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Houston: We've Got A Problem
Gil Friend, 8 Jan 06

oilderrick.jpgYou'd expect a cover story about Peak Oil from WorldWatch magazine -- but Barrons?!

Titled "Twilight for Oil?" in the Jan 2 print edition, and An Unapologetic Alarmist online (needs subscription), Sandra Ward interviews Matthew Simmons, head of energy investment banking firm Simmons & Co. Barrons' cover subhead -- "Preparing for (gulp!) $200 oil" -- about sums it up.

But oil supply isn't going to grow. As we move into the brutal brunt of the winter, we could easily have 45-to-60 days where demand is basically two-to-four million barrles a day higher than supply. Then we will test how robust our inventories are, because we've never experienced that kind of stock draw before. In the United States, in some areas we must be down to hours of spare inventory on a days-use basis, particularly in diesel fuel. When 85% of the things we buy in WalMart come from China, the implications for trucks on the highway system is profound. Those trucks are chugging along at three-to-six miles per gallon, which is why we are setting an all time record in the use of diesel fuel.

When asked "what do we do" Simmons sounds more like a raving enviro -- or like me! -- than like a Houston investment banker:

Let's actually assume there is a reasonable chance this awful peak oil and peak natural gas is real and do something about it, so if it turns out to be real it isn't a show stopper and if we did something and it turns out it wasn't real, we've bought ourselves an insurance policy.

He goes on to call for a "the intensity of the way we tackled the Marshall plan when we rebuilt Japan and Europe after Word War II," cutting oil use in half by 2020.... [making] a major shift in the way we distribute goods over long distance." CAFE standards. Telecommuting. Yipes - the guy's actually a locavore! "To have food taste great it has to be grown locally."

But seriously, folks: this is important, and notable, that serious players from the world of big oil are starting to pay heed, recalibrate how they view the landscape of risk and opportunity (.MOV), and get those contingency plans into gear.

If you're not up on just how quickly this shift is happening -- notwithstanding the macro trends heading us right into big trouble -- be sure to track CleanEdge, a weekly newsletter on "clean technology." (Disclosure: co-founder Ron Pernick is on Natural Logic's advisory board; co-founder Joel Makower is a collaborator in the S/BAR sustainable business rating system and other endeavors.) CleanEdge is chock full of stories about growth in renewable energy markets, advances in solar cell technology and, this week, California's proposal for the Nation's Biggest Solar Program: 3,000 MW by 2016.

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It would be great to have the possibility to read the whole interview with Matthew Simmons, but I am not sure I would like to subscribe to Barrons for it. Is there anybody out there able to forward it to me? He would have my never ending gratitude!

Posted by: nicoletta landi on 8 Jan 06

Mr. Simmons's own site is chock full of .pdfs with the same message — although there's something stirring about seeing it for real in a mainstream publication. Matthew Simmons is also featured in the Canadian documentary End of Suburbia. In that film, I found him the more tolerable and therefore most effective of the alarmists. I wonder if he's courting overexposure. America has a hard time with the concept and role of alarmist. Here, for instance, is my Microsoft Word's definition, admittedly from perhaps the worst thesaurus on the planet:

a·larm·ist n

1. somebody who spreads unnecessary fear or warnings of danger

2. somebody who becomes afraid easily
What about the concept of sounding an alarm? I remember a comment from Ed Yardeni, the economist most out front on Y2K, describing himself as an unapologetic alarmist when compared to "naïve optimists" who assume that threats would not cause any significant changes. I hope through Barrons, Mr. Simmons gets at least a fair hearing and is seen as perhaps a sentinel, a guard, a lookout and not dismissed as Chicken Little.

Posted by: Will on 8 Jan 06

jesus h christ.

Talking about the biggest problem that mankind has yet to face -- and not even mentioning the 'n' word (that's right nuclear power). Solar? Is he kidding??
Solar's about as expensive as you can get.

If we are going to ride this one out, we're going to need to give ourselves some breathing room whilst waiting for the wind or solar energies to get competitive (if they ever get there) - ie: tying our transportation network into our electricity network, both for oil production and mass transit.

And that means a lot of cheap, cheap, environmentally clean electricity which flows all the time, ie: nuclear electricity.

Think it can't be done? Well the transportation network is fairly obvious (via mass transit), but there have been some very successful tests on converting keragen (yes shale oil) into real oil using electric heaters and refrigerators. The basic idea is that you stick a big electrical heater into the ground (the shape of a rod) and cook the keragen in place. The cooling units stop the oil from traveling, and you suck it up. Very convenient, and very easy to scale. And there's a lot of it (over 3 trillion barrels in america alone)

Does barron's really think that this electricity is going to come from solar plants? Sheesh. With our luck - and with what the greens have done to nuclear power - the most likely place we'll get this electricity from is coal. And we will literally cook in this coming century.

Posted by: Edward Peschko on 8 Jan 06

AH, Y2K ... yes, that rings a bell ... "Peak Oil" is indeed the 'Y2K' of our time. Consider the flat out false statements just in the quote part:

"But oil supply isn't going to grow."

oh yes it is. Caspain sea is going from 0mbd to 1 million barrels a day by 2008. deepwater drilling in gulf of mexico is displacing other mature fields. Overall non-OPEC supplies will increase 2 million barrels a day each year from 2006 to 2010. And OPEC shows that they too have about 10 million barrels of new capacity additions planned in the next 5 year. CERA predicts oil capacity growing from 85 mbd now to over 100 mpd by 2010, and this is solely based on *current* planned oil production plans, not even projects that might be added now that oil is higher priced. (consider that most major oil companies are talking about large increases in their exploration and production plans).

" As we move into the brutal brunt of the winter, "

"we could easily have 45-to-60 days where demand is basically two-to-four million barrles a day higher than supply."

Hogwash, we had a cold snap and heating oil use in mid-december went up 600,000 barrels above average ... YET INVENTORIES KEPT RISING! Crude oil inventories are a FIVE YEAR HIGHS!

"Then we will test how robust our inventories are,"

" because we've never experienced that kind of stock draw before."

We never had a cold winter before!?!?
Look we just went through the largest supply disruption in years, the back to back Katrina and Rita hurricanes that knocked out refineries and oil drilling platforms. And in response prices went up - and usage correspondingly went down. which in turn help stabilize inventories.

"In the United States, in some areas we must be down to hours of spare inventory on a days-use basis,"

that is *so absurd* ... crude oil inventories are now 320 million barrels, which is 15 days supply, and add to that the strategic reserves of 700 million barrels *and* the gasoline reserves of 200 million barrels equive and distillates of 100 million barrels equivalent and you have large stocks of inventory as a buffer.

It would take a huge disruption far beyond mere cold weather to impact this, especially given that suppliers anticipate winter (duh, no kidding, happens each year) and build inventory to accomodate it.

"particularly in diesel fuel. When 85% of the things we buy in WalMart come from China,"
okay, more hyperbole.

" ... the implications for trucks on the highway system is profound."

" Those trucks are chugging along at three-to-six miles per gallon, which is why we are setting an all time record in the use of diesel fuel."
Yet MORE hypberbole! actually us of fuels
has grown quite slowly, about 1% per year, which
given the 4% economic growth rate, is quite reasonable, it means we are getting more done for less fuel.

So, here we have Barron's letting an alarmist spread a lot of FUD.

OTOH, Edward's comment is spot on.

"And that means a lot of cheap, cheap, environmentally clean electricity which flows all the time, ie: nuclear electricity."

I agree completely, see my article "The World Goes Nuclear" here:

Posted by: Patrick on 8 Jan 06

I know Matthew Simmons. He's not an alarmist. He's one of the most respected oil investment bankers in the world. His concern arises because he knows, with a lot of inside information to back him up, that many oil companies and oil-producing nations have overstated their proven reserves. If one looks past the hype, oil demand is growing much faster than *truly* proven reserves are. That means peak oil is within sight - perhaps not this year, perhaps not for 20 years - but within sight.

He also knows that we can deploy efficiency quicker, cheaper and easier and any other energy "source", including nuclear.

I'm not sure, but he sure seems smart enough to understand that we need to be concerned with both energy sources and energy sinks - that is, we could reach "peak atmosphere" before "peak oil."

However we obtain energy, we really owe it to ourselves to use it very efficiently. We pay lip service to that idea, but we don't actually heed it. For some reason, few people find high-end efficiency as technically "nifty" as schemes to increase or transform energy supply.

Matthew Simmons has been at the heart of the oil business for decades, and made a personal fortune with hard work and business savvy. He's got "street cred" - think about listening to him.

Posted by: David Foley on 8 Jan 06

Nuke plants are getting closer to going big again what with much better and preapproved prebuilt designs comming. The result is a plant that can go up vastly faster and cheaper with alot less chance of being slowed down by lawsuits. In fact its likely it will become impossible to stop via lawsuit once construction begins.

On top of that wind and solar have made improvements too big time in wind.

And as everyone forgets shale and sand oil has made MASSIVE prgress and is ALOT easyer then it used to be.

Add in the number of biofuel plants and syth plants and things look fine here.

Not so fine elsewhere tho.

The bussinesses have done exactly as they were supposed to. Wait till the proper time then do what works.

Posted by: wintermane on 8 Jan 06

Nuclear? Are you kidding? Great, let's replace one polluting, non-replenishable fuel with another, one with waste products that remain dangerously radioactive for hundreds of thousands of years.

Posted by: Jonathan Harker on 8 Jan 06

Anyone have any figures on how long it will be, if the world economies continue expanding and convert to mostly rely on nuclear power, before we have Peak Uranium and/or Plutonium?

I'm also curious about how nuclear power addresses currently fossil-fuel-baseed transport and fertilizer issues. (My suspicion is, not very well.)

Posted by: Gyrus on 9 Jan 06

Nuke power has a massive timeline specialy after they start reprocessing the spent fuel as only a very small amount is used each time.

And there are several different fuels you can use.

The basic thought on the issue is nuke power can last soo long that if we are too stupid to come up with something else by then we deserve to go to hell.

If we cant make fusion power work in the next 2-400 years frankly we are nitwits.

Posted by: wintermane on 9 Jan 06

Nuclear power is safe. Just hide the waste in big vaults underground and hope there's no earthquake, water seepage or bunker busting bomb from an enemy nation while you figure out a safe way of disposing of it.

Gyrus, I can't find the links now but I've read something like only 50 years of high-grade plutonium is available. The new-breed nuclear plants require high-grade plutonium.

The other factor is time to develop the new nuclear technology and design and build the plants and supporting processes. If we urgently need a substitute, nuclear has a long leadtime. Not a project you really want to rush! They're only just making plans to build/test the 1st new technology reactors. I read that the US could get its first new breed reactor by 2014 - if issues of bureaucratic procedures, $8bn + subsidy, fuel reprocessing and waste storage are resolved.

Posted by: Flannel Flower on 9 Jan 06

So much attention and argument given to energy supply, when ultimately:

No one wants a barrel of oil. No one wants a kilogram of uranium or (god forbid) plutonium. No one wants a kilowatt of electricity. No one wants a liter or gallon of petrol.

We don't want fuels; we want the services that fuels provide. We want mobility, comfort, the capacity to make things. We want hot showers and cold beer. Energy is a means, not an end.

We focus enormous intelligence on ransacking the earth for stored energy, ancient sunlight buried in crust and ancient stars decaying as isotopes. We've used very little intelligence learning how to do what the rest of life does: live within current solar income and fabricate virtually all needs at ambient temperature and pressure. Why is that?

I think it's because there's one thing that's hard to do with efficiency and renewable energy: project military power. Fossil and nuclear are the fuels of empire. And our energy economics are skewed because of that. Virtually no nation makes energy policy based on simple economic merit.

If that changed, and we spent our marginal (next increment of) capital on the best return, efficiency would trump increasing supply for a long time. If our accounting also factored in climate change, then efficiency would trump supply even longer. By that time, we could have cut our energy requirements at least ten-fold. How we'd supply our remaining energy needs is anyone's guess - solar thermal, solar electric, wind, judicious use of fossil and nuclear, microbial-based fuels - who knows?

I don't a single poster here can, by themselves, get a barrel of oil out of the ground or create a sustained nuclear reaction. But every single one of us can find ingenious ways to use energy more efficiently. So let's get to work.

Posted by: David Foley on 9 Jan 06

I can get a barrel of oil out of the ground and I can make a sustained nuclear reaction. I just dont do the later because its realy realy stupid to try it at home and I dont do the first because im lazy and oil smells icky.

As for effiecentcy there is a place for both and its about time we got our ass moving on more power plants.

Posted by: wintermane on 9 Jan 06

It's is very inetersting to see the sides people take on issues. Some take extreme views, while others take centrists views. I note that there is a lack of verifiable hard numbers out there and a great deal of misinformation and ignorance of unpleasant numbers.

First, there is no mention of depletion rates. If we have fields that are declining at 200,000 barrels a day and we are only bringing 100,000 barels a day online, we've got problems.

Second, the Caspian Sea oil field has been down graded several times, from a high of 900 billion barrels, down to 40 billion barrels. I'm sure that they will be able to get 1 million barrels a day of production.

Third, choose your information sources carefully. We've drawn down our strategic reserves more than people realize or care to look at.

Fourth, demand and supply. While supply is barely holding steady, more people are demanding and using fossil fuels. We are still growing our global population (albeit at an ever decreasing rate now) and people are the end users of oil and oil products. Again, depletion rates, bringing new fields on-line and adding greater capacity to the fossil fuel infrastructure will not meet the predicted surge in demand.

Fifth, Y2K is a strawman. The reason that Y2K came and went was due to the foresight and planning of several thousand, if not millions, of people world wide who pushed for a solution to the national and global problem for our computer network system. If you think that peak oil and peak gas are another Y2K, think again! Read Robert L. Hirsch's report to the DOE (US): "Peaking of World Oil Production: Impacts, Mitigation and Risk Management."

I believe in being optimistic, but it better have a solid foundation on "checked facts" rather than "believed facts".

Posted by: Xavier on 9 Jan 06

I have to agree with a lot of what Xavier said; it’s very easy to dismiss the realities PO presents.

But once you look at the scale of change needed to move away from Oil and Gas you get an idea of the situation we find ourselves in as made clear in the Hirsch report we need maybe 10-20 of a crash program to get through, and that’s optimistic.

Patrick’s comments on getting more done with less oil in my mind only seem to mean that a larger chunk of the economy is dependant on a single barrel of oil, lots of the low hanging fruit has been picked when it comes to efficiency and you will get to a point when something has to give.

Posted by: AlexC on 9 Jan 06

I thought nuke power was the MOST expensive energy source when you add in the costs of construction and disposal. Does anybody have any links/ information on this?

Posted by: LDM on 9 Jan 06

Currently, nuclear reactors provide approximately 10-20% of our electrical generating capacity. France and Japan are on the order of 60-80% for their reactors. Each reactor is on the order of 1-2 billion dollars to contruct, requires subsidies, storage and disposal for the spent fuel and large heat sinks (i.e. rivers and oceans). I have nothing against nuclear power, but given how reactors are built and the way we don't maximize the use of our fuel (breeder reactors), we are better of trying a step approach to our energy needs: Efficiency, conservation, smart consumption, renewable energy and technology. It's amazing how little things pile up over time and offer real changes.

Posted by: Xavier on 9 Jan 06

Thanks for the lively exhange, everyone.

FYI, I've just posted a longer version of "Houston: We've got a problem" as this month's New Bottom Line, over at the Natural Logic web site.

Posted by: Gil Friend on 9 Jan 06

What's going on in Iran right now is an example of the silliness of linking reactors directly with weapons. The easiest way to get weapons-grade fissile material is to enrich uranium. You don't need a reactor for that, and your average sized nation has plenty enough uranium to do it. Uranium's not that rare, and using a centrifuge cascade, it's not that hard to enrich. So saying that we can't ever build a nuclear reactor because of weapons concerns really ignores the fact you don't need a reactor to build a weapon. (it helps, but you don't have to have it)

Posted by: thoriumpower on 13 Jan 06

In assessing the risks of nuclear power, we also have to consider how it could be used to make us safer.

If it's true that high-grade plutonium would be depleted in 50 years if it were used to replace oil, that alone seems like a good reason to use it. Weapons-grade nuclear materials are a resource that should be depleted.

Currently, the greatest danger from terrorism is that terrorists should get their hands on a nuclear weapon. So far, the only organization on Earth able to construct nuclear weapons is a State.

If we combine the use of nuclear power as a major energy source during the transition from fossil fuels to a truly renewable energy/biomimetic "life-temperature manufacturing"/nanotechnology age Sun economy with a global program of weapons accounting and disarmament, we would be greatly increasing our safety from the threat of nuclear armageddon.

State nuclear arsenals could be greatly reduced as a safety measure while providing needed post-Peak Oil power. It is far easier to guard and account for an arsenal of 100 nuclear weapons than an arsenal of 10,000. Rush Limbaugh is famous for saying that the only way to eliminate nuclear weapons is to use them. Then let's use them--for power rather than destruction.

Hot Water "Waste"

One of the "problems" of nuclear power is the need to dispose of hot water used as coolant. This water is dumped into natural bodies of water, polluting local ecosystems with excess heat. If this water is safe enough to release into the environment, it's also safe enough to use economically.

Since nuclear power plants by their nature are best constructed in isolated locations, the hot water problem can be solved by siting other "unwanted" industries near the plant, which can then use the hot water for their chemical processes. Waste-water treatment, paper manufacturing, and other chemical industries employ hot water, and use valuable energy to heat it. The nuclear power plant generates it as a "free" by-product.

The hot water could also be used to provide heat for a thermal depolymerizer to convert other waste into oil.

Once the excess heat has been removed from the water, it could be cycled back into the nuclear plant.

Nucler Rocketry

Nuclear-thermal rockets generate a specific impulse twice that of chemical rockets. With this extra power, nuclear rockets could be made much more robust than chemical rockets and still offer huge advantages in power and performance. With nuclear-thermal rockets, trips to Mars and the asteroids would take weeks instead of years.

Such expanded space-exploration capability would offer not only access to the vast resources of the solar system and the ability to undertake large-scale projects such as solar power satellites, it would give us the ability to divert a "dinosaur killer" asteroid away from our planet.

Furthermore, exceptionally-robust nuclear-thermal rockets could be used to propel dangerous-but-unusable nuclear waste on ballistic trajectories toward the Sun. While some may blanch at the idea of putting nuclear materials aboard a rocket, the risk of launch would be temporary. Once away from the Earth and headed for the Sun, nuclear waste would never threaten us again, ever.

Since the launches would be sent from isolated locations with the trajectory over ocean, and the rockets themselves would be as safe and robust as humanly possible, I think the modest increase in temporary risk would probably be a better bet than the literally permanent risk of a conventional nuclear waste disposal site.

If a sufficiently robust and safe nuclear-thermal rocket cannot be designed, nuclear energy could still be used to power a laser or microwave-powered ground-based launch system that would launch vehicles with no on-board nuclear power systems.

While no technology (or absence of technology) will ever be Perfectly Safe, we have to weigh the risks of nuclear power, the disposal of nuclear wastes, etc. against the present alternative of global warming, deliberate or accidental destruction of loaded oil tankers, refinery fires, etc. and weapons-grade nuclear materials existing but not being used up.

Posted by: P.T. Galt on 13 Jan 06



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