Over a Barrel: Low Oil Pressure Warning

 - October 11, 2006, 8:43 AM

A world without oil is a breeding ground for alarmists, some say, blithely confident that it can’t run out and “we’ll find more,” but if it ever does run out “we’ll have found something else by then.”

Others who have made a career of studying our ever growing appetite for oil, however, see a harsher reality, and a new book by energy expert Tom Mast falls into this camp. For a book whose subtitle reads, “A Simple Guide to the Oil Shortage,” what better title could there be than Over a Barrel, because that is exactly where the industrialized world finds itself now, about 100 years after oil’s potential for transportation, manufacturing, comfort and the general advancement of mankind emerged.

Mast’s book starts out by noting that the oil we take for granted was created over a period of 100 million years, and in little more than a century (one-millionth of that creation period), mankind has burned approximately half of all the recoverable oil on the planet. That stark message alone sets the tone for what follows, which centers on Mast’s assertion that currently designated alternative fuel sources are simply not ready to fill the large gap in the energy industry that will be created when oil is no longer readily available. Those last two words are crucial to the dilemma: the half of all the planet’s oil that has already been burned was also the most easily extracted oil on the planet. What’s left is going to be ever harder to bring to the surface and refine.

Mast’s book presents his case in calm, measured language whose simplicity makes for compelling reading. It has been popular for those of us in aviation to take some comfort in telling ourselves we are a special case, since there is no way we can shovel coal into our wing tanks, carry nuclear fuel aloft or make airplanes perform to people’s liking with fuel that does not pack the energy density (the punch per pound) of jet fuel.

Alternatives, we have been assuring ourselves, can be found for ground-bound, less weight-critical energy applications, leaving the hydrocarbons for trickier uses such as aviation. Well, don’t count on it. All users of oil feel equally special, whether they are making pharmaceuticals to cure what ails us or grease or plastics to put in our SUVs or nitrogen for fertilizers to help feed us, and the price is going to go up for all users.

Unfavorable Position

When presented with this line of thought, Mast told AIN, “Aviation is in a particularly unfavorable position because of the lack of alternatives,” but he conceded it is reasonable for us to hope that, if alternative energy sources are developed for ground-bound transportation, demand for oil should diminish enough to ensure the continued supply of jet fuel for aviation to burn.

Oil users consist of industrial/ commercial (which accounted for 33.4 percent and 17.9 percent, respectively, of U.S. energy consumption in 2002); transportation (27.2 percent); and residential (21.5 percent). A traditional yardstick for measuring the longevity of the world’s oil supply is the reserves-to-production (R/P) ratio, which divides the proven oil reserves in the ground by current annual oil production. According to British Petroleum, the world R/P ratio for 2003 was 41 years. That is, at the 2003 usage rate, the proven oil reserves would last 41 years. “The use of the R/P ratio has engendered a sense of complacency,” warns Mast, “prompting many to tell themselves, ‘We have over 40 years of oil available, and we always seem to find more.’”

However, continues Mast, a more realistic school of thought states that we should focus on the time when world oil production peaks and begins its decline, rather than emphasize the R/P ratio. He cites L. B. Magoon, a USGS geologist who has mapped world oil fields for three decades and asserts that “Are we running out of oil?” is the wrong question to pose. “He says that instead we should ask, ‘When is the big rollover?’ The big rollover is defined as the time when world oil production peaks and rolls over into a permanent decline. After the peak, as production declines and demand continues to increase, oil will become scarcer each year.”

The so-called Hubbert’s Peak calculation (originated by geologist M. King Hubbert five decades ago) applied this thinking to U.S. lower-48 domestic oil production in 1956 and predicted that oil production would peak between 1966 and 1972. The actual peak came in 1970, at 9.4 million barrels per day, validating Hubbert’s approach. By 2002 it had dropped to 4.8 million barrels per day, a decline of 49 percent in 32 years–despite the addition of Alaskan production to the U.S.’s resources.

Hubbert later applied his approach to the world and estimated the planet’s oil production would peak between 1990 and 2000. Other scientists have since used updated information to refine his calculations, estimating that the peak year for oil production would occur as early as 2003 or as late as 2020. “Some of the estimates calculated are imminent,” says Mast, “and none of the others is more than 16 years in the future. Matt Simmons, oil industry expert and advisor, says, ‘Peaking of oil and gas will occur, if it has not already happened, and we will never know when the event has happened until we see it in our rearview mirrors.’”

Once we reach the year of peak production, notes Mast, world oil production will begin to decline. If we don’t learn to use oil at a reduced rate or find alternatives, the demand for oil will continue to increase each year. The International Energy Agency forecast for demand growth is 2.3 percent for this year.

“Given the fairly optimistic assumption of a supply or production decline rate of 0.5 percent per year and a demand increase rate of only 1.5 percent per year, well under the current rate,” cautions Mast, “just six years after the peak we will have an unfulfilled demand of over 10 million barrels per day. In 11 years, the shortfall will be over 25 percent of current demand. Recently, we have seen that the mere threat of being short one or two million barrels per day results in whopping price increases and world tensions.”

‘Permanently Parked’

In one of the book’s references to aviation, Mast concludes, “The predicted scarcity of oil will cause cars and planes to be permanently parked, unless we develop alternative fuels.

“The important concept to grasp is that scarce oil and all the attendant problems will occur not when all the oil is gone, but when production can no longer keep up with demand, and this will be soon. Whether the peak and the beginning of declining production occur in 2005, 2007 or 2020, we must realize we have been procrastinating on developing robust fuel alternatives to oil. We should have begun years ago.”

Americans continue to have the heaviest thirst for oil, constituting only 5 percent of the world’s population but consuming 25 percent of the oil produced in the world in 2000–twice the energy consumption per capita of people living in Japan or Europe and 10 times that of the average world citizen. “But developing nations, particularly China,” notes Mast, “are rapidly increasing their demand for oil. [Last year] China alone accounted for 40 percent of the rise in demand.”

Mast examines the pros and cons of alternative fuels, including hydrogen, battery power, natural gas, shale oil and oil sands, coal, nuclear, solar and wind, biomass and hydroelectric. None of these (other than coal, but the conversion process would be energy-intensive) holds any currently recognized promise as an alternative for aircraft, so the best we can hope is that, if developed and embraced, they could collectively alleviate demand for oil and leave more for such applications as aviation.

To inspire a sense of urgency about the need to provide alternatives, Mast devotes one section of Over a Barrel to “Life in a World Without Alternatives to Oil,” and it is grim reading. A summary:

• Inflation will be stimulated as oil prices increase to levels impossible to predict.

• Standards of living will deteriorate if oil becomes extremely scarce. Manufactured goods, air travel, automobile commuting and vacations will eventually cost much more. Economies will suffer because spending on oil-based products will reduce the amount of money left to spend on all other goods and services. We will have to change our habits drastically.

• The global competitiveness of countries that have been heavily dependent on cheap oil will be reduced. The American economy thrives on inexpensive fuel for transportation, distribution and manufacturing. Removal of this crutch will make competing with low-cost-labor countries like China and India more difficult; those countries will be able to manufacture goods cheaply using low-pay workers, and the American economy won’t be able to compensate using energy-intensive machines.

• The balance of trade will be adversely affected. The outflow of money from countries importing oil to those exporting it will be huge. For example, an increase of $60 per barrel over present prices for U.S. oil imports would mean an increase in cash payments to foreign countries of $249 billion per year, or an additional $846 per person. This would be added on to an already serious $600 billion current-account imbalance.

The Money

Of course, much of this money would flow to the Middle East, which dominates the world oil supply, with 63 percent of reserves. In the Financial Times, Martin Wolf asserted, “Unless trends change, 10 years from now the United States will have fiscal debt and external liabilities that are both over 100 percent of the GDP. It will have lost control over its economic fate.”

The central message in Mast’s book is that only a serious effort to develop and embrace alternatives to oil will change that trend. We have been warned.