free html hit counter Peak Oil Debunked: January 2009

Saturday, January 24, 2009


[This post is by Ari, my co-blogger at POD. --JD]

The Myth of the Oil Crisis (MotOC) is a very recently published book (2008) by Robin Mills on the subject of oil, natural gas, and more broadly, energy. As the title suggests, Mills tackles the notion that we are on the brink of an “oil crisis,” known online largely by the monicker “peak oil,” from which the world will never recover. If Campbell and Laherrére are the professionals that gave the peak oil movement its credentialed weight (by being professional geologists), then Mills is perhaps the antithesis for the “debunking” movement. While the book is flawed, it presents a broad optimistic view of energy reserve availability and potential for development and supply of those reserves in the foreseeable future. What makes the book most important, however, is that Mills demonstrates, using easily accessed sources, that the imminent peak arguments are highly flawed and irrational.

Robin Mills is, according to his biographical blurb, “an oil industry professional with a background in both geology and economics. Currently (as of 2008), he is Petroleum Economics Manager for the Emirates National Oil Company in Dubai. Previously, he worked for Shell.” Mills is a fairly impressive person, even not including his graduate degree from Cambridge University (in petroleum geology), Then again, so are many of those who currently write about oil depletion from the “peak oil” side. What makes Mills different? For one, he's relatively young (born in 1976). But more importantly, he is someone who is currently in the thick of the oil business in the Middle East itself. Unlike many “peakniks,” Mills actively participates in the energy production business as I write this review. He is not some “armchair analyst” like many of us, and has more of a “veteran view” than many others seem to demonstrate.

Mills sets the stage by placing the oil commentators into five camps (examples chosen by me): The Geologists (Campbell, Laherrére, Deffeyes), The Economists (Odell, Lynch, CERA), The Militarists (who are actually made up of the militarists, media, and mercantilists), the Environmentalists (Greenpeace et al.), and the Neo-Luddites (Heinberg). It is important, I believe, to note that “The Geologists” doesn't refer to petroleum geologists, per se, but because they worked at some point in their careers as professional geologists. Mills notes that they can also be referred to as “Malthusians,” which is a fairly fitting appellation. Some may object to the rather broad categories that Mills uses to group the various commentators, however. After all, some actors clearly align with more than one camp. Nonetheless, it serves as a useful way to group the widely divergent views of the oil commentary community.

Mills' book's greatest strength is its ability to deconstruct the most frightening of the peak prophecies and show how they are either incorrect, or at the very least, misguided. He is thorough in demonstrating, through both data, and clear, well-sourced arguments, how the extreme pessimists of the energy commentary community are generally incorrect in their arguments and assumptions. He even demonstrates how Hubbert, commonly hailed as a sort of “peak oil prophet” (words mine), was hardly as accurate as he is shown to be. In fact, Mills scrutinizes Hubbert in the fourth chapter, entitled “Half-Full or Half-Empty?” Hubbert, despite his supposed accuracy, was actually fairly inaccurate on a lot of important issues, as Mills demonstrates in the following bullet points:
  • Hubbert actually proposed 1965 as his most likely peak date (US oil production); 1970 was a fallback if secondary recovery proved to be more successful than he expected (as it did)
  • Although arguably correct on the date of the peak, he was wrong about its height: total annual US production in 1970 was 20 percent (emphasis mine) higher than he expected...
  • He forecast that world oil production would peak between 1995 and 2000 at 33 million bbl/day. The true figure was 75 million bbl/day in 2000, and it has continued to rise subsequently.(MotOC pg. 42.)
Mills also demonstrates that the Hubbert curve, despite being seen as a sort of sacred truth of petroleum geology, fits many countries' production curves rather badly (notably the UK and Iraq) (pp 40-41.) He also-- rather adeptly, in my opinion-- demonstrates that peakniks are extremely pessimistic relative to nearly every other professional estimate of reserves. In fact, where Campbell says that the world has a total endowment of around 2000 billion bbl of oil, even the second most pessimistic estimate (Bentley) gives the world over 3000 billion bbl of oil-- that's a significant difference! Moreover, both Campbell and Bentley are over 1000 bbl behind the most conservative “non-peaknik” estimate of over 4000 billion bbl by CERA (supposed "Pollyannas," no less!). A key difference, Mills notes, is that everyone but The Geologists allows for significant reserves growth. An example of this is the reserve growth of around 69 billion bbl from the 2000 USGS review to its 2005 self audit, which amounts to nearly half of Campbell's YtF (yet to find)! If nothing else, the book demonstrates rather clearly that the peaknik community is beset in all directions by an institutionalized form of pessimism that rarely follows reality.

Another strength of Mills' book is the credence he pays toward economic factors. He shows, throughout the book, that economic factors play a significant role in energy production. One of the often ignored (or derided) factors in energy is the capital needed to keep it running smoothly. The Geologists see geography as the ultimate factor in deciding energy availability, but they are far too willing to ignore the fact that even assuming you have a powerful physical limitation in place, you cannot drill oil if you lack rigs and manpower. Unfortunately, we live in a world today where the physical and human capital needed to run the oil industry has become significantly scarcer than in decades past-- this is largely a consequence of the previous decades of incredibly cheap oil. These same low prices drove OPEC to reduce production as well, which allowed oil commentators (Simmons, for example) to say that Saudi Arabia is in a state of decline. Unfortunately for Simmons, KSA was merely responding rationally to low prices by reducing production. The reader will see a lot of this kind of debunking throughout the book. For some, it will be interesting to see the shriller voices of energy commentary dismantled. For many readers of this blog, however, it will be a rehashing of what has been said here by JD and others. Nonetheless, it is important stuff, and Mills does a good job of taking out some of the more pernicious fallacies with sound economic thinking.

Other topics that Mills deals with are unconventional oil, backdating (one of the more irritating traits of The Geologists), natural gas, geopolitics, demand, and finally the environment. I am glad to say that he does a good job of dealing with unconventional oil (it's not as impossible to produce as some say), backdating (basically, contemporary reserve growth is moved back in the past in order to make it look like we ain't finding more!), natural gas (energy of the future, he argues), and demand (not necessarily going to grow exponentially forever.) I was less impressed with his environmental arguments, mostly because I think he arrives from a strange foundation (The Stern Report). Regardless of my misgivings with his use of what I see as an unnecessarily alarmist paper, I believe it is a positive step to see petroleum executives treating CO2 emissions as a serious issue.

However, like I said at the beginning, there are problems with MotOC. For one, it is somewhat too technical for most laypersons to read without some difficulty. Mills does a commendable job with explaining the terminology as best as he can, but I sometimes found myself flipping to the glossary to relearn terms that I had forgotten from previous chapters. I also found myself occasionally having to reread sentences to figure out what Mills meant because he occasionally inserted sentences of length and complexity that would make Proust weary. While this is fine for an academic market that is used to dealing with long, convoluted prose, the book seems to be marketed more broadly toward a “well-educated” market. While Mills' sometimes awkward prose is not an overly serious issue, it does detract from the experience.

Overall, however, I recommend this book to the “armchair energy analysts” and anyone else who is interested in the topic of energy markets. It may not be groundbreaking for those of us who read this particular blog on a regular basis, but it is a useful text in the sense that it puts a great deal of important data at your fingertips, as well as giving a great deal of insight into the market itself. It is a challenging read, but it is definitely worth the time spent. I doubt it will turn any “doomers” or “peakniks” into optimists, but it will definitely put a lot of things into context for both “debunkers” and those sitting on the fence about the future. It is also, in my opinion, a good text to recommend to friends who stumble on to the “peak oil” scene for the first time, if only to give them insight into how flawed most of the doomsday arguments really are.
by Ari

Tuesday, January 13, 2009


Video on EGS (Enhanced Geothermal Systems) featuring incoming US Energy Secretary, Steve Chu:

Yukon Energy cranks up search for geothermal heat source
Yukon Energy Corp. will spend about $285,000 this year to try to find an affordable source of geothermal power, the utility says.
The utility is contributing the money towards a research project to study the Yukon's geothermal potential.
Tata Power to set up geothermal, solar plants in Gujarat
Mumbai: Tata Group company Tata Power Monday said it is looking at the possibility of setting up a geothermal power plant and a solar power plant of 5 MW each at a suitable location in Gujarat, a move that will strengthen the renewable energy portfolio of the company.
Baoshan energy park uses geothermal pumping system
HANGING food above cool water in a well used to be one of the most popular ways to keep it cool in summer, and so did blocks of ice for ice boxes in the days before refrigerators that ran on electricity.

Now that old approach - using the constant temperature of underground water - is again being used today for air conditioning.

The idea of the small well has been enlarged to more than 10,000 square meters in northern Shanghai's Baoshan District.

In an energy conservation center in Baoshan, you can see a line of round holes in the wall of the conference hall.

It's air conditioning for the Shanghai International Energy Conservation and Environmental Protection Park.
On Campus: Geothermal energy coming to University of Wisconsin-Madison
Drilling began last week for a geothermal heating and cooling system for the future Wisconsin Institutes for Discovery — the first research facility at the University of Wisconsin-Madison to use the economical energy source.

The system, which uses the relatively constant temperature of the earth to regulate building temperature, will provide an annual 10 percent savings on energy use.
Warm up to geothermal heating-cooling
Geothermal heating and cooling is becoming a hot topic in the Great Falls area for people thinking about building new, larger homes.

This heating system leans green but costs at least one-fourth more than a conventional heating and cooling system, according to Ron Walker, service manager at Central Plumbing and Heating in Great Falls.
Diggingdeeptobringpower to the people
FROM MPs to famous novelists, everyone is warming to the idea of geothermal energy, says Environment Correspondent KELLEY PRICE

There is massive potential in the Tees Valley because ground source heat is ideally suited for off-gas houses - Adam Woodhead, Geocore

CHANNELLING heat from the earth for electricity has been pioneered in countries such as Sweden and Germany for years, but while the technology may not be new, it’s suddenly a hot topic among the green crusaders.

Redcar company Geocore has seen its turnover treble in the last two years, since it branched out into borehole drilling for ground source heat pumps.

Their national client list reads like a who’s who of famous names and places - including Labour MP Clare Short and the author behind the Hollywood hit Golden Compass, who both had their London homes fitted with the carbon-saving system.

At the other end of the geothermal spectrum, a £32.5m pioneering project has been launched in the South-west to create seven geothermal power stations - and similar deep drilling technology to access heat from hot springs is likely to be used at Weardale, which has been identified as having the ideal strata.
Japan geothermal projects pick up after 20 years: report
Several Japanese firms will kick off new projects to build geothermal power plans this year for the first time in nearly two decades, the Nikkei business daily reported on Saturday.

Mitsubishi Materials Corp, Electric Power Development Co, or J-Power, Nittetsu Mining Co Ltd and Kyushu Electric Power Co will lead the way, and the government plans to step up support for geothermal power station development, it added.

With active volcanoes scattered around the country, Japan is well-placed to tap geothermal energy as a power source and the attraction of a domestic source of energy is also fuelling the drive, the newspaper said.
Maryland Elementary School Installs Geothermal System
Lincoln Elementary School in Frederick, Md., is the latest educational institution to use geothermal energy for its heating and cooling needs. reports that the newly modernized 86-year-old school is the first public school in its county have a geothermal system. The installation is part of the school's green design, and school officials hope to use the geothermal system as part of their effort to achieve certification in Leadership in Engineering and Environmental Design.
Geothermal energy put to test at schools
Some school districts in Arizona are considering geothermal energy to reduce utility costs. Earlier this month, the Cave Creek Unified School District governing board approved the drilling of a test well at its high-school campus.

K.M. Drilling, a Camp Verde firm, will drill a 250-foot test well on Jan. 10 on the campus at Cactus Shadows High School at no cost to the district. Corgan Associates, a Phoenix architecture firm, has spoken with the Paradise Valley Unified School District about a similar project.
Utah startup hits geothermal jackpot
Within six months of discovering a massive geothermal field, a small Utah company had erected and fired up a power plant — just one example of the speed with which companies are capitalizing on state mandates for alternative energy.

Anticipation of new energy policies has sparked a rush on land leases as companies like Raser Technologies Inc., based in Provo, lock up property that hold geothermal fields and potentially huge profits.

Raser's find, about 155 miles southwest of Provo, could eventually power 200,000 homes.

The company said it will begin routing electricity to Anaheim, Calif. within weeks.
Ormat gets loan for Kenya geothermal project
Ormat Industries Ltd. (TASE: ORMT) subsidiary Ormat Technologies Inc. (NYSE: ORA)has obtained a $105 million ten-year loan for its Olkaria geothermal project in Kenya. The refinancing is for the 48-megawatt Olkaria III geothermal power plant in Naivasha, in the Rift Valley in Kenya, owned by Ormat Technologies unit OrPower 4 Inc.

Ormat financed the $150 million construction of Olkaria I and II, as well as the drilling of wells, from its own internal sources. Phase II, completed in December 2008, added 35 MW to the project, bringing it to the target capacity of 48 MW. The electricity generated is sold to Kenya Power & Light Company under a 20-year power purchase agreement.
Geothermal heating in action
At the General Theological Seminary in New York City, thoughts, if not eyes, are meant to be cast heavenward. But the oldest Episcopal seminary in the United States also is looking deep underground for a way to heat and cool its buildings.

Earlier this year seven wells were completed that drilled into schist rock formation hundreds of feet below Manhattan island to tap an underground river that flows at a constant 65-degree temperature year round. By circulating that water to the surface, several of the seminary’s handsome 19th-century buildings are being cooled in summer and heated in winter. When the project is completed, 20 such wells will heat and cool the entire campus.
Prospects for Canada’s geothermal industry continue to heat up
We may be living in uncertain economic times, but firms working in the geothermal industry are optimistic that the buoyant sales growth they have enjoyed during the last year will continue, although some flattening of the sales curve may be in store.

“Preliminary reports indicate that the geoexchange industry is growing at between 40 per cent and 260 per cent depending on the region,” said Ted Kantrowitz, vice-president of the Canadian GeoExchange Coalition. “In Ontario, I think the highest profile report has been that heat pump sales have grown about 200 per cent this year.”
Commissioners Look at Jail and Justice Center Geothermal Plans
Mower County Commissioners got to check out plans for the new jail and justice center's geothermal field. County leaders say they want to make sure the energy source would be big enough if the county adds on to the jail and justice center.
Local authorities warm to geothermal energy
The idea of harnessing the heat stored deep underground as a source of renewable energy appears to be gaining ground in Switzerland. Earlier this week the Geneva authorities announced plans for a CHF200 million geothermal project to provide natural heat and energy to thousands of homes. Meanwhile, the city of St Gallen has set its sights on building the country’s first geothermal power station.
Anatomy of an energy-efficient building
The new business and teacher education building at Mesa State College will be the most energy-efficient building on the Western Slope within the next year, according to Xcel Energy.


Eggleston said the building’s geo-exchange ground-heating system was the deal-maker for the distinction because it supplants boilers and forced-air heating systems such as furnaces to heat the building using the Earth’s natural heat.


The geo-exchange ground-heating system, built under the field adjacent to the building, sucks temperature from the soil and pumps it into the building. At the time of design, the system was estimated to pay for itself in saved energy costs in 15 years, said spokeswoman Dana Nunn, but it may be sooner because energy costs have gone up.

The Environmental Protection Agency estimates systems such as these can reduce energy consumption by more than 70 percent over heating with conventional air-conditioning systems.

Mesa State included a campuswide geo-exchange system project to submit to the state Legislature that would cost $5.49 million.
by JD

Wednesday, January 07, 2009


The blowhards of the peak oil community are strongly in favor of gardening as a solution. There are a few problems with this. For example, if you're unemployed, where are you going to get land to garden on? If you already own land, and it's paid off, then you're a rich person, and don't need any help. The people who genuinely need a solution (at least in today's financial crisis) are unemployed people, foreclosed people and poor people, and they don't have any land. And they can't get any land because they need a job to get money to obtain the land. And, as we saw in the previous article, the peak oil community takes a very dim view of net job creation because that would inevitably involve growth.

But let's put those concerns aside for a moment. Let's suppose that you're unemployed, but you just happen to have a quarter acre of idle land lying around. Since this is a fantasy, let's also suppose that you're completely unencumbered by other tasks, and have all the costly organic seeds, shovels, hoes, wheelbarrows, hoses, books and other capital you need to start your own little "local agriculture" shangri-la. First, you'll need to trench the land with a shovel, work in the organic compost, and plant your corn crop. Of course, this will all be done by hand, because dependence on modern energy sources is unsustainable. Watering, hoeing, weeding, pest control, harvesting, shelling and milling will all return to the wonders of a "world made by hand". Here's the unit you'll be using to grind dried corn into meal:

Oops... That looks a little too high-tech and fossil-fuel intensive. Too much embedded eMergy. Plus you'd have to ship it on a diesel-fueled truck to your tent. So you (or more likely your wife) will end up using one of these state-of-the-art "green" units for maximum sustainability:

Okay. You've completed your first cycle of agriculture in harmony with Gaia, and you've got your crop in. How much do you have? Well, let's look back at historical yields (bushels/acre) from the "made by hand" days. This chart is from the USDA (click to enlarge):

I'm figuring we're going to have to go back to at least the 1930-40s to get bona fide made-by-hand yields, but let's be generous and say 50 bushels/acre. You know, maybe you got lucky and turned out to have a green thumb.

You'll have to toss out varmint damage and the disturbing freak show oddities like this one:
But let's suppose you bag a solid 10 bushels. How much value did you clear? Well, corn prices at the moment are about $4 a bushel, so damn if you didn't clear a whole $40 worth of corn for 5 months of backbreaking work! A sum you could have made a lot quicker and easier by working a single 6 hour day at McDonald's:

$6.55 an hour: He's lovin' it

Of course, we're assuming that you're grinding your own corn, so let's do that comparison too. A typical bushel of corn weighs 56 pounds (25.4 kg), so your total harvest -- in terms of corn meal -- will be 560 pounds. The current rate for bulk corn meal is about $15.80 for a 50 pound bag. So your corn meal, which took months to grow and weeks to grind, is worth a grand total of $177. Wow! That's equivalent, by the way, to 3 days of work at a minimum wage job.

Don't get me wrong. I actually enjoy gardening, and used to grow big gardens myself. Gardening is fun, and a good way to get some fresh air and exercise. But the reality is this: it doesn't even come close to making economic sense. If you calculate all your costs -- land, materials, equipment, the value of your time -- and compare them to the value of your output, you'll come out massively in the red every time.

Gardening is basically a bourgeois fantasy, pushed by dilettantes and intellectuals who are well-off enough to indulge in it as a hobby. It's not a genuine solution for the average person, or the poor. Intensive gardening will make those people even poorer, not better off.
by JD