Recognizing the Peak of World Petroleum Production

Res 06-07 [was] sponsored by Councilmember Rollo and documents the phenomenon of peak oil and recognizes that global petroleum production may soon peak. The full text of the resolution in its final adopted form can be found here.

According to the Resolution:

• petroleum accounts for approximately forty percent of the United States’ energy consumption and over ninety percent of its liquid fuel needs for transportation;
• most industrialized, non-OPEC countries have peaked in their production of oil;
• reserve accounting in OPEC nations is unreliable and therefore, some OPEC nations may have also reached peak production;
• world demand is outpacing production;
• geologists, energy analysts and other scientists warn that global production of oil may be nearing the half-way mark, or “peak”;
• oil is key to domestic transportation, agricultural, chemical and plastic industries;
• no known substitute matches petroleum’s portability, energy density and energy return on energy investment;
• a petroleum shortage would devastate many industries and economies;
• mitigation efforts must occur 15-20 years in advance of a peak to compensate for increasing scarcity.

Based on those propositions, the Resolution:

• calls for immediate action to mitigate a decline in oil reserves;
• supports the adoption of a global depletion protocol (The Oil Depletion Protocol -- formerly known as the Rimini Protocol – can be found at http://www.oildepletionprotocol.org/theprotocol);
• accepts that the City must prepare for the inevitability of peak oil; and
• directs the City Clerk send the Resolution to the Indiana Congressional Delegation, the Governor, and all the members of the Indiana Statehouse, urging them to take action to mitigate the effects of the peak and to prepare for its consequences.

In support of the Resolution, Councilmember Rollo points to two government-commissioned studies: Energy Trends and Their Implications for U.S Army Installations (the “Army Report”) (prepared for the U.S. Army Corps of Engineers), Eileen Westervelt and Fournier, Donald (2005) and Peaking of World Oil Production: Impacts, Mitigation and Risk Management (the “Hirsch Report”) (prepared as account of work sponsored by the United States Department of Energy), Robert L. Hirsch and Bezdek, Roger (2005). Both studies point to the immanent nature of a global peak and the need to aggressively mitigate the impact of such petroleum production shortage.

The Phenomenon of Peak Oil

It is widely-acknowledged that because oil is a finite resource, world oil production will reach a maximum – a peak – after which production will decline. (Hirsch, p. 11) The United Stated reached maximum oil production in 1970 and global petroleum production is nearing its peak (see both Army and Hirsch Reports). As the Hirsch Report points out, oil reservoirs have lifetimes measured in decades and peak production often occurs approximately ten years after discovery. The largest reserves are called, “Super Giants,” the last of which was discovered in 1967. Id.

While it is widely-agreed that petroleum production will peak; scientists disagree when the peak will occur. Some locate the peak in the next decade while others place it in 2025 or later (Hirsch, p. 25). The Hirsch Report explains that:

Projections of future world oil production will be the sum total of:

1. output from the entire world’s then existing producing oil reservoirs, which will be in various stages of development, and
2. all the yet-to-be discovered reservoirs in their various states of development. This is an extremely complex summation problem, because of the variability and possible biases in publicly available data. (p. 17).

Of the twelve studies cited by Hirsch, nine locate the world peak within the next ten years, one locates the peak in 2020 (CERA), one in 2025 or later (Shell), and one economist estimates no visible peak.

As production peaks, consumption of petroleum is expected to grow. World-wide consumption of energy is projected to increase 60 percent by 2030 and may triple by 2050 (Army Report, p. iii). After oil production peaks, production will steadily decline. This presents the world with an unprecedented problem. The Hirsch Report points out, “[a]s peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented.” (p.4) Indeed, the U.S. and other industrialized countries rely on petroleum as a key component in transportation, agricultural, chemical and plastics industries. As pointed out in the Hirsch Report, a decline in production will reshape the way we live and trigger economic crisis that may resemble the economic crisis following the 1973-1974 embargo (p. 27). Hirsch estimates that the economic loss to the U.S. could be measured on a trillion dollar scale. Id. And unlike other energy transitions -- such as the move from wood to coal, or from coal to oil -- Hirsch points out that the peaking of oil “will be abrupt and revolutionary.”

Mitigation

To avoid protracted economic hardship, both the Army and Hirsh studies call for steps to help mitigate the shortage. Hirsch points out that any prudent mitigation strategy should be implemented 15-20 years before peak to bring substitutes online to compensate for the expected decline in the rate of production of 2-3% per year. However, because the precise date of the peak is unknown, mitigation presents a classic risk management problem: If peaking is long delayed, mitigation initiated earlier than required may turn out to be premature; on the other hand, if peaking is imminent, failure to mitigate in a timely manner could occasion great damage. Indeed, waiting until production peaks could leave the world in a liquid fuel deficit for more than twenty years (Hirsch, p. 65). Hirsh concludes that “[e]arly mitigation will almost certainly be less expensive than delayed mitigation.” (p.6)

Both the Army and the Hirsh Reports outline mitigation opportunities. The Army Report calls for energy options that satisfy issues of availability, affordability, sustainability and security and concludes that petroleum satisfies none these criteria. The Report reviews the following non-oil energy sources.

1. Natural gas – “Domestic production of both oil and natural gas have passed their peak. Almost half of the existing U.S. natural gas reserves are considered to be either remote or stranded....Construction of an Alaskan natural gas pipe-line and the importation of Liquefied Natural Gas (LNG) are possible solutions.” However, the necessary production and distribution infrastructure will take years to construct. (p. iii)
2. Electricity – Domestic electrical grids are gentrifying and overtaxed; appropriate investments should be made once regulation and deregulation issues are settled. (p. viii)
3. Coal -- Current research suggests that “deploying polygeneration techniques with carbon sequestration on a large scale may potentially allow the United States to use the nation’s coal reserves in an environmentally friendly way to meet both liquid fuel and electricity requirements. However, carbon sequestration techniques must be well thought-out to avoid unintended ecosystems consequences such as unexpected large releases of carbon into the environment.” (p. vii) Coal supplies may last until the next century depending on technology and consumption trends. (p. xi)
4. Nuclear power – The Report makes clear that developing a breeder reactor program and closing the fuel cycle “could offer true energy independence, but at the cost of increased environmental and security risks. It remains to be seen if this is a viable solution from both political and ecological perspectives.” (p. vii)
5. Renewable energy – “Renewable energy technologies will certainly be a growing part of the energy mix and will penetrate faster and further than conventional energy advocates think. Early adoption to promote this market and these technologies is inherently in the Army’s interest. From an economic perspective, the cost of renewable technologies continues to fall while the cost of conventional energy sources continues to rise.” (p. viii)

The Army Report concludes that the best options for meeting future energy requirements are energy efficiency and renewable sources. Energy efficiency ensures the greatest benefit from every Btu used and involved optimizing operation and controls to minimize waste and implementing state-of-the-art technology. The Report projects efficiency measures would save the Army “30 percent of current and future consumption.” (p. xi-xii) The Army Report points out that renewable energy options, such as solar, wind, geothermal, geoexchange, hydrology, tidal movements, agricultural products and municipal wastes are available, sustainable and secure options. “The affordability of renewable technologies is improving steadily and if the market is pulled by large Army application the cost reductions could be dramatic.” (p. xii).

Similarly, the Hirsh Report outlines steps for mitigation that include commercial options for increasing world oil supply and for the production of substitute liquid fuels. These strategies include: 1) Improved Oil Recovery (IOR) – a technique that can marginally increase production from existing reservoirs; 2) heavy oil/oil sands – lower-grade oils primarily produced in Canada and Venezuela; 3) coal liquefaction; 4) remotely-located natural gas may be a clean substitute fuel, but must compete with world demand for liquefied gas. (Hirsh Report, p.4)