Peak oil? Ask an oilman.
By Rob Neilley
Published: November 9th, 2009
Published: November 9th, 2009
We’ve all been reading and hearing about peak oil—that there is a fixed amount of crude oil in the earth, and we have by now extracted so much that the supply will soon pass the point of diminishing return, if it already hasn’t. Some deny it, some shrug it off, but once we get past the knee-jerk reactions, the real story is more complex.
Since 1995, John B. Hess has been chairman and CEO of Hess Corp., a global player in oil and gas exploration and production with 2008 sales of more than $42 billion. That qualifies him as a real oilman, but don’t rush to judgment.
On Oct. 21, Hess spoke at the Oil & Money Conference, and here’s how he concluded his talk: “What kind of world do we want to leave to our children? If we do nothing, there will be severe consequences. Skyrocketing prices could become a way of life in a crisis-led world.” But he’s not fomenting panic by any means.
Hess makes the point that 85% of the world’s energy today comes from hydrocarbons, adding that renewable energy sources can’t scale up fast enough to avert an oil crisis in the next five to 10 years—if we do nothing. When the economy recovers from its current malaise, oil demand is projected to grow by a million barrels a day as global population moves from today’s 6.8 billion to 9 billion by 2050. People in emerging economies want more cars. “The U.S. has 1000 cars for every 1000 people; China has 10 cars per 1000,” noted Hess.
With 3 trillion barrels of recoverable oil available, we are not running out of oil, he says. The issue is global production capacity, and he cites a report from the U.K. Energy Research Centre that says we risk a peak in global oil production before 2020, and it could enter into terminal decline.
Hess says the U.S. needs to take a leadership role—for example, by having the courage to demand 50 mpg as our national standard. He asserts that a gas tax of $1/gal would boost conservation and pay down the federal deficit.
He further calls for international collaboration in a global energy policy forum, noting that if OPEC-led oil-producing nations would build more production capacity, we could add 5 million bbl/day of incremental supply over the next 10 years. “The price of $140 per barrel oil was not an aberration,” says Hess, “It was a warning.”
Read the full text of Hess’s speech. For further reading, try the Post Carbon Institute.
Steve, Thanks for your
Steve,
Thanks for your comments; good points all.
To your third paragraph and words on single-use plastics: along with 380 other people I attended a conference last week on bioplastics. Looking through the list of attendees,there were very few plastics processors, and maybe understandably so as the conference was in Berlin at an expensive hotel (I overnighted at a place with a lot more character for about 25% of its cost, and got free breakfast and WiFi to boot).
The cost and time out of the office didn't stop employees from OEMs from attending though---carmakers, consumer goods OEMs, and a whole bunch of people food and beverage brand owners. These people are getting smart on these new materials, and it's very conceivable that they soon will be asking their suppliers to use them. At least according to one exec who spoke, from Coca-Cola, costs of bioplastics will not be the limiting factor as his company's surveys reveal consumers will pay more for a sustainable package. Whether survey answers transfer to real-world shopping decisions is a big question.
Maybe just as important, an awful lot of 'bioplastics' capacity---mostly based on renewable resource materials (RRM,the new acronym)--will enter the market in 2012-2015,and likely help reduce prices.
Matt
Amen! I did a keynote
Amen! I did a keynote presentation on this and other macroeconomic risks to the plastics industry at Molding 2007 with repeats at Antec and and SPE meeting in Los Angeles later in the year. It has been clear for sometime that while there is lots of oil, the rate at which it can be produced is subject to limits. There are 3 major risks. They are geologic limits to flow rate, underinvestment, and geopolitical risk. In a robust system, the risks are diffuse. In a system getting anywhere close to its natural geologic limits the other two rise in stature rapidly and perhaps overwhelm the geologic risk. A study of the history of economics also demonstrates that the rise of fossil fuels and their effect on agriculture underlie the improvement in living standards since around 1800. Fossil fuel impacts on agricultural mechanization and fertilization freed us from slavery to getting enough food for survival and permitted the diversion of that energy to other pursuits and improvements.
For me, it has changed my point of view on taxation and government imposition of performance standards. If we believe there is no fundamental limit, then I oppose government management. However, if the facts of these limits are honored then some control over the use of the most critical commodity to human survival is necessary to manage the conversion to some yet-to-be determined alternate energy basis. In this model, ensuring the cost of energy is high enough to support switching and aggressive use minimization is very responsible. The watchout is that efficiency measures, which normally lead to an increase in demand as the unit cost falls in response, must lead to an absolute decrease in demand. The cost per unit of driving a mile, for example, needs to be maintained at a constantly high level to prevent absolute demand from increasing as a result of what should be mandated efficiency gains.
For the plastics business, it's time to seriously reconsider the many business models based on single-use plastic applications. They will get too expensive and are not environmentally responsible. The PET industry / water bottle experience lately is an early warning sign for how the plastic industry gets impacted by this problem as well as the climate change issues. Plastic packaging is great, but it should be designed for long-life and refilling/re-using. Even recycling doesn't gain enough. In addition, we may find ourselves wanting to recover land-filled materials at some point.
A final piece of good news, perhaps. It is possible that rising energy costs will cause natural truncating of the outflow of plastics manufacturing as a result of rising transport costs. A bit of this was seen in 2008. A look at the history of globalization shows strong correlation of globalization's rise with falling transport costs associated with the shift to coal and then oil. A reversal to rising transport costs strongly implies shrinking economic shipping radii with a corresponding need for more local production. However, scale economy also increased with falling transport costs and there will probably be rising costs associated with reduced scale that comes with smaller shipping radii as well. How this balances out exactly is hard to sort out but some changes in very long held assumptions seem to be near.
Steve DeHoff