil development
in Saudi Arabia told a conference in London that world oil reserves had been
inflated by 300 billion barrels That number almost matches the increases in OPEC
members reserves for quota reasons in the 1980s and it represented about a
quarter of all reported reserves in 2007 As a result to this day al-Husseini remains
skeptical of claims that world oil production will rise much from here
Another piece of evidence that casts doubt on OPEC members reserve claims came
to light in 2005 That year Petroleum Intelligence Weekly an industry newsletter with
worldwide reach obtained internal documents from the state-owned Kuwait Oil Co
The documents revealed that Kuwaiti reserves were only half the official number 48
billion barrels versus 99 billion Since then policymakers and the public seemed to
have ignored the entire incident The BP Statistical Review lists Kuwaits reserves as
1015 billion barrels as of 2011 The EIA shows them as 104 billion Skepticism
apparently is taking an extended holiday at BP and EIA
Measuring oil reserves remains something of an art Even large publicly traded oil
companies with armies of petroleum geologists and engineers who operate under
strict US Securities and Exchange Commission rules for estimating reserves--even
these companies dont always get it right In 2004 Royal Dutch Shell had to lower its
reserves number by 20 percent a huge and costly blunder for such a sophisticated
company If Shell can bungle its reserves estimate then how much more likely are
OPEC countries which are subject to virtually no public scrutiny to bungle or perhaps
manipulate theirs
I said in a previous piece that the rate of production is the key metric when
evaluating the success of the worlds oil production and delivery system But
sustained production of oil depends on the size and quality of reserves If the world
does indeed have 300 billion fewer barrels of reserves than it thinks it does that has
implications for how long the current rate of production can be maintained (It has
been stuck between 71 and 76 million barrels per day since 2005) And that is why
the mystery surrounding OPECs reserves which supposedly constitute 80 percent
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
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Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
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Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
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Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
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NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
7 OilVoice Magazine | OCTOBER 2012
former visiting scholar at the Federal Reserve Board in Washington DC and other Federal Reserve Banks Read The Real Reason Behind Oil Price Rises by James Stafford
View more quality content from Testosterone Pit
Has OPEC misled us about the size of its oil reserves Does it matter
Written by Kurt Cobb from Resource Insights
Has OPEC misled us about the size of its oil reserves The short answer is
probably The long answer is that currently there is no way to know for sure
The next question we should ask is Does it matter The answer is most definitely
yes OPEC short for the Organization of Petroleum Exporting Countries currently
claims that its 12 members hold 813 percent of the worlds oil reserves And with
few exceptions the world believes them Trouble is these reserves are not verified
by independent auditors according to a study (PDF) done by the US Government
Accountability Office the nonpartisan investigative arm of the US Congress OPEC
reserves are simply self-reported by each country Essentially OPECs members are
asking us to take their word for it But should we
8 OilVoice Magazine | OCTOBER 2012
It ought to give us pause that the reserve numbers OPEC countries release are used
in major reports produced by the US Energy Information Administration (EIA) the
Paris-based International Energy Agency (IEA) a consortium of 28 of the worlds oil
importing nations oil giant BP which annually publishes the widely cited BP
Statistical Review of World Energy and myriad other organizations Reports from the
two agencies cited above and BP are frequently consulted by governments industry
banks and investors around the world for policy formulation long-term planning and
lending and investment decisions Yet these groups seem blissfully unaware of the
caveats surrounding the numbers in those reports and by extension surrounding
more than 80 percent of the worlds oil reserves
Keep in mind as we go along that the sometimes astronomical numbers thrown
around for world oil reserves by the uninformed or by those who intend to mislead us
either have no basis in fact or actually refer to resources Resources are only an
estimate of oil thought to be in the ground based on rather sketchy evidence And
most of that oil will never be recoverable Reserves however are what can be
produced at todays prices from known fields using existing technology It turns out
that reserves are only a tiny fraction of so-called resources
Now heres the caveat from the International Energy Agency in its World Energy
Outlook 2010
Definitions of reserves and resources and the methodologies for estimating them
vary considerably around the world leading to confusion and inconsistencies In
addition there is often a lack of transparency in the way reserves are reported many
national oil companies in both OPEC and non-OPEC countries do not use external
auditors of reserves and do not publish detailed results National oil companies
refers to government-owned companies which typically control all oil development
within a country
The BP Statistical Review of World Energy for 2012 provides this explanatory note
under a table listing oil reserves by country
The estimates in this table have been compiled using a combination of primary
official sources third-party data from the OPEC Secretariat World Oil Oil amp Gas
Journal and an independent estimate of Russian and Chinese reserves based on
information in the public domain Canadian oil sands under active development are
an official estimate Venezuelan Orinoco Belt reserves are based on the OPEC
9 OilVoice Magazine | OCTOBER 2012
Secretariat and government announcements The key words are OPEC Secretariat
which refers to the OPEC staff located in an office in Vienna That office is where BP
presumably gets its information about OPEC reserves The EIA lists the OPEC
Annual Statistical Bulletin put out by--you guessed it--the OPEC Secretariat Alas
the Annual Statistical Bulletin tells us under the heading Questions on data that
[a]lthough comments are welcome OPEC regrets that it is unable to answer all
enquiries concerning the data in the ASB In other words trust us So information
about OPEC reserves comes either from the OPEC offices in Vienna or from
member countries Some analysts may adjust those figures based on the few shreds
of evidence that are available outside of official government pronouncements But in
reality there are almost no hard facts when it comes to OPEC reserves
Strangely many of these countries say that a detailed audit of their fields by
independent observers is out of the question because oil reserves are a state secret
And yet those countries report their reserves to OPEC which publishes them for all
to see So are oil reserves in many OPEC countries a state secret or not
Apparently whats secret is the field-by-field data that would tell us whether the
reserves claimed by these countries are actually there Are there reasons to believe
that if we saw this data it would contradict the official overall number provided by
some countries In a word yes
First OPEC allocates production levels among its members It does this to control
the flow of oil to world markets and thus to manipulate the price OPEC bases
production quotas for its members in part on the size of each members reserves
When this policy was first established in the 1980s reported reserves for several
OPEC members jumped between roughly 40 and 200 percent within one year--not
always the same year--as each country jockeyed for a higher production quota
Based on EIA data heres what it looked like
Country Reserves in Barrels
(Year)
Reserves in Barrels
(Year)
Percentage
Increase
Iran 488 billion (1987) 929 billion (1988) 904
Iraq 471 billion (1987) 100 billion (1988) 1123
Kuwait 667 billion (1984) 927 billion (1985) 390
Saudi Arabia 1726 billion (1989) 2576 billion (1990) 493
United Arab
Emirates 331 billion (1987) 981 billion (1988) 1964
Venezuela 250 billion (1987) 563 billion (1988) 1252
10 OilVoice Magazine | OCTOBER 2012
Not every country participated in the free-for-all But the countries with the largest
exports participated with a vengeance There was no drilling program in any of these
countries that could have explained such jumps in reserves
The competition continues to this day In October 2010 Iraq announced an increase
in its oil reserves from 115 billion barrels to 1431 billion barrels No attempt was
made to hide the reason for the increase Falah al-Amri the head of the countryrsquos
State Oil Marketing Company suggested that future quota calculations might have
been a factor in the revision A week later Iran raised its reserves number from
1366 billion barrels to 1503 billion barrels presumably in order to maintain its
position within the OPEC production quota system These numbers have been
dutifully included in the latest statistical compilations of both EIA and BP as if the
two hadnt gotten the memo that Iraqs and Irans increases were reported merely for
quota reasons and not because of any particular discoveries
Perhaps even more astounding is that some OPEC members dont even take the oil
reserves reporting game seriously any more Logic dictates that there should be at
least small adjustments up or down in reserves each year as new fields are
developed and old ones decline The world of geology simply cannot yield precisely
the new reserves needed to replace exactly the amount of oil extracted from existing
fields each year
And yet the United Arab Emirates has been reporting 978 billion barrels of oil
reserves every year since 1997 Kuwait has been reporting 104 billion barrels each
year since 2008 Iraqshows long periods from 1980 onward when reserves dont
change the latest running from 2004 to 2011 during which reserves supposedly held
absolutely steady at 115 billion barrelsAlgeria has reported 122 billion barrels from
2008 onward At least Saudi Arabia has demonstrated a certain sensitivity to
appearances and has adjusted its reserves number slightly from year to year And
yet that number has remained within a narrow range of 260 to 267 billion barrels
from 1991 to the present All of these numbers suggest that depletion from existing
fields is taking absolutely no toll on OPECs reserves Even if thats true we have no
way of verifying it
The second reason to doubt OPECs official oil reserve numbers is that two insiders
have told us not to trust those numbers The now deceased A M Samsam Bakhtiari
an executive for the National Iranian Oil Company told the Oil amp Gas Journal all the
way back in 2003 the following I know from experience how reserves are
11 OilVoice Magazine | OCTOBER 2012
estimated in major Middle Eastern (and OPEC) countriesAnd the methods used
are usually far from scientific as the basic knowledge for such a complex exercise is
not at hand He estimated that Iranian reserves were about 37 billion barrels not the
90 billion that were being cited at the time
Back in 2007 Sadad al-Husseini former executive vice president for exploration and
production at Saudi Aramco the state oil company that controls all oil development
in Saudi Arabia told a conference in London that world oil reserves had been
inflated by 300 billion barrels That number almost matches the increases in OPEC
members reserves for quota reasons in the 1980s and it represented about a
quarter of all reported reserves in 2007 As a result to this day al-Husseini remains
skeptical of claims that world oil production will rise much from here
Another piece of evidence that casts doubt on OPEC members reserve claims came
to light in 2005 That year Petroleum Intelligence Weekly an industry newsletter with
worldwide reach obtained internal documents from the state-owned Kuwait Oil Co
The documents revealed that Kuwaiti reserves were only half the official number 48
billion barrels versus 99 billion Since then policymakers and the public seemed to
have ignored the entire incident The BP Statistical Review lists Kuwaits reserves as
1015 billion barrels as of 2011 The EIA shows them as 104 billion Skepticism
apparently is taking an extended holiday at BP and EIA
Measuring oil reserves remains something of an art Even large publicly traded oil
companies with armies of petroleum geologists and engineers who operate under
strict US Securities and Exchange Commission rules for estimating reserves--even
these companies dont always get it right In 2004 Royal Dutch Shell had to lower its
reserves number by 20 percent a huge and costly blunder for such a sophisticated
company If Shell can bungle its reserves estimate then how much more likely are
OPEC countries which are subject to virtually no public scrutiny to bungle or perhaps
manipulate theirs
I said in a previous piece that the rate of production is the key metric when
evaluating the success of the worlds oil production and delivery system But
sustained production of oil depends on the size and quality of reserves If the world
does indeed have 300 billion fewer barrels of reserves than it thinks it does that has
implications for how long the current rate of production can be maintained (It has
been stuck between 71 and 76 million barrels per day since 2005) And that is why
the mystery surrounding OPECs reserves which supposedly constitute 80 percent
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
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Visit GOSHs OilVoice profile
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Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
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Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
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Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
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NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
8 OilVoice Magazine | OCTOBER 2012
It ought to give us pause that the reserve numbers OPEC countries release are used
in major reports produced by the US Energy Information Administration (EIA) the
Paris-based International Energy Agency (IEA) a consortium of 28 of the worlds oil
importing nations oil giant BP which annually publishes the widely cited BP
Statistical Review of World Energy and myriad other organizations Reports from the
two agencies cited above and BP are frequently consulted by governments industry
banks and investors around the world for policy formulation long-term planning and
lending and investment decisions Yet these groups seem blissfully unaware of the
caveats surrounding the numbers in those reports and by extension surrounding
more than 80 percent of the worlds oil reserves
Keep in mind as we go along that the sometimes astronomical numbers thrown
around for world oil reserves by the uninformed or by those who intend to mislead us
either have no basis in fact or actually refer to resources Resources are only an
estimate of oil thought to be in the ground based on rather sketchy evidence And
most of that oil will never be recoverable Reserves however are what can be
produced at todays prices from known fields using existing technology It turns out
that reserves are only a tiny fraction of so-called resources
Now heres the caveat from the International Energy Agency in its World Energy
Outlook 2010
Definitions of reserves and resources and the methodologies for estimating them
vary considerably around the world leading to confusion and inconsistencies In
addition there is often a lack of transparency in the way reserves are reported many
national oil companies in both OPEC and non-OPEC countries do not use external
auditors of reserves and do not publish detailed results National oil companies
refers to government-owned companies which typically control all oil development
within a country
The BP Statistical Review of World Energy for 2012 provides this explanatory note
under a table listing oil reserves by country
The estimates in this table have been compiled using a combination of primary
official sources third-party data from the OPEC Secretariat World Oil Oil amp Gas
Journal and an independent estimate of Russian and Chinese reserves based on
information in the public domain Canadian oil sands under active development are
an official estimate Venezuelan Orinoco Belt reserves are based on the OPEC
9 OilVoice Magazine | OCTOBER 2012
Secretariat and government announcements The key words are OPEC Secretariat
which refers to the OPEC staff located in an office in Vienna That office is where BP
presumably gets its information about OPEC reserves The EIA lists the OPEC
Annual Statistical Bulletin put out by--you guessed it--the OPEC Secretariat Alas
the Annual Statistical Bulletin tells us under the heading Questions on data that
[a]lthough comments are welcome OPEC regrets that it is unable to answer all
enquiries concerning the data in the ASB In other words trust us So information
about OPEC reserves comes either from the OPEC offices in Vienna or from
member countries Some analysts may adjust those figures based on the few shreds
of evidence that are available outside of official government pronouncements But in
reality there are almost no hard facts when it comes to OPEC reserves
Strangely many of these countries say that a detailed audit of their fields by
independent observers is out of the question because oil reserves are a state secret
And yet those countries report their reserves to OPEC which publishes them for all
to see So are oil reserves in many OPEC countries a state secret or not
Apparently whats secret is the field-by-field data that would tell us whether the
reserves claimed by these countries are actually there Are there reasons to believe
that if we saw this data it would contradict the official overall number provided by
some countries In a word yes
First OPEC allocates production levels among its members It does this to control
the flow of oil to world markets and thus to manipulate the price OPEC bases
production quotas for its members in part on the size of each members reserves
When this policy was first established in the 1980s reported reserves for several
OPEC members jumped between roughly 40 and 200 percent within one year--not
always the same year--as each country jockeyed for a higher production quota
Based on EIA data heres what it looked like
Country Reserves in Barrels
(Year)
Reserves in Barrels
(Year)
Percentage
Increase
Iran 488 billion (1987) 929 billion (1988) 904
Iraq 471 billion (1987) 100 billion (1988) 1123
Kuwait 667 billion (1984) 927 billion (1985) 390
Saudi Arabia 1726 billion (1989) 2576 billion (1990) 493
United Arab
Emirates 331 billion (1987) 981 billion (1988) 1964
Venezuela 250 billion (1987) 563 billion (1988) 1252
10 OilVoice Magazine | OCTOBER 2012
Not every country participated in the free-for-all But the countries with the largest
exports participated with a vengeance There was no drilling program in any of these
countries that could have explained such jumps in reserves
The competition continues to this day In October 2010 Iraq announced an increase
in its oil reserves from 115 billion barrels to 1431 billion barrels No attempt was
made to hide the reason for the increase Falah al-Amri the head of the countryrsquos
State Oil Marketing Company suggested that future quota calculations might have
been a factor in the revision A week later Iran raised its reserves number from
1366 billion barrels to 1503 billion barrels presumably in order to maintain its
position within the OPEC production quota system These numbers have been
dutifully included in the latest statistical compilations of both EIA and BP as if the
two hadnt gotten the memo that Iraqs and Irans increases were reported merely for
quota reasons and not because of any particular discoveries
Perhaps even more astounding is that some OPEC members dont even take the oil
reserves reporting game seriously any more Logic dictates that there should be at
least small adjustments up or down in reserves each year as new fields are
developed and old ones decline The world of geology simply cannot yield precisely
the new reserves needed to replace exactly the amount of oil extracted from existing
fields each year
And yet the United Arab Emirates has been reporting 978 billion barrels of oil
reserves every year since 1997 Kuwait has been reporting 104 billion barrels each
year since 2008 Iraqshows long periods from 1980 onward when reserves dont
change the latest running from 2004 to 2011 during which reserves supposedly held
absolutely steady at 115 billion barrelsAlgeria has reported 122 billion barrels from
2008 onward At least Saudi Arabia has demonstrated a certain sensitivity to
appearances and has adjusted its reserves number slightly from year to year And
yet that number has remained within a narrow range of 260 to 267 billion barrels
from 1991 to the present All of these numbers suggest that depletion from existing
fields is taking absolutely no toll on OPECs reserves Even if thats true we have no
way of verifying it
The second reason to doubt OPECs official oil reserve numbers is that two insiders
have told us not to trust those numbers The now deceased A M Samsam Bakhtiari
an executive for the National Iranian Oil Company told the Oil amp Gas Journal all the
way back in 2003 the following I know from experience how reserves are
11 OilVoice Magazine | OCTOBER 2012
estimated in major Middle Eastern (and OPEC) countriesAnd the methods used
are usually far from scientific as the basic knowledge for such a complex exercise is
not at hand He estimated that Iranian reserves were about 37 billion barrels not the
90 billion that were being cited at the time
Back in 2007 Sadad al-Husseini former executive vice president for exploration and
production at Saudi Aramco the state oil company that controls all oil development
in Saudi Arabia told a conference in London that world oil reserves had been
inflated by 300 billion barrels That number almost matches the increases in OPEC
members reserves for quota reasons in the 1980s and it represented about a
quarter of all reported reserves in 2007 As a result to this day al-Husseini remains
skeptical of claims that world oil production will rise much from here
Another piece of evidence that casts doubt on OPEC members reserve claims came
to light in 2005 That year Petroleum Intelligence Weekly an industry newsletter with
worldwide reach obtained internal documents from the state-owned Kuwait Oil Co
The documents revealed that Kuwaiti reserves were only half the official number 48
billion barrels versus 99 billion Since then policymakers and the public seemed to
have ignored the entire incident The BP Statistical Review lists Kuwaits reserves as
1015 billion barrels as of 2011 The EIA shows them as 104 billion Skepticism
apparently is taking an extended holiday at BP and EIA
Measuring oil reserves remains something of an art Even large publicly traded oil
companies with armies of petroleum geologists and engineers who operate under
strict US Securities and Exchange Commission rules for estimating reserves--even
these companies dont always get it right In 2004 Royal Dutch Shell had to lower its
reserves number by 20 percent a huge and costly blunder for such a sophisticated
company If Shell can bungle its reserves estimate then how much more likely are
OPEC countries which are subject to virtually no public scrutiny to bungle or perhaps
manipulate theirs
I said in a previous piece that the rate of production is the key metric when
evaluating the success of the worlds oil production and delivery system But
sustained production of oil depends on the size and quality of reserves If the world
does indeed have 300 billion fewer barrels of reserves than it thinks it does that has
implications for how long the current rate of production can be maintained (It has
been stuck between 71 and 76 million barrels per day since 2005) And that is why
the mystery surrounding OPECs reserves which supposedly constitute 80 percent
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Next generation technology from Ikon Science geological inversion geopressure prediction fast workflows and more From rock physics to reservoir properties in one powerful and connected platform RokDocQED for Quantitative Exploration amp Development
Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
9 OilVoice Magazine | OCTOBER 2012
Secretariat and government announcements The key words are OPEC Secretariat
which refers to the OPEC staff located in an office in Vienna That office is where BP
presumably gets its information about OPEC reserves The EIA lists the OPEC
Annual Statistical Bulletin put out by--you guessed it--the OPEC Secretariat Alas
the Annual Statistical Bulletin tells us under the heading Questions on data that
[a]lthough comments are welcome OPEC regrets that it is unable to answer all
enquiries concerning the data in the ASB In other words trust us So information
about OPEC reserves comes either from the OPEC offices in Vienna or from
member countries Some analysts may adjust those figures based on the few shreds
of evidence that are available outside of official government pronouncements But in
reality there are almost no hard facts when it comes to OPEC reserves
Strangely many of these countries say that a detailed audit of their fields by
independent observers is out of the question because oil reserves are a state secret
And yet those countries report their reserves to OPEC which publishes them for all
to see So are oil reserves in many OPEC countries a state secret or not
Apparently whats secret is the field-by-field data that would tell us whether the
reserves claimed by these countries are actually there Are there reasons to believe
that if we saw this data it would contradict the official overall number provided by
some countries In a word yes
First OPEC allocates production levels among its members It does this to control
the flow of oil to world markets and thus to manipulate the price OPEC bases
production quotas for its members in part on the size of each members reserves
When this policy was first established in the 1980s reported reserves for several
OPEC members jumped between roughly 40 and 200 percent within one year--not
always the same year--as each country jockeyed for a higher production quota
Based on EIA data heres what it looked like
Country Reserves in Barrels
(Year)
Reserves in Barrels
(Year)
Percentage
Increase
Iran 488 billion (1987) 929 billion (1988) 904
Iraq 471 billion (1987) 100 billion (1988) 1123
Kuwait 667 billion (1984) 927 billion (1985) 390
Saudi Arabia 1726 billion (1989) 2576 billion (1990) 493
United Arab
Emirates 331 billion (1987) 981 billion (1988) 1964
Venezuela 250 billion (1987) 563 billion (1988) 1252
10 OilVoice Magazine | OCTOBER 2012
Not every country participated in the free-for-all But the countries with the largest
exports participated with a vengeance There was no drilling program in any of these
countries that could have explained such jumps in reserves
The competition continues to this day In October 2010 Iraq announced an increase
in its oil reserves from 115 billion barrels to 1431 billion barrels No attempt was
made to hide the reason for the increase Falah al-Amri the head of the countryrsquos
State Oil Marketing Company suggested that future quota calculations might have
been a factor in the revision A week later Iran raised its reserves number from
1366 billion barrels to 1503 billion barrels presumably in order to maintain its
position within the OPEC production quota system These numbers have been
dutifully included in the latest statistical compilations of both EIA and BP as if the
two hadnt gotten the memo that Iraqs and Irans increases were reported merely for
quota reasons and not because of any particular discoveries
Perhaps even more astounding is that some OPEC members dont even take the oil
reserves reporting game seriously any more Logic dictates that there should be at
least small adjustments up or down in reserves each year as new fields are
developed and old ones decline The world of geology simply cannot yield precisely
the new reserves needed to replace exactly the amount of oil extracted from existing
fields each year
And yet the United Arab Emirates has been reporting 978 billion barrels of oil
reserves every year since 1997 Kuwait has been reporting 104 billion barrels each
year since 2008 Iraqshows long periods from 1980 onward when reserves dont
change the latest running from 2004 to 2011 during which reserves supposedly held
absolutely steady at 115 billion barrelsAlgeria has reported 122 billion barrels from
2008 onward At least Saudi Arabia has demonstrated a certain sensitivity to
appearances and has adjusted its reserves number slightly from year to year And
yet that number has remained within a narrow range of 260 to 267 billion barrels
from 1991 to the present All of these numbers suggest that depletion from existing
fields is taking absolutely no toll on OPECs reserves Even if thats true we have no
way of verifying it
The second reason to doubt OPECs official oil reserve numbers is that two insiders
have told us not to trust those numbers The now deceased A M Samsam Bakhtiari
an executive for the National Iranian Oil Company told the Oil amp Gas Journal all the
way back in 2003 the following I know from experience how reserves are
11 OilVoice Magazine | OCTOBER 2012
estimated in major Middle Eastern (and OPEC) countriesAnd the methods used
are usually far from scientific as the basic knowledge for such a complex exercise is
not at hand He estimated that Iranian reserves were about 37 billion barrels not the
90 billion that were being cited at the time
Back in 2007 Sadad al-Husseini former executive vice president for exploration and
production at Saudi Aramco the state oil company that controls all oil development
in Saudi Arabia told a conference in London that world oil reserves had been
inflated by 300 billion barrels That number almost matches the increases in OPEC
members reserves for quota reasons in the 1980s and it represented about a
quarter of all reported reserves in 2007 As a result to this day al-Husseini remains
skeptical of claims that world oil production will rise much from here
Another piece of evidence that casts doubt on OPEC members reserve claims came
to light in 2005 That year Petroleum Intelligence Weekly an industry newsletter with
worldwide reach obtained internal documents from the state-owned Kuwait Oil Co
The documents revealed that Kuwaiti reserves were only half the official number 48
billion barrels versus 99 billion Since then policymakers and the public seemed to
have ignored the entire incident The BP Statistical Review lists Kuwaits reserves as
1015 billion barrels as of 2011 The EIA shows them as 104 billion Skepticism
apparently is taking an extended holiday at BP and EIA
Measuring oil reserves remains something of an art Even large publicly traded oil
companies with armies of petroleum geologists and engineers who operate under
strict US Securities and Exchange Commission rules for estimating reserves--even
these companies dont always get it right In 2004 Royal Dutch Shell had to lower its
reserves number by 20 percent a huge and costly blunder for such a sophisticated
company If Shell can bungle its reserves estimate then how much more likely are
OPEC countries which are subject to virtually no public scrutiny to bungle or perhaps
manipulate theirs
I said in a previous piece that the rate of production is the key metric when
evaluating the success of the worlds oil production and delivery system But
sustained production of oil depends on the size and quality of reserves If the world
does indeed have 300 billion fewer barrels of reserves than it thinks it does that has
implications for how long the current rate of production can be maintained (It has
been stuck between 71 and 76 million barrels per day since 2005) And that is why
the mystery surrounding OPECs reserves which supposedly constitute 80 percent
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
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Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
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Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
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Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
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NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
10 OilVoice Magazine | OCTOBER 2012
Not every country participated in the free-for-all But the countries with the largest
exports participated with a vengeance There was no drilling program in any of these
countries that could have explained such jumps in reserves
The competition continues to this day In October 2010 Iraq announced an increase
in its oil reserves from 115 billion barrels to 1431 billion barrels No attempt was
made to hide the reason for the increase Falah al-Amri the head of the countryrsquos
State Oil Marketing Company suggested that future quota calculations might have
been a factor in the revision A week later Iran raised its reserves number from
1366 billion barrels to 1503 billion barrels presumably in order to maintain its
position within the OPEC production quota system These numbers have been
dutifully included in the latest statistical compilations of both EIA and BP as if the
two hadnt gotten the memo that Iraqs and Irans increases were reported merely for
quota reasons and not because of any particular discoveries
Perhaps even more astounding is that some OPEC members dont even take the oil
reserves reporting game seriously any more Logic dictates that there should be at
least small adjustments up or down in reserves each year as new fields are
developed and old ones decline The world of geology simply cannot yield precisely
the new reserves needed to replace exactly the amount of oil extracted from existing
fields each year
And yet the United Arab Emirates has been reporting 978 billion barrels of oil
reserves every year since 1997 Kuwait has been reporting 104 billion barrels each
year since 2008 Iraqshows long periods from 1980 onward when reserves dont
change the latest running from 2004 to 2011 during which reserves supposedly held
absolutely steady at 115 billion barrelsAlgeria has reported 122 billion barrels from
2008 onward At least Saudi Arabia has demonstrated a certain sensitivity to
appearances and has adjusted its reserves number slightly from year to year And
yet that number has remained within a narrow range of 260 to 267 billion barrels
from 1991 to the present All of these numbers suggest that depletion from existing
fields is taking absolutely no toll on OPECs reserves Even if thats true we have no
way of verifying it
The second reason to doubt OPECs official oil reserve numbers is that two insiders
have told us not to trust those numbers The now deceased A M Samsam Bakhtiari
an executive for the National Iranian Oil Company told the Oil amp Gas Journal all the
way back in 2003 the following I know from experience how reserves are
11 OilVoice Magazine | OCTOBER 2012
estimated in major Middle Eastern (and OPEC) countriesAnd the methods used
are usually far from scientific as the basic knowledge for such a complex exercise is
not at hand He estimated that Iranian reserves were about 37 billion barrels not the
90 billion that were being cited at the time
Back in 2007 Sadad al-Husseini former executive vice president for exploration and
production at Saudi Aramco the state oil company that controls all oil development
in Saudi Arabia told a conference in London that world oil reserves had been
inflated by 300 billion barrels That number almost matches the increases in OPEC
members reserves for quota reasons in the 1980s and it represented about a
quarter of all reported reserves in 2007 As a result to this day al-Husseini remains
skeptical of claims that world oil production will rise much from here
Another piece of evidence that casts doubt on OPEC members reserve claims came
to light in 2005 That year Petroleum Intelligence Weekly an industry newsletter with
worldwide reach obtained internal documents from the state-owned Kuwait Oil Co
The documents revealed that Kuwaiti reserves were only half the official number 48
billion barrels versus 99 billion Since then policymakers and the public seemed to
have ignored the entire incident The BP Statistical Review lists Kuwaits reserves as
1015 billion barrels as of 2011 The EIA shows them as 104 billion Skepticism
apparently is taking an extended holiday at BP and EIA
Measuring oil reserves remains something of an art Even large publicly traded oil
companies with armies of petroleum geologists and engineers who operate under
strict US Securities and Exchange Commission rules for estimating reserves--even
these companies dont always get it right In 2004 Royal Dutch Shell had to lower its
reserves number by 20 percent a huge and costly blunder for such a sophisticated
company If Shell can bungle its reserves estimate then how much more likely are
OPEC countries which are subject to virtually no public scrutiny to bungle or perhaps
manipulate theirs
I said in a previous piece that the rate of production is the key metric when
evaluating the success of the worlds oil production and delivery system But
sustained production of oil depends on the size and quality of reserves If the world
does indeed have 300 billion fewer barrels of reserves than it thinks it does that has
implications for how long the current rate of production can be maintained (It has
been stuck between 71 and 76 million barrels per day since 2005) And that is why
the mystery surrounding OPECs reserves which supposedly constitute 80 percent
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
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Visit Titan Technologies OilVoice profile
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Visit GOSHs OilVoice profile
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Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
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Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
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Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
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Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
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NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
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29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
11 OilVoice Magazine | OCTOBER 2012
estimated in major Middle Eastern (and OPEC) countriesAnd the methods used
are usually far from scientific as the basic knowledge for such a complex exercise is
not at hand He estimated that Iranian reserves were about 37 billion barrels not the
90 billion that were being cited at the time
Back in 2007 Sadad al-Husseini former executive vice president for exploration and
production at Saudi Aramco the state oil company that controls all oil development
in Saudi Arabia told a conference in London that world oil reserves had been
inflated by 300 billion barrels That number almost matches the increases in OPEC
members reserves for quota reasons in the 1980s and it represented about a
quarter of all reported reserves in 2007 As a result to this day al-Husseini remains
skeptical of claims that world oil production will rise much from here
Another piece of evidence that casts doubt on OPEC members reserve claims came
to light in 2005 That year Petroleum Intelligence Weekly an industry newsletter with
worldwide reach obtained internal documents from the state-owned Kuwait Oil Co
The documents revealed that Kuwaiti reserves were only half the official number 48
billion barrels versus 99 billion Since then policymakers and the public seemed to
have ignored the entire incident The BP Statistical Review lists Kuwaits reserves as
1015 billion barrels as of 2011 The EIA shows them as 104 billion Skepticism
apparently is taking an extended holiday at BP and EIA
Measuring oil reserves remains something of an art Even large publicly traded oil
companies with armies of petroleum geologists and engineers who operate under
strict US Securities and Exchange Commission rules for estimating reserves--even
these companies dont always get it right In 2004 Royal Dutch Shell had to lower its
reserves number by 20 percent a huge and costly blunder for such a sophisticated
company If Shell can bungle its reserves estimate then how much more likely are
OPEC countries which are subject to virtually no public scrutiny to bungle or perhaps
manipulate theirs
I said in a previous piece that the rate of production is the key metric when
evaluating the success of the worlds oil production and delivery system But
sustained production of oil depends on the size and quality of reserves If the world
does indeed have 300 billion fewer barrels of reserves than it thinks it does that has
implications for how long the current rate of production can be maintained (It has
been stuck between 71 and 76 million barrels per day since 2005) And that is why
the mystery surrounding OPECs reserves which supposedly constitute 80 percent
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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that can be accessed online or printed and reviewed later Start your search today
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Visit Titan Technologies OilVoice profile
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Visit GOSHs OilVoice profile
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29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
12 OilVoice Magazine | OCTOBER 2012
of the worlds reserves is so disturbing Even more disturbing is how much this
mystery is ignored or perhaps not understood by policymakers industry and the
public
We shouldnt be the least bit exultant over claims that we have more oil reserves
than weve ever had before First we are using up that oil at a faster rate than ever
before Second much of what is currently parading as reserves may not be Third
the plateau in worldwide oil production since 2005 is actually consistent with a
smaller reserve base
Given all this I think we can safely say that when it comes to the official statistics on
oil reserves there is likely to be less than meets the eye And that begs the question
Does it really make sense for the world to chart its energy future based on such
dubious information
View more quality content from Resource Insights
The stakes get higher in the fracking debate
Written by Keith Schaefer from Oil amp Gas Investments Bulletin
Is there any common ground in the debate over hydraulic fracturing Its a divisive
issue especially in the US where 90-plus of all global fracking is done now
pitting neighbor against neighbor
Two weeks ago I wrote about a success story - How a US Oil Refinery Got Saved -
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
RokDocQED - Quantitative Exploration amp Development
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Next generation technology from Ikon Science geological inversion geopressure prediction fast workflows and more From rock physics to reservoir properties in one powerful and connected platform RokDocQED for Quantitative Exploration amp Development
Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
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Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
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Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
13 OilVoice Magazine | OCTOBER 2012
in which different stakeholders were able to put aside differences and create a win-
win scenario for everyone
Can the groups on either side of the fracking debate do the same
The stakes are higher as the main concern of those against fracking is that it may
contaminate drinking water That may or may not be true but it certainly validates
the fierce emotion behind the issue
Media reports surfaced in late August that New York State Governor Andrew Cuomo
may end the ban on fracking the state has had since 2008 Trouble started
immediately
The Albany Times-Union reports that roughly 1200 people attended a march
through the states capital on Monday August 27 calling on Cuomo to uphold the
fracking ban
Hydrofracking remains a divisive issue for New Yorkers and presents DEC
(Department of Environmental Conservation) and the Governor with a political lose-
lose Steven Greenberg a pollster at Siena said Whatever decision they make is
going to upset as many people as it pleases
A recent survey from Siena Research Institute found more New Yorkers supported
restarting fracking than opposed ithellip by a razor-thin margin of 39 percent to 38
percent
Still the DECs research notes that the industry could bring more than 17600 jobs to
the state and potentially as much as $125 million each year in tax revenue making
a strong counter-argument all on its own
For many the issue is jobs and royalties vs the environment I dont see it that way
though This multi-billion dollar industry-horizontal drilling and multi-stage fracking-
has been around for 15 years but really only seen major growth since 2007-five
short years ago
And as companies test new fracking technology-plug amp perf vs open hole slickwater
vs oil vs propane-new things get developed that keep lowering costs and increasing
the amount of oil and gas that can get produced What I mean to say is that
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
Recent Company Profiles
The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
14 OilVoice Magazine | OCTOBER 2012
technology is changing so fast the industry can hardly keep up-much less the
general public And the industry is obviously fixated on keeping up with the
competition not explaining things to the public-which in all likelihood will all be out
of date shortly
The industry is even developing more environmental ways of fracking I believe for
example that in five years all fracking fluid will be food-grade You (ok maybe not
you but the oil and gas company reps) will be able to drink the stuff The public is
demanding it I think it will happen-but not right away
The industry and the public are going to continue to dance around this issue for the
next couple years trying to find consensus The Shale Revolution is SO important
economically to the United States there is no way fracking is EVER going to get
banned in the near-to-mid-term But both sides need to work harder to find
consensus
The two sides dont talk the same language yet When regulators produce 450-page
studies which have scientific backing that say fracking can be done safely I dont
hear respect from the people opposed to fracking
And the industryhellip well a lot of them are like deer caught in the headlights Theyve
been fracking for 50 years and they just cant get over what all this new fuss is
about
Get over it guys And hurry
There is a very bright light of mainstream attention that will forever change the way
oil and gas does its business in the developed world and how it gets permitted
Sadly the industry hasnt been pro-active or successful in getting ahead of public
opinion on fracking and they remain re-active in responding to issues-most of which
they clearly never thought were issues in the first place
And some very aggressive operators who have little bedside manner havent helped
at local levels-especially in areas that are new to oil and gas like the northeast US
Carol French and Carolyn Knapp two Pennsylvania dairy farmers are outspoken
critics of fracking They not only point to stories of contaminated wells but to the
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
15 OilVoice Magazine | OCTOBER 2012
problems that come with the infrastructure brought in by operators According to The
Associated Press the pair say that pipelines can cut off access to crops and drilling
equipment can cause serious damage to roads
I never in my wildest dreams envisioned the industrialization that comes along with
this process Knapp told a group in North Carolina
Siobhan Griffin a New York cattle farmer told the news source that she fears for her
animals if fracking comes to town
Two incidents stick out in her mind the quarantine of 28 cows in Pennsylvania after
they drank fracking wastewater and the death of 17 Louisiana cows that died after
drinking water that was contaminated (Fracking involves millions of gallons of water
mixed with sand and about 1 chemicals pumped into the earth to fracture shale
rock releasing gas The wastewater created by this has caused many fears of
drinking water contamination)
Not all farmers have the same view of fracking however Some see the wealth it has
brought their neighbors and are anxious to get in on the action
New York dairy farmer Jennifer Huntington took her town to court after it stopped a
well plan on her land She says that the money brought in by the operation would
have paid for a number of updates to her farm
We would have used the royalties to update the anaerobic digester that we installed
in 1984 she told the AP We would have purchased a better oil seed press to more
efficiently press soybeans for biodiesel We would have invested in our farm our
land and our employees
Dan Fitzsimmons the chief of the 70000-member Joint Landowners Coalition of
New York has worked to have the Empire State lift its moratorium on fracking so he
and others could profit from it like their neighbors in Pennsylvania
I go over the border and see people planting orchards buying tractors putting
money back in their land he said Wed like to do that too but instead we struggle
to pay the taxes and to hang onto our farms
The picture is not always clear even once fracking starts up however While some of
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
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Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
Recent Company Profiles
The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
16 OilVoice Magazine | OCTOBER 2012
the environmental impacts of fracking may often get overstated and are often
misunderstood some incidents have highlighted the potential for problems just in
bringing the gas industry into populated areas
The Philadelphia Inquirer notes that the town of Dimock Pennsylvania-made famous
by a shot of flaming tap water from the slightly histrionic documentary Gasland-
remains deeply divided by the presence of the gas industry
The town was at one point the epicenter of the hydraulic fracturing debate after initial
reports suggested that fracking had tainted nearby wells The story really kicked off
when methane that had collected in one well exploded ignited by the wells electric
pump
Investigation from the US Environmental Protection Agency eventually found that
the problem was actually with the cement used to seal off the wells which let gas
migrate into the local aquifers Still even with extensive efforts to fix the wells and
clean the water many residents remain opposed to further drilling and distrustful of
the companies doing the work
You sort of have to give them the opportunity to fix your water Its all about the
water its not about the money Bill Ely a 61-year-old resident of Dimock told the
Inquirer However he added Once your water is bad its hard to get back to
drinking it
Even in areas where the environmental impacts have been less dramatic there has
been notable disagreement The Star-Gazette notes the example of Montanas
Blackfeet Indian Reservation which leased about two-thirds of its land for oil and gas
exploration in 2008
The reservation has already brought in around $30 million enough to pay off debts
incurred building a casino upgrade some of the areas infrastructure and offer some
regular income for residents without any dramatic environmental problems
However the land has started to fill up with all the trappings of the oil and gas
industry from drilling rigs to water and chemical containers leading many to
question the decision
So the debate rages The emotional side needs to look at the science and the
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
RokDocQED - Quantitative Exploration amp Development
The Next Generation of Ikon RokDoc
Next generation technology from Ikon Science geological inversion geopressure prediction fast workflows and more From rock physics to reservoir properties in one powerful and connected platform RokDocQED for Quantitative Exploration amp Development
Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
17 OilVoice Magazine | OCTOBER 2012
engineers need to understand the emotion which doesnt get papered over with a
study I would suggest its up to industry to make the big first move-whatever that is
But for it to be effective it needs to be a Big Leap Forward
View more quality content from Oil amp Gas Investments Bulletin
What does the Mars Lander tell us about our industry
Written by David Bamford from Finding Petroleum
Against the background of the Mars Lander I examine the charge that the oil amp
gas industry is extremely conservative compared to almost any other in its
approach to new technologies and ideas has some justification
Why is this Whats the evidence
At the recent British Business Embassy day on the Upstream ndash start here if you must
ndash somebody an optimist perhaps asked the august panel Perhaps the oil and gas
industry is very innovative in terms of technology but conservative in the way we run
the business How can we learn from other industries Can we do things in a way
that could be more efficient
Hmm no this is very innovative the 3D panoramic view of the surface of Mars taken
by the Lander
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
RokDocQED - Quantitative Exploration amp Development
The Next Generation of Ikon RokDoc
Next generation technology from Ikon Science geological inversion geopressure prediction fast workflows and more From rock physics to reservoir properties in one powerful and connected platform RokDocQED for Quantitative Exploration amp Development
Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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The OilVoice database has a diverse selection of company profiles covering new
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key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
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Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
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NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
18 OilVoice Magazine | OCTOBER 2012
In contrast the facts indicate that our industry is conservative in the extreme
Some time ago I noticed an interesting article on RigZone talking about companies
that are consistently innovative the outcome of a study by three business school
professors who studied the worlds most innovative companies for the last 8 years
Really interesting I thought and similar in a way to some of the ideas of Niall
Ferguson on why the West rose to pre-eminence in the 19th and 20th Centuries
and George Magnuss on why China (and other community rather than individually
oriented countries) will struggle to outpace the West in the long run
But then IMHO the whole article was undone by referring to a study by HOLT a
subsidiary of Credit Suisse to identify the leading 100 innovative companies based
on how much revenue companies claimed new offerings would yield out into the
future
In this top 100 from the oil amp gas sector they put forward
FMC-Technologies
Schlumberger
China Oilfield Services
Cameron International
Tenaris SA
Halliburton
I wonder if you asked managers in the oil amp gas sector to name their top 5 innovative
companies ndash the lsquodisruptive innovatorsrsquo - whether any of these 6 would figure
I was struck by reading the commentary on the late Steve Jobsrsquo stepping down as
CEO of Apple that he invented new things ndash the iPod the iPhone the iPad ndash before
any of us realised we needed them This seems to me to be a really good definition
of innovation of leadership in innovation and it set me wondering where this exists
in our industry
Why do I assert that our industry is ultra-conservative
As a piece of data I offer the following graphic which summarises rather neatly the
insight that the oil amp gas industry is one of the most conservative industries around
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
RokDocQED - Quantitative Exploration amp Development
The Next Generation of Ikon RokDoc
Next generation technology from Ikon Science geological inversion geopressure prediction fast workflows and more From rock physics to reservoir properties in one powerful and connected platform RokDocQED for Quantitative Exploration amp Development
Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
Recent Company Profiles
The OilVoice database has a diverse selection of company profiles covering new
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key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
19 OilVoice Magazine | OCTOBER 2012
Two of our lsquomost important
technologiesrsquo ndash horizontal drilling and
3D4D seismic ndash that are
consistently identified in surveys - of
what the lsquogreat amp goodrsquo in our
industry think - are great examples
of the decades it takes for new ideas
to achieve market dominance in our
industry having been first used in
the 1940rsquos and 1960rsquos respectively
View more quality content from Finding Petroleum
Time-to-market in years for various industries (Courtesy of Shell original work by McKinsey)
RokDocQED - Quantitative Exploration amp Development
The Next Generation of Ikon RokDoc
Next generation technology from Ikon Science geological inversion geopressure prediction fast workflows and more From rock physics to reservoir properties in one powerful and connected platform RokDocQED for Quantitative Exploration amp Development
Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
Recent Company Profiles
The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
RokDocQED - Quantitative Exploration amp Development
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Next generation technology from Ikon Science geological inversion geopressure prediction fast workflows and more From rock physics to reservoir properties in one powerful and connected platform RokDocQED for Quantitative Exploration amp Development
Find out more wwwikon-rokdoccomQED
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
Recent Company Profiles
The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
21 OilVoice Magazine | OCTOBER 2012
Why the oil industry doesnt want you to remember the last 14 years
Written by Kurt Cobb from Resource Insights
What were the prices of oil and gasoline in 1998 Do you remember Without
looking them up (or looking below this line) make your best guess
Ive been taking an informal poll to find out what people remember about oil and
gasoline prices in that year So far only one person has correctly characterized
prices back then Most guesses have clustered around $250 to $3 a gallon for
gasoline (in the United States) Only one person could come up with a crude oil price
which she guessed was around $55 a barrel The answers show a vague
recollection that oil and gasoline were cheaper than they are today But just how
much cheaper has been lost down the memory hole
Okay I know the suspense is killing you Heres how gasoline and oil fared in 1998
The nationwide average price of a gallon of gasoline in the United States in
December of that year was 95 cents The closing price for a barrel of crude oil sold
on the New York Mercantile Exchange on December 31 was $1205 Just three
weeks earlier the price of oil had hit its nadir for the year at $1072 Oil had started
the year above $17 and steadily slid as the Asian financial crisis slowed the world
economy and reduced oil demand Gasoline prices dropped only a little during the
year starting from the January average of $109 a gallon
Why does the oil industry want you to forget this Because after a 10-fold increase in
the price of crude oil and a fourfold increase in the price of gasoline the industry is
once again trying to sell the same story of continued abundance that they were
selling back in the late 1990s But the manyfold increase in oil prices ought to make
everyone doubt an industry which has repeatedly told us that huge supplies are just
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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The OilVoice database has a diverse selection of company profiles covering new
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key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
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Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
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Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
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NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
22 OilVoice Magazine | OCTOBER 2012
around the corner and prices are headed for a crash
Perhaps the best example of the oil industrys Wrong Way Corrigans is industry
mouthpiece Daniel Yergin head of Cambridge Energy Research Associates
(CERA) a prominent energy consulting firm For a long time Yergin has been a
frequent guest on prominent television news programs and a source for many print
journalists He is a darling of the media on energy issues a media which is too polite
to confront him with his abysmal record of predictions in the oil market He was
wrong in his public pronouncements every step of the way from the 1998 low in oil
prices right up to the all-time highs of 2008 frequently predicting a large buildup of
new supply and crashing prices (One wonders why clients of CERA continue to buy
the companys research when it has been so wrong for so long But thats a story for
another time) Only at the end of 2008 did oil prices finally crash and then only
because the world economy was headed into the worst economic decline since the
Great Depression But as soon as the economy revived even tepidly prices rose
back to $80 a barrel and then above $100 which is about where they are today
The reason for high prices is actually quite obvious Crude oil production worldwide
has been stuck between 71 and 76 million barrels per day since 2005 (calculated on
a monthly basis) Oil volumes have been tracing out a troubling bumpy plateau that
many fear will mark the all-time peak in world production These numbers are
reported by the US Energy Information Administration the statistical arm of the
US Department of Energy and are widely considered to be the most reliable
available They reflect total production of crude oil including lease condensate
(which is the definition of crude oil) from all sources worldwide
Oil production has stalled despite the huge incentive that record high prices are
providing for oil exploration and development And despite enormous spending by
oil companies on exploration and drilling worldwide we have only just kept
production on a plateau for the last seven years These high prices and enormous
capital spending were the reasons given by Daniel Yergin for the expected buildup of
production volumes So what went wrong
The simple answer is that weve exhausted the easy-to-get oil and are now left with
mostly the hard-to-get oil It only makes sense that the early oil pioneers harvested
the easy oil first Why go after the hard stuff at that point Weve since learned how
to extract oil that is much harder to develop This includes deposits far offshore and
deep below the seabed as well as those locked in the Canadian Tar Sands deposits
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
Recent Company Profiles
The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
23 OilVoice Magazine | OCTOBER 2012
that must undergo expensive and energy-intensive processing to convert what is
really bitumen a goopy thick hydrocarbon into what we call oil
And this leads me to a crucial concept which I find myself repeating over and over
again in response to all the foolish Daniel Yergins of the world The critical factor in
the oil markets and a global economy dependent on large continuous supplies of oil
is the rate of production The rate is the key not the size of the worlds reserves It is
the size of the tap not the size of the tank that matters
Let me offer another analogy to help explain If you inherit a million dollars with the
stipulation that you can only withdraw $500 a month you may be a millionaire but
you will never live like one That is increasingly the situation we face with oil There
may be huge resources of tight oil (often mistakenly referred to as shale oil) and of
oil-like substances such as tar sands But the expense the necessary energy and
increasingly the amount of water required to extract and process them is so great
that we have been unable to lift the worldwide rate of production significantly above
its current plateau for a sustained period during the last seven years Even with all
our vaunted new technology we have only just barely been able to replace the
capacity lost each year to the inexorable decline in the rate of production from
existing oil fields
Recently the head of a company well placed to judge trends in the worldwide rate of
oil production said he believes that the all-time peak is in Core Laboratories CEO
Dave Demshur told attendees at the Denver Oil amp Gas Conference last month that
[t]he maximum yearly oil production of the planet is taking place now Core
provides well analysis and reservoir management to oil and gas companies in
practically every major oil region of the world Demshurs statement is an unusual
admission from an industry insider with access to information that spans the entire
industry
The truth is we wont know for sure that weve passed the peak in world oil
production until long after it occurs It may be a decade after the event before oil
production turns down definitively and the peak becomes obvious for all to see
Just to clarify heres what peak oil does NOT mean
Peak oil does not mean we are running out of oil This is a canard used by the
oil industry to confuse the public Nobody who understands world peak oil
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
Recent Company Profiles
The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
24 OilVoice Magazine | OCTOBER 2012
production ever says that it means we are running out In fact we wont run
out of oil for a very very long time At the peak the rate of production will
cease to rise probably trace a plateau for a time and finally begin a possibly
slow and bumpy decline That means well have less and less oil available
each year As oil becomes more and more expensive we will use less and
we will ultimately reserve it for critical purposes for which we cannot find good
oil substitutes
Peak oil does not mean that we wont find any more oil We are finding oil
every day Were just not finding enough and putting it into production fast
enough to grow production in the face of declining flows from existing fields
Peak oil does not mean the immediate collapse of modern civilization
However if we stand still and do little to address oil depletion peak oil will
likely result in immense difficulties
The industry and its paid spokespersons try to dazzle the public with talking points
that include the notion that we have more oil reserves than weve ever had That is
questionable and Ill explore that claim in a later piece But again I emphasize that
reserves are not the salient point It is and always will be the rate of production that
matters more If oil production stopped for a sufficiently long period--enough to drain
all aboveground supplies--modern civilization as we know it would collapse The
amount of reserves would not matter since the rate of production would have
dropped to zero
What matters is how much we can produce for continuous input into the world
economy As you might intuit weve built a financial system and physical
infrastructure premised on continuous and rising levels of oil consumption Thats
why peak oil matters so much and why flat oil production has been a large
contributing factor to the unstable world economy in recent years
To further illustrate the importance of rate consider the following Half of all oil
consumed since the beginning of the oil age has been consumed since 1985 We
consumed exponentially larger amounts nearly every year until 2005 when a number
of factors conspired to constrain supplies We frequently hear about multi-billion
barrel discoveries and think (wrongly) that oil must surely be plentiful as a result So
heres another question to ponder How long does one billion barrels of oil last the
world at current rates of consumption If you guessed something close to 12 days
you have a sense of the enormous challenges humans face in extracting finite
resources at ever higher rates Just multiply those multi-billion barrel discoveries by
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
Recent Company Profiles
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key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
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NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
25 OilVoice Magazine | OCTOBER 2012
12 to find out how many days the oil age might be extended by each discovery
Youll find the answer is not many
Perhaps it will seem puzzling that experts inside the industry--with a few notable
exceptions--cannot grasp that the rate of production is the central issue The best
explanation I can offer is to quote author Upton Sinclair It is difficult to get a man to
understand something when his salary depends upon his not understanding it
And here is where we get to the motivations behind the sunny optimism of the oil
industry If the public understood that oil supplies might be nearing an irreversible
decline it would demand the deployment of alternative fuels and efficiency measures
to soften the blow in order to give us time for a transition to a society based on
something other than oil That would ultimately reduce demand for oil products and
eventually end our dependence on oil Oil companies might get stuck with significant
inventories in the ground that they cannot sell at least not at the prices or in the
quantities they would like
The more immediate problem for oil company executives is that their companies may
soon find it impossible to replace all their oil reserves Oil companies strive to
replace at least 100 percent of what they produce so that their reserves dont fall If
investors come to believe that a failure to replace reserves will be ongoing year after
year they will mark down oil company share prices significantly In fact its already
happened and its likely to happen with more frequency as more companies struggle
to reach 100 percent replacement Such share price declines would of course make
a lot of oil executives significantly poorer as the value of their stock and stock options
plummet Essentially oil companies would be recognized as self-liquidating
businesses
All of this the oil industry wants you to ignore as it undertakes yet another public
relations campaign to convince the world that supplies will only grow from here
Naturally with prices near $100 a barrel the public needs reassurance The
campaign is designed to lull both the public and policymakers into a somnolent
surrender to a business-as-usual future that will leave us unprepared for the
momentous challenges ahead
Oil is the central commodity of the modern age As of 2011 it provided one-third of
the worlds energy and the basis for countless petrochemicals necessary to the
functioning of modern society Oils role in transportation remains critical 80 percent
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
Recent Company Profiles
The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
26 OilVoice Magazine | OCTOBER 2012
of the worlds road rail air and sea transportation fuel is derived from petroleum and
in the United States the number is 93 percent Good substitutes for oil in
transportation are still hard to come by
No one can know exactly when world oil production will peak--not me not the worlds
oil companies not any government agency The dangers we face if we are
unprepared are potentially quite severe With worldwide oil production essentially flat
for the last seven years the sensible thing to do would be to get ready now as
quickly as we can
Given whats at stake for oil company managements it should be obvious why they
are telling us not to worry Given the publicly available production data the
persistently high price of oil and the failure of oil companies to expand worldwide
production even after enormous expenditures and effort it should also be obvious
why we shouldnt fall for the industrys beguiling but wildly misleading tale
View more quality content from Resource Insights
27 OilVoice Magazine | OCTOBER 2012
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key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
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NYTEX Electricity and Gas
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29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
27 OilVoice Magazine | OCTOBER 2012
Recent Company Profiles
The OilVoice database has a diverse selection of company profiles covering new
start-up companies through to multi-national groups Each of these profiles feature
key data that allows users to focus on specific information or a full company report
that can be accessed online or printed and reviewed later Start your search today
Titan Technologies Manufacturer
Titan Technologies is a leading manufacturer of hydraulic torque wrenches pneumatic and electric torque wrenches hydraulic tensioning and other high-end bolting solutions
Visit Titan Technologies OilVoice profile
Global Oil Shale Holdings Oil Shale
Global Oil Shale Holdings (GOSH) is an oil shale exploration and development company focused on projects in the Hashemite Kingdom of Jordan
Visit GOSHs OilVoice profile
Leland Energy Oil amp Gas
Leland Energy Corp is a premiere privately held company with over 35 years of oil amp gas industry experience Leland provides service expertise prospect evaluation drilling programs and production income
Visit Leland Energys OilVoice profile
Emperor Oil Oil amp Gas
Emperor Oil is an international oil and gas company with a late stage exploration and near term production project in Turkey Directed by an experienced group of business professionals who have leveraged their contacts within the global community to identify significant land parcels and strategic partnerships within regions of influence
Visit Emperor Energys OilVoice profile
Mirach Energy Oil amp Gas
Mirach Energy is an energy exploration and production company with oil and gas interests in Asia The Group operates on petroleum assets in Cambodia South Sumatra and East Papua of Indonesia
Visit Mirach Energyrsquos OilVoice profile
Advance Energy Oil amp Gas
Exploration and production company Advance Energy Ltd (AVD) has a team with over 30 years combined experience in acquiring and optimising international oil and gas assets Advance is now focussed on the Ortynytska Project in Western Ukraine a country with significant under-developed and undiscovered gas reserves and which currently relies on costly imports from Russia
Visit Advance Energys OilVoice profile
NYTEX Electricity and Gas
NYTEX Energy Holdings Inc is an energy holding company with operations centralized in two subsidiaries NYTEX Petroleum Inc an exploration and production company concentrating on the acquisition and development of crude oil and natural gas reserves and Petro Staffing Group LLC a full-service staffing agency providing the energy marketplace with temporary and full-time staff
Visit NYTEXs OilVoice profile
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
29 OilVoice Magazine | OCTOBER 2012
The close tie between energy consumption employment and recession
Written by Gail Tverberg from Our Finite World
The number of jobs available to job-seekers has been a problem for quite a long tine
nowmdashsince 2000 in the United States and longer than that in Europe If we look at
the percentage of the US population who are employed it is now back to 1984 or
1985 levels
Figure 1 Total number
of individuals employed
in non-farm labor and
reported by the US
Bureau of Labor
Statistics divided by
US resident population
as reported by the US
Census Bureau
I have run into a number of clues about what is happening In this post Irsquod like to
discuss what I am seeing Part of the problem is that high oil costs squeeze the
economy reducing employment Part of the problem is growing trade with Asia It is
even possible that the Kyoto protocol (which the US did not sign) has something to
do with what we are seeing Let me start by explaining a fairly strange relationship
A Strange Relationship ndash A Close Tie Between the Amount of Energy
Consumed and the Number of People Employed
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
30 OilVoice Magazine | OCTOBER 2012
Since 1982 the number of people employed in the United States has tended to
move in a similar pattern to the amount of energy consumed When one increases
(or decreases) the other tends to increase (or decrease) In numerical terms R2 =
98
Figure 2 Employment is the total
number employed at non-farm
labor as reported by the US
Census Bureau Energy
consumption is the total amount
of energy of all types consumed
(oil coal natural gas nuclear
wind etc) in British Thermal
Units (Btus) as reported by the
US Energy Information
Administration
I have written recently about the close long-term relationship between energy
consumption and economic growth We know that economic growth is tied to job
creation so it stands to reason that energy consumption would be tied to job
growth1 But I will have to admit that I was surprised by the closeness of the
relationship for the period shown
This close relationship is concerning because if it holds in the future it suggests that
it will be very difficult to reduce energy consumption without a lot of unemployment It
also would seem to suggest that a shortage of energy supplies (as reflected by high
prices) can lead to unemployment
Why Rising Energy Cost (Particularly Oil) Leads to Lower Employment and
Less Energy Consumption
Suppose oil prices rise2 The critical issue is that consumersrsquo incomes do not rise at
the same time Consumersrsquo budgets get squeezed and they cut back on
discretionary spending For example they may go out to restaurants less make
fewer long-distance vacation trips put off buying a new car or contribute less to their
favorite charities Workers in discretionary sectors of the economy tend to get laid
off as a result We have come to know this as part of recession
(The impact of an oil price rise will be worse if other fuel prices such as natural gas
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
31 OilVoice Magazine | OCTOBER 2012
rise as well It will be mitigated if natural gas prices are low as they are in 2012 in
the United States Europe has much higher natural gas prices than the United
States This is big part of the reason why recessionary impacts are now worse in
Europe than the United States)
In the case of high oil prices and lay-offs less energy of all typesndashnot just oilndashis
used Laid-off workers may move in with relatives and thus reduce their living
expenses Each laid-off worker would have used oil to get to their job and this will no
longer be required The jobs experiencing layoffs themselves may have required fuel
use of various types such as heat for buildings fuel for airplanes or electricity used
in making new cars and this is reduced as well
There is also likely to be a link to housing prices Moving up to a more expensive
home is a discretionary expenditure If peoplersquos incomes are squeezed by high oil
prices and some are being laid off there will be less demand for homes as well
This lower demand can be expected to reduce housing prices especially in areas
where commuting distances are longest (and thus oil use for commuting greatest)
There are also likely to be layoffs in the construction industry as there is less
demand for new homes and new buildings of all sorts
As I have mentioned previously James Hamilton (2011) has shown that 10 out of 11
recessions in the United States since World War II were associated with oil price
spikes
High Energy Costs in One Area Tend to Lead to Substitution to Places Where
Energy Costs Are Lower
If there is a possibility of international trade manufacturing and some types of
services will tend to move to areas where costs are lowest Part of these costs are
energy costs A manufacturer with cheap electricity costs will have an advantage
over one with higher electricity costs As energy costs rise (as they have in recent
years) they get to be more important in determining where manufacturing will be
done
Besides direct energy costs wages are another part of the difference in costs from
one part of the world to another Wages tend to be lower in the warmer areas of the
world In part this is because energy from the sun provides much of the needed
energy for heating homes so there is less need for supplemental energy This
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
32 OilVoice Magazine | OCTOBER 2012
means that wages do not need to be as high for a comparable standard of living
If we look at recent world energy consumption we see rapid growth in energy
consumption This pattern is quite different from the US pattern we saw in Figure 2
which was much flatter
Figure 3 World Energy
Consumption based on BPrsquos
2012 Statistical Review of World
Energy
Figure 4 below shows that there has been a striking difference in how energy
consumption has grown in various parts of the world
Figure 4 Energy Consumption
divided among three parts of the
world (1) The combination of
the European Union-27 USA
and Japan (2) The Former
Soviet Union and (3) The Rest
of the World based on data
from BPrsquos 2012 Statistical
Review of World Energy
Figure 4 Energy Consumption divided among three parts of the world (1) The
combination of the European Union-27 USA and Japan (2) The Former Soviet
Union and (3) The Rest of the World based on data from BPrsquos 2012 Statistical
Review of World Energy
Energy consumption has been quite flat in the grouping of industrialized countries I
show first (European Union-27 USA and Japan) The Former Soviet Union (FSU)
collapsed in 1991 and the consumption for those countries has never recovered
Energy consumption for the ldquoRest of the Worldrdquo has been increasing amazingly
rapidly since 2002 The rest of the world includes China India Bangladesh and
many small countries plus oil exporters such as Saudi Arabia and Mexico Although
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
33 OilVoice Magazine | OCTOBER 2012
I donrsquot break it out separately on Figure 4 the increase in energy consumption since
2002 has been especially marked in Asia
The ldquobendrdquo in the line for ldquoRest of the Worldrdquo energy consumption took place
immediately after China joined the World Trade Organization in December 2001 If
we look at Chinarsquos fuel consumption by itself we see that its huge rise in energy
consumption (Figure 5 below) came mostly from increased coal consumption
starting at that time Oil consumption also increased Nuclear and renewables are
too small to be visible on the chart
Figure 5 Chinarsquos energy
consumption by source based on
BPrsquos Statistical Review of World
Energy data
Other countries especially Asian countries like India also ramped up their energy
consumption at a similar time India also uses coal as its primary fuel with 53 of its
energy consumption in 2011 coming from coal (based on BP 2012 data)
While I donrsquot have employment data for Figure 4 groupings I do have economic
growth data (Real GDP is Gross Domestic Product adjusted to remove effects of
inflation) shown in Figure 6 below
Figure 6 Three-year average real
GDP growth for (1) EU-27 USA
and Japan (2) Former Soviet
Union and (3) Rest of the World
based on data by Angus Maddison
through 2008 and USDA since
then
Figure 6 indicates that the economy of the ldquoRest of Worldrdquo has been growing much
faster than the EU USA and Japan grouping since 2001 In fact the Rest of the
Worldrsquos growth has been much faster for nearly the entire period shown on the
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
34 OilVoice Magazine | OCTOBER 2012
graph Based on the steeper rise in energy consumption of the ldquoRest of Worldrdquo in
Figure 4 compared to the old industrialized countries grouping this might be the
predicted result
One point that many people miss is that the Great Recession of 2007-2009 was to a
significant extent a phenomenon of the older industrialized countries EU USA and
Japan all were hit very hard while the ldquoRest of the Worldrdquo almost sailed along This
can be seen in the energy consumption data on Figure 4 and the economic growth
data on Figure 6 The Rest of the World slowed down a bit but even during that
period its growth rate exceeded the best growth rate of the EU USA and Japan
grouping during the 1984-2011 period (based on Figure 6)
Is it Possible to Change the Relationship between Energy Consumption and Number
Employed
The answer is pretty clearly yes but lower wages may be part of the mix
Letrsquos look at how the United States changed its energy consumption per number of
people employed over time If we go back to the 1949 to 1972 time period we also
see a close relationship ( R2 = 99) between US energy consumption and
employment but it is a different close relationship than since 1982 (shown in Figure
2 near the top of this post)
Figure 7 Graph of amounts similar to
Figure 2 but for the period 1949 to
1972
During the 1949 to 1972 period energy consumption was consistently rising faster
than the number of people employed Oil was cheap as were other energy sources
so not too much thought was given to how efficiently it was used Also as we will
see in Figure 9 wages for workers were rising much more quickly (in inflation-
adjusted terms) than they have been in more recent times
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
35 OilVoice Magazine | OCTOBER 2012
About 1972 we discovered we had a big problem
Figure 8 US crude oil
production based on data of the
US Energy Information
Administration
Oil had been our largest source of energy and our own domestic production was
dropping quite rapidly By 1973 the Arabs had discovered our vulnerability and the
1973 Oil Embargo began leading to a sharp rise in gasoline prices The US Federal
Government regulated oil prices from 1973 to 1981 At the same time a major effort
was made to switch oil use to another fuel whenever possible Electricity generation
was switched to include more coal and nuclear (based on EIA data) and to remove
production using oil There was great demand for more fuel-efficient cars leading to
the import of cars from Japan (a country that had been making smaller cars for
years) and the down-sizing of US cars
Figure 9 Employment and
Energy Consumption using data
similar to that used in Figure 2
and 7 but for the 1972-1982
time period
As a result the period 1972-1982 was a time when energy consumption was
relatively flat but employment rose A big part of this rise reflected the addition of
women who had not previously worked outside of the home to the work force With
the higher price of oil salaries did not go as far so having another family member
working was helpful According to Toosi the percentage of women who were part of
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
36 OilVoice Magazine | OCTOBER 2012
the workforce rose from 433 in 1970 to 511 1980 Wages of women were lower
than those of men (Figure 10 below) helping to hold down the average wage
Figure 10 US Median Wages
separately for males and females
in 2010$ Based on Census
Historical Income Tables People
Table P5 ndash Regions by Median
Income and Sex
Also the wages of lower-paid men stopped rising in real (inflation-adjusted) terms
(The wages shown are Figure 5 are median wagesndash50 of wage-earners earn more
than that amount and 50 year earn less) Wages of high-paid workers such as
business executives and physicians (not shown on the chart) were still rising
It is hard to tell what the relative impacts were of the many changes that took place
in the 1972 to 1982 time period Clearly lower average wages (with more women in
the work force) and flatter wages were a big part of the change But there were other
changes as well including more imported manufactured goods changes to fuels
other than oil and more efficient use of oil all contributing to the differences we see
between Figure 2 and Figure 7 The US became a net importer during this period as
well and thus began running up external debt (based on US Bureau of Economic
Analysis data)
Comparing energy-employment patterns in Figure 2 and Figure 7 may be confusing
for some I show the change in the relationship in another way in Figure 11 Here I
show (energy consumptionnumber of people employed) It shows that energy
consumption per employed person was rising prior to 1972 came down for a variety
of reasons in the 1972-1982 period and is now pretty close to flat (decreasing
slightly)
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
37 OilVoice Magazine | OCTOBER 2012
Figure 11 Total US energy consumption
divided by number employed Energy
consumption from US EIA number of
non-farm workers from US Bureau of
Labor Statistics
On a positive note one factor that has helped keep quality of life up is increased
efficiency in using energy Homes are better insulated now Home heating and
cooling units are more efficient Businesses have worked hard to keep energy use
down because energy is a major factor in their cost structure For example we read
about airlines retiring their less fuel-efficient jets Thus even though energy
consumption divided by number of workers is flat or trending slightly downward our
standard of living has risen considerably since 1970 or 1980
Another thing that has helped improve living standards is the amount of
manufactured goods we are now importing from China and other countries around
the world especially Asian countries The amount of debt we need to keep amassing
to buy all of the goods we buy abroad is a problem however because we are not
earning enough to pay the full amount of these goods If we could count on
economic growth forever perhaps we could simply ldquogrowrdquo out of this debt but this
seems increasingly unlikely for reasons I will discuss in later posts
The United States Hit Peak Percentage Employed in 2000
If we look at the percentage of the US population who have jobs outside the home
(or self-employed farm workers) the trend is quite alarming (Figure 12)
Figure 12 US Number Employed
Population where US Number Employed
is Total Non_Farm Workers from Current
Employment Statistics of the Bureau of
Labor Statistics and Population is US
Resident Population from the US
Census (This includes children and
others not usually in the labor force)
2012 is a partial year estimate
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
38 OilVoice Magazine | OCTOBER 2012
While the percentage of people with jobs was rising between 1960 and 2000 in
recent years it has dropped The recent drop seems to be at least in part related to
the shift in energy consumption growth (and jobs) to the ldquoRest of the Worldrdquo which
includes China India and many other developing countries and oil exporting
countries Jobs that the United States would have had seem to have been shifted
elsewhere
The percentage of US population employed outside the home or farm has grown for
a very long time The increase started in the 1800s as the use of coal allowed a
reduction to the number of workers needed in farming because it allowed more use
of metals enabled the use of electricity and helped make farmers more efficient
See my post The Long-Term Tie Between Energy Supply Population and the
Economy See also Smil (1994) and Lebergott (1966) Later women increasingly
joined the work force especially after World War II
The combination of rising energy costs (especially oil) and increased international
trade gave China and other Far Eastern countries an opportunity to ramp up their
manufacturing and service industries (call centers in India for example) Jobs
migrated to China and to other countries with low energy costs (thanks to lots of coal
in the mix) and low costs of living thanks in part to better solar heating
There had always been some foreign trade but the amount of trade increased in the
late 1970s when we started importing smaller cars from Japan as well as more oil
It increased again later especially after China entered the World Trade Organization
in late 2001 US imports of goods and services increased from $54 billion in 1970 to
$291 billion in 1980 to $616 billion in 1990 to $14 trillion in 2000 and to $27 trillion
in 2011 (US Bureau of Economic Analysis)
Other Observations
Role of World Trade Figure 4 suggests that world trade makes a huge difference in
the amount of energy consumed If we truly wanted to reduce our energy
consumption (which I doubt world leaders are really interested in) we could reduce
world trade through taxes on imports or some other mechanism The number of
people employed would likely drop as well although perhaps part of the difference
could be made up by greater efficiency and by lower wages for individual workers
The important role of world trade also brings up another issue If world trade were
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
39 OilVoice Magazine | OCTOBER 2012
for some reason interrupted or seriously scaled back this would likely significantly
reduce energy consumption (and employment) around the world
Energy Consumption vs Number of Jobs Patterns by Country will Vary I have shown
US data Patterns in other countries are likely to vary in part because of the different
specializations (amount of services compared to manufacturing for example) of
different countries and different wage levels in different countries
Good Intentions Arenrsquot Always Helpful The Kyoto Protocol with respect to Climate
Change was adopted in 1997 Figure 4 and Figure 5 suggest that adding China to
the World Trade Organization had far more impact and in the opposite direction In
fact additional carbon taxes on goods that require high energy input may have
encouraged competition in countries without such controls Furthermore reduced oil
consumption through say higher taxes on gasoline left more oil on the world
market to be used by developing countries (This is related to ldquoinelastic supplyrdquo of
oil Reducing demand in one area leaves more supply for other areas)
Figure 13 Actual world carbon
dioxide emissions from fossil
fuels as shown in BPrsquos 2012
Statistical Review of World
Energy Fitted line is expected
trend in emissions based on
actual trend in emissions from
1987-1997 equal to about
10 per year
Figure 13 shows that while Kyoto Protocol may have helped reduce emissions in
some countries world carbon dioxide emissions have grown more than what would
have been expected based on the 1987-1997 trend in emissions If the Kyoto
Protocol influenced Chinarsquos and the rest of Asiarsquos decision to ramp up exports this
decision would have indirectly affected job availability in the United States even if
the US was not a signer of the Protocol
The ldquoSmaller Batchrdquo Issue If there is not enough energy to go around at prices
people can afford to pay recession seems to be naturersquos way of fixing the situation I
compare the situation to a chemical formula or to a cake recipe If one necessary
ingredient is in short supply the economy behaves as if it is making a ldquosmaller
batchrdquo It contracts in a way that leaves out those who were most marginal to begin
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
40 OilVoice Magazine | OCTOBER 2012
withndashsuch as employees of discretionary industries and borrowers who could only
barely make payments on loans (subprime borrowers) and countries with the
highest energy costs Employment is reduced and unemployed people tend to move
in with friends or their family to cut expenses This reduces energy consumption
Increased Wage Dispersion May Reflect Another of Naturersquos Coping Mechanisms In
the animal kingdom any ldquoK-selected speciesrdquo such as a dog or cats or primates
(probably including humans) has an inborn instinct toward hierarchical behavior
The manifestation of this instinct tends to be greater as there is greater crowding
and greater competition for resources (Dilworth 2009) The intent in the animal
kingdom is survival of the fittest with those at the bottom of the hierarchy being
starved out if there is not enough to go around
It is striking to me that since the mid-1970s we have seen what could perhaps be
interpreted as increased hierarchical behavior in humans and corporations Wage
dispersion has tended to become greater since the mid-1970s when we started
encountering energy supply problems We have also seen the growth of international
businesses These large businesses have been increasingly favorably taxed
because they can choose tax havens around the world to incorporate All of these
changes tend to concentrate wealth at the top in large companies and in the wealth
of high paid workers Perhaps all of this is a coincidence but the timing is striking
Increased use of part-time and contract jobs might be considered a trend in this
direction as well Job sharing has been proposed as a way of dealing with having an
inadequate number of jobs in the older industrialized countries but this tends to act
in the same way (pushes the wages of lower-paid workers down while leaving the
top wages untouched)
Economic Models Economic models seem not to take into account the very
substantial shift in percentage of the population employed Part of economic growth
on the ldquoway uprdquo was growth in the percentage of people employed If economists
miss this change as well as the fact that the percentage now seems to be headed
down their models will be wrong Expected economic growth may disappear
The World War II baby boom generation is now reaching retirement age This
change will tend to push the percentage of population employed down further all
other things being equal
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
41 OilVoice Magazine | OCTOBER 2012
Impact on Governments If fewer people are employed this is a problem for
governments around the world Governments in Europe are particularly affected
now partly because of the generous benefits they offer The US budget deficit is
very much related to this issue as well I will write more about debt and government
funding in another post
Notes
[1] The idea of looking at employment in relationship to the economy after reading
Mario Giampietro and Kozo Mayumirsquos book The Biofuel Delusion The Fallacy of
Large-Scale Agro-Biofuel Production Earthscan 2009
[2] While total energy costs are important individual energy costs such as gasoline
cost are important as well because there is little short-term substitutability across
sectors For example coal is not an option for running todayrsquos gasoline-powered
cars and public transport is not an option in most of the US If there is a long enough
lead-time and citizens can afford the transition substitutions might be made but it is
not something we can count very much in the short term
View more quality content from Our Finite World
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
43 OilVoice Magazine | OCTOBER 2012
Oil energy dependence and energy transition
Written by Andrew Mckillop from OilVoice
Energy analysts and commentators are steadily shifting towards a common
understanding that global energy since 2008 is very different from pre-2008 and will
continue diverging To be sure declining energy intensity of the economy falling oil
demand rapid growth of renewable energy and other facets of energy transition are
often dismissed as only driven by crisis and recession Using less energy
developing new forms and types of energy changing consumer perceptions of
energy - all of these can be brushed aside as only crisis phenomena Following that
logic energy demand led by oil demand will bounce back when or if the economy
bounces back - at some unspecified future date
In fact experience since 2008 both in OECD countries and Emerging economies
shows one mega trend energy demand and especially oil demand is slowing even
faster than the economy slows down Another major change is the range and types
of new energy and energy saving options are growing very fast
These simple facts are however a complex reality with a large number of
counterintuitive spinoffs one of them being the plight of the renewable energy
industry in Europe and elsewhere Another is the little remarked or analyzed but
rapid slide in the fortunes of Big Energy corporations led by the historic oil majors
from Exxon Mobil and Shell to BP and Total or ENI Yet another is the increasingly
uncertain and financially unsustainable situation of many large power production and
supply utility companies especially in Europe but again also elsewhere
DEINDUSTRIALISATION AND ENERGY
A recent piece on The Demise of European Refineries by Maxime Lambert covers
one aspect of these themes httpwwwenergypolicyblogcom20120506the-
demise-of-european-refineries
Underlying the demise of Europes refining industries where today all the signals
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
44 OilVoice Magazine | OCTOBER 2012
are red and the industry is out of synch with all main parameters (crude supply and
types product demand by type volumes needed environmental costs financial
performance etc) is European de-industrialisation A less industrial society needs
less energy - especially petroleum even if the imported industrial goods used and
consumed in that postindustrial society are energy intense and oil intense
Staying with the example of European oil refining we have to ask why the industry
has suffered from blatant overcapacity not for a few years but decades One
reason is that each economic recession crisis or apparent crisis is imagined to be
transient with no change of underlying infrastructures or social and economic
superstructures that is financial economic and social expectations investment (and
divestment) intentions or major changes in energy policy science and technology
The static world of technocratic planning and political mamagement is in fact a flat
world hypothesis where nothing changes What we can call pre-Copernican
planning and management
Change can and does occur across the spectrum At certain times especially during
recessions the pace of change often accelerates even if the economy and society
shrink or retreat into inertia and anomie The hidden recession of the long period
since at least 2005 measured by state and corporate debt growth on an almost
worldwide scale has only become fully acknowledged and recognized - at least by
mass media and politicians - as happening from 2008 signalled by events like the
Lehman Bros collapse the US subprime rout and the Eurozone crisis Global and
regional energy demand as an energy-economic indicator however shows that
even by 2006 EU27 oil demand was starting to fall In 2012 European oil demand is
in its sixth consecutive year of decline To be sure the hardest hit countries by the
financial and economic crisis the PIIGS show the most dramatic declines of oil
consumption often in double digit percentage numbers since 2006
What we also find is that industrial output and industrial capacity especially heavier
engineering and virgin metals all show consistent and long term decline of activity
and output in nearly all European countries - and in many other OECD countries
The de-industrialisation trend was not waiting to happen in 2008 but was already
well entrenched the process was accelerated by recession and crisis only The
supporting energy evidence for this argument is massive electricity demand growth
for example has stagnated in nearly all OECD countries not for a few years but for
a decade or longer Several countries again in Europe show an ncreasingly
consistent trend of annual declines in total electricity demand Outside Europe this
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
45 OilVoice Magazine | OCTOBER 2012
trend is active in other OECD countries but the real surprise is that recent Chinese
national data shows that in July 2011-July 2012 Chinas electricity demand growth
was zero this event producing a flurry of comments by economic analysts
worldwide as to whether this was a bellwether trend or not
See for example httpwwwenergypolicyblogcom20120923energy-demand-
growth-is-passe
Under any hypothesis it shows firstly that Chinas economy is slowing rapidly and
that secondly the policy of reducing the energy and electricity-intensity of the
economy is moving ahead very fast
WHERE WILL ENERGY DEMAND GROWTH COME FROM
Until recent years even 2008 the received wisdom was that Asian locomotive
economic growth would continue driving the global economy entraining constant
energy demand growth including oil This theory has already been disproved by
economic reality especially since 2008 Chinese and Indian economic growth are
declining and their economies are becoming more energy efficient or less energy-
intense and the decline of their economic growth is being accelerated by the
recession in the OECD countries Put another way Asian economic growth has not
prevented recession in the US Europe and Japan but recession in OECD countries
is slowing down the Asian locomotive which itself is using less coal and oil (if not
gas) and becoming less energy-intensive per unit of GDP
For Europe this sets new and unexpected challenges for the climate-energy
package and member state REAPs (renewable energy action plans) Taking simply
offshore windpower development the EU27 + Norway are set on a course of
developing 140 000 MW of offshore wind capacity by about 2030 This is about 15
of Europes entire installed electric power generating capacity as of Dec 2011 in the
event of continuing falls in European power demand will it be necessary to develop
this new power capacity If it is developed what will be its financial and economic
performance
The fallback or default argument is that non-OECD and non-Asian countries
accounting for roughly one-half the worlds population of 7 billion at present will
show Asian-type rapid industrial growth and urbanization driving up their energy
demand including oil demand Against this argument however there are a large
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
46 OilVoice Magazine | OCTOBER 2012
number of counter-arguments In particular this concerns Africa with a present total
population of around 105 billion almost exactly the same as the OECDs population
but growing relatively rapidly although demographic transition to smaller families and
slower population growth is operating in Africa as in all other regions One
unexpected energy transition especially powerful since 2008 is the pace of energy
discovery in Africa including large oil finds in many countries and vast stranded gas
finds in east Africa Already a large oil exporter relative to its small oil consumption
dictated by poverty Africa has the fossil energy resources to pursue a completely
conventional energy-intense economic development trajectory if it wants to
Learning curve effects and technology changes in the energy domain shown by the
impressive pace of renewable energy development and constant reduction in unit
energy costs from renewable energy sources and systems may heavily modify the
current received wisdom that even if Asian economies decrease their energy
intensity and increase their use of renewable and alternate energy Africa will take up
the slack and compensate this decline in energy demand growth Opposing this
fallback argument that energy shortage penury and high prices are sure and
certain African economic development goals most surely include agriculture and
food production growth rather than industrialisation made more rational or
unavoidable by increasing food supply problems and the worlds large - and
increasing - industrial overcapacity in an increasing number of sectors The car
industry and shipbuilding industry consumer electronics cellphones and even the
aviation industry are all examples The woefully neglected food sector will almost
certainly become at least as important as the oil industry has been until very
recently for the developed countries including the OECD group
This region-by-region analysis is itself underlain by key assumptions some of which
are now openly questionable in particular this concerns the materials intensity of the
economy its transport intensity and the energy intensity of materials and transport
as well as related components of economic activity such as urbanization rates and
types of urban development All of these components are subject to technology
change as well as demand change driven by social cultural and demographic
change Taking a simple example of national car fleets many OECD countries are
at saturation levels of 500 - 700 cars per 1000 inhabitants in countries with
sometimes rapid ageing of the population the supply of mobility services is already
replacing the growth of physical car numbers with a downward impact on per capita
energy needs for transport and transport services
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
47 OilVoice Magazine | OCTOBER 2012
THE POST CRISIS PERIOD TO 2015
Given the massive changes in world energy that were compressed into the 2008-
2012 period we can expect or accept the potential for similar large changes through
2012-2015
These will almost certainly include a large fall in oil prices driven by the most basic
energy-economic factors that are possible oil is extremely overpriced relative to all
other energy sources Long treated as being impossible to substitute but using IEA
data the OECD group obtained 526 of its energy from oil in 1973 and 36 of its
energy from oil in 2009 Outside the OECD group oil dependence is even lower in
almost all countries and regions for example supplying about 21 of Chinas
primary energy Relative to the approximate 475 million barrels a day demand for
the world petrochemicals industry where oil really is difficult to substitute world
proven oil reserves are sufficient to cover about 725 years of current petrochemical
industry demand
Now declining interest in mitigating the claimed warming effects of the supposed
killer gas CO2 will almost certainly not prevent renewable energy development
from powering ahead because in many cases notably windpower and solar power
the fuel source is completely zero cost The certain growth of global gas supplies
will enable this cleaner and abundant fuel to replace oil and even coal current US
natural gas prices (about $250 per million BTU on average in Q2 2012) price gas at
about $17 per barrel equivalent and through 2011-2012 to date US coal
consumption for power production has declined by about 25 Present gas prices in
Europe and Asia can only decline if not to present US price levels underscoring the
policy choices and goals in Europe of developing or not developing shale gas
resources cheap gas can and does substiute coal as well as oil
By 2015 many national policies and programmes for energy saving and
development of non-fossil energy sources and systems will be attaining maturity
even if oil prices have declined probably to the oil industry EampP (exploration and
production) investment spending threshold price of around $75 per barrel Removing
high priced oil from the global energy equation apart from its beneficial effects on
global geopolitical relations and consumer confidence will also help rationalize
national and regional energy policies and programmes
In the past decade these policies and programmes have often been dominated and
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
48 OilVoice Magazine | OCTOBER 2012
dictated by the fear of $150 oil as well as irrational fears of global warming
apocalypse leading to unrealistic and uneconomic energy project choices With
generally lower energy and the removal of depeltion and scarcity fear energy policy
making and programme choices can become more rational
The major unknown and a cause of realistic fear is the state of the global regional
and national economies Continuing decline of economic activity is not impossible If
this decline continues it may attain threshold tipping points for major long-term
structural change of the economy towards the degrowth economy In regions such
as Europe this is a decreasingly irrational or increasingly likely hypothesis with
energy implications which will certainly be massive
Article by Andrew Mckillop
View more quality content from OilVoice
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
Doing more with dataKuala Lumpur October 24-25 2012
Finding Petroleum Digital Energy Journal is running 2 one day conferences in Kuala Lumpur Malaysia on October 24 and 25 on doing more with drilling and subsurface data
These 2 events will present the most exciting new technology to help manage and work with all aspects of data in the upstream all and gas industry
The conferences are for people who want to learn about new ideas and new technologies to make their data work harder to improve efficiency and safety of drilling ability to find new reservoirs and extend existing ones and maximise production
The event is scheduled to co-incide with the Energistics National Data Repositories conference in KL on October 21-24
Attendance is free - register now to secure your place
Reserve your place now at FindingPetroleumcom
October 24 - Doing more with with drilling data
October 25 am - Doing more with subsurface data
October 25 pm - Getting data tools implemented faster
The aim is
(i) to make it easier for people working in KL oil and gas companies and service companies to find out more about the latest new technology to help manage data and
(ii) to provide technology companies attending the National Data Repositories event with a chance to meet a local audience during the same trip
The events will be free to attend
For days 1 and 2 we will look for financial contributions from speakers - in the range 14600 MYR USD 4760 GBP 3000 for a morning slot and MYR 9750 USD 3200 GBP 2000 for an afternoon slot
Sponsorship opportunities are also available
For enquiries about sponsorship and speaking please contact our sales manager John Finder on +44 208 150 5292 e-mail jfinderonlymediacouk
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
50 OilVoice Magazine | OCTOBER 2012
Regulation of all of the above energy to cost 20x more on public lands
Written by Gary Hunt from TCLabz
More than 96 of the domestic energy production growth from shales has taken
place on private lands safely out of the reach of the Federal government bureaucrats
and regulators That energy production growth is transforming Americarsquos energy
future by increasing supply reliability and driving down the price of natural gas from
more than $13 per MMBTU to less than $3 per MMBTU in a period of less than five
years
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
51 OilVoice Magazine | OCTOBER 2012
Meanwhile on public lands production has actually slowed as the Department of
Interior and its Bureau of Land Management (BLM) press on with extensive
environment studies and new regulations even as the President professes support
for an all of the above energy strategy
The Federal government announced proposed rules on fracking on public lands in
May 2012 (43 CFR 31600-3) and has received more than 2000 comments on those
rules by the September 10 2012 deadline Interior Secretary Ken Salazar said in
May he hoped to issue a final rule by the end of 2012 likely after the Presidential
election
According to a study by John Dunham and Associates the total cost of the proposed
Federal rules will be about $15 billion to $162 billion a year or about $235839 per
well to satisfy the requirements on chemicals disclosure and certification that the well
is properly isolated to prevent leaks that might contaminate groundwater
This figure compares to a BLM estimate of $11833 per wellmdasha difference of more
than 20 times All that cost for rules that the oil and gas industry and the states of
Colorado and Wyoming claim are unnecessary unreasonable and required EampP
firms to take actions that no state currently regulating fracking for oil and natural gas
production has required
The Dunham Study disputes the BLM claim that the proposed regulations are not
major changes from existing rules citing the following examples of how the new rules
add substantial and costly new requirements for EampP activities on federal and Indian
lands
1 Mandates additional information and meet new requirements than currently
required for all well stimulation (completion) activity when applying for a permit
to drill (APD)
2 Requires a similar separate application must be filed prior to additional drilling
on an existing well
3 Requires BLM review and verification the additional drilling requirements at
each permit stage slowing down the process and driving up the cost of idle
equipment and crews
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
52 OilVoice Magazine | OCTOBER 2012
4 Requires additional cement bond logs be submitted to BLM for review and
approval prior to completing the well again idling equipment and crews and
driving up costs
5 Requires reporting specific source of water used in well completion
operations
6 Requires submittal of a detailed engineering design and other information
related to well stimulation operations to the BLM for approval These detailed
studies end up becoming the basis for environmental litigation designed to
challenge the review process and thus slow to stop EampP activities
7 Requires detailed information about how all recovered fluids from well drilling
will be captured and disposed consistent with the rules
8 Requires a successful mechanical integrity test before beginning any well
drilling
9 Requires receipts be supplied to BLM to validate that recovered fluids are
disposed of in a proper manner
Dunham also says that by adding additional requirements for new drilling activities at
existing wells many of the current 90452 wells on Federal leases will find greatly
increased costs over time Dunham calculated its estimates of the cost of these new
fracking rules on public lands by examining data from the thirteen state regulatory
authorities in the Western states covered by the study Dunham found about 12300
oil wells and 14100 gas wells currently in the process of receiving a permit or
permitted but not yet drilled
As you can imagine private energy developers are wondering if the shale drilling
opportunities on public landsmdashsubstantial as they are on the 38 million acres leased
by the US Government for energy development mdashare worth the aggravation Now a
private study of the implications and costs of the proposed Federal regulations and
environmental requirements to gain access to public lands has added up the costs It
is not a good news story
View more quality content from TCLabz
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
53 OilVoice Magazine | OCTOBER 2012
American shale EampP growth is creating a global energy independence transformation
Written by Gary Hunt from TCLabz
The growth of oil and gas exploration in shales begun in North America is setting off
a global race for shale EampP development and threatens to turn the old conventional
energy order on its head
Based primarily on the phenomenal growth of domestic energy production from
shale EampP in the United States the world is waking up to realize that we are not
running out of oil or natural gas
As in every revolution there are both opportunities and risks Here in America our
politicians are promising energy independence from development of domestic
resources This more accurately should be interpreted as an end to energy
dependence upon OPEC for oil imports by substituting a more broadly competitive
global marketplace with many suppliers Energy independence is more accurately
energy inter-dependence as the world adapts to the concept of truly competitive
energy markets
SOURCE US EIA
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
54 OilVoice Magazine | OCTOBER 2012
The shale revolution is underway and every nation wants part of the action but
success threatens to diminish the market power of OPEC making global energy
markets truly interdependent and highly competitive The growth potential and wide
geographic distribution of technically recoverable oil and gas resources from
unconventional shale deposits around the world is setting the stage for an EampP rush
to develop those resources
For China the potential from a shale gas revolution is profound US EIA
estimates that China has more than 1275 trillion cubic feet (tcf) of technically
recoverable natural gas compared to an estimate for the US of 862 tcf
Developing this domestically available shale potential can assure that China
has the secure energy resources to sustain its economic growth and better
yet more widely distribute the benefits of the growth into the rural areas of the
country
For Israel and other nations in the Eastern Mediterranean a 2010 USGS
study of the discovered oil potential off the coast of Israel Syria Lebanon and
Gaza suggest that there may be as much as 17 billion barrels of recoverable
oil and 122 trillion cubic feet of natural gas and 5 billion barrels of natural gas
liquids If developed that is enough resource to make each of these nations or
prospective nations energy independent and likely net exporters This of
course also adds to the ongoing regional tension with new opportunities for
energy development disputes
For nations like those who comprise OPEC plus Russia Iran and Venezuela
the shale revolution potential is terrifying because it undermines the cartels
they have developed and erodes their pricing power with profoundly adverse
effects on their economies Russia is particularly threatened by US-backed
unconventional gas technology as evidenced by their support for lsquofear-
mongeringrsquo concerns on environmental and health problems related to
hydraulic fracturing-related practices Russia also is unfamiliar with US
fracking technology and is keen on trying to understand more regarding it and
its potential for expanding Russian energy resources
North America is the center of the shale revolution leveraging American technology
in perfecting 3D seismic technologies for EampP discovery and assessment horizontal
drilling to gain access to the resource and hydraulic fracturing to release the tight oil
and gas and allow economic recovery A debate about how America should take
advantage of this shale EampP opportunity is both timely and prudent in this
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
55 OilVoice Magazine | OCTOBER 2012
presidential election
America has Always Had plenty of Oil but Not the Will to Produce It This shale oil
and gas production growth in North America is in addition to the already substantial
conventional oil and gas resources in place and being tapped to meet American
energy needs We have never lacked for energy resources What we lack so far is
the political will to put them to full productive use Today our desperate need to get
the Us economy growing again creating jobs is changing that for the better
The USGS estimates the technically recoverable conventional petroleum resources
from 70 locations not counting Federal offshore locations total more than 32 billion
barrels of crude oil 291 trillion cubic feet of conventional natural gas deposits and
more than 10 billion barrels of natural gas liquids
Gaining access to American technology skills equipment and expertise is making
the United States and Canada a magnet for foreign direct investment in the energy
sector and the vendors that serve it Developing abundant reliable low cost access
to energy resources in the US will revitalize Americanrsquos industrial base and bring
strategic industries manufacturing and jobs home after a decade of outsourcing We
can accelerate that growth and the repatriation of jobs by making changes in our tax
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
56 OilVoice Magazine | OCTOBER 2012
laws regulatory environment and business-friendly attitudes to welcome the foreign
direct investment and more importantly get American companies to bring their
production back home
View more quality content from TCLabz
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom
rpsgroupcomenergy
Health Safety Environment and Risk Management
RPS Energy is a global multi-disciplinary consultancy providing integrated technical commercial and project management support services in the fields of geoscience engineering and HSampE
ContactJames Blanchard T +44 (0) 20 7280 3200 E BlanchardJrpsgroupcom