Thursday, July 15, 2010

Peak oil: World Crisis, Arab Benefit



Energy is best defined as the “capacity to do work”; there cannot be life without it. That is simply what is meant by saying that life on planet earth will come to an end when the sun becomes so hot in a billion years or so that water on earth would evaporate and life on its surface will become impossible. Meanwhile the energy flows from the sun to the plants that sustain herbivores that in turn are eaten by carnivores and then at the top of this food pyramid the omnivores. This was the case for 100’s of millions of years. A most significant change started with the industrial revolution and it is still going on unabated, the use of machines powered by various forms of terrestrial energy. All machines are in essence dependent on coal, oil or electricity which is produced in most cases from fossil fuels.

The global economy consumes about 500 Quadrillion BTU’s each year and this level of consumption is projected to rise at about 1.4% every year for the next 20 years. Over 86% of all this energy comes from the three major fossil fuels of oil, coal and natural gas. All other forms combined (nuclear, hydro, biomass and all other renewable) account for less than 14% of energy consumption.

Oil supplies the largest proportion of energy in our industrial society and its role is looked upon as being the most crucial for civilization, so much so that a few are already predicting collapse of society as we know it when oil becomes scarce. Peak oil is the term used to describe what some of the best known geologists argue is inevitable. Peak is the point in time when the world would have used half of all the available oil reserves in the world. Whether we have passed the peak as of 2008 or whether we are to pass it in the next couple of years or even decade is not materially important. What is significant is that many, but not all, geologists, energy traders, oil company executives, academicians, environmentalists and common citizens have adopted the new paradigm of peak oil.

Even if we are to leave the issue of climate change aside for the purposes of this post yet it is clear that peak oil is a game changer. The world oil production is about 86-87 million barrels a day and the prestigious and mainstream IEA, International Energy Agency, projects the need for over 110 million barrels each day by 2030. If the world is already at peak then where is the additional oil going to come from? A quick survey of plans by the major oil companies of the world shows clearly that we are digging deeper and in more difficult terrain than we ever did simply because the low hanging fruits have already been picked, so to speak.

There are at least two important implications associated with peak oil. (1) The less the availability of conventional oil then the greater is the incentive to exploit the non conventional oil reserves like Venezuela’s heavy oil, Canada’s tar sands and eventually Colorado’s shale. Each of the above produces oil but at a much greater cost. (2) As conventional oil becomes less abundant; we have already lifted half of all the oil reserves; then again the energy return on investment ; EROI; will decrease and continue decreasing to the point whereby it would require more energy to lift a barrel than the energy embodied in that barrel.

The implications of the above two facts that result from peak oil are very clear. As the world demand for energy increases and the supplies cannot keep pace the resulting imbalances will play havoc with the price of oil. We have already witnessed what a slight shortage could do in 2008 when the price per barrel rose parabolic ally to over $140. Under the scenario of peak oil towards the end of this decade that previous price will be appreciably overshot. There are some who project a price of over $300 per barrel given the tight market conditions predicted by peak oilers.

Arab countries can very easily be producing about 30 million barrels of oil each day by 2020 if Iraq is to achieve its planned goal of 8 million barrels per day. Furthermore it would be easy to project exports of about 22 million barrels each day. If the above scenario is to play out and if the resulting economic crisis does not lead to the use of military force then the Arab oil exporters can expect an annual cash flow of over $1 Trillion. Could peak oil, a major challenge for most of the world be exceptionally beneficial to the Arab countries? And if so are they ready to absorb such flows of funds in order not to clog the international flow of funds.

12 comments:

Anonymous said...

Always a pleasure to read your posts.

idit

Jamil said...

If you look at the history of energy consumption, particularly oil, you will find most developed nations (DN) nowadays consume or use half of energy used in past 20-30 years. This is due to efficiency, new and replacement technology, alternative energy ( wind/ solar, ocean waves, Nuclear, and others). Though most of the accelerated energy consumption ( coals/ oil, NG) are much from newly industrialized country (NIC0) and by 2050 the largest economies in the world will be as follows: China, USA, India, Brazil, and Mexico. The risks are there as you stated, and NICP will face the same if not worse experiences then DN. The MENA region continues to be place to harvest old and new energy not by choice but by default and other outside influences.

Cheers
Jamil

ghassan karam said...

Thanks Idit.

ghassan karam said...

Jamil,
Allow me to set the record straight , so to speak regarding efficiency.
Efficiency has alowed the industrial countries to decrease the energy input per $ of GDP produced but this does not mean that the overall use of energy has declined. Actually in most of the developed world the increased efficiency has meant a higher standard of living, larger GDP but more or less the same energy input. Countries vary but a good illustration might be the US , still the largest energy consumer in the world.in 1965 the US consumed about 6500 KFOE per capita per year and about 7800 kgoe per capita per year during 1990 and again 7800 kgoe per capita per year during 2004.

As you can see a greater level of consumption was attained but at the same level of energy use per capita which is totally explained by efficiency gains.

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Tony said...

Hi,
I found your blog by accident on Global voices, it's delightful to see a lebanese blog talking about peak oil. Thank you!

I always find that the absence of the peak oil issue from public debate is very odd considering the its seriousness.
I'm doing my master thesis on peak oil in college, and it always strikes me when i'm discussing it that most people don't understand how energy works, Energy is the most important factor in the human civilization yet we take it for granted as it will always be there.

I'm afraid that if industrial civilization was possible because of oil, then without it its future will be very grim.

Tony

ghassan karam said...

Eony,
I am glad that you are interested in Peak Oil. The field is no longer conjecture, it never was, but currently more and more mainstreamers are finding it impossible to avoid the issue. Unfortunately, the results will be devastating since it is very clear that we will not be able to replace the fossil fuels especially oil with any alternatives. This is a fact. Next to peak is natural gas. As you well know this does not mean that there will be no oil left. It simply means that the supply will be much less than the demand leading to tremendous imbalances and ultimately even to collapse on a global scale.

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