[clv101]

I see the lack of industry investment in refineries, shipping, drilling etc despite sitting on record mountains of cash whilst the price of oil threatens the wellbeing of the global economy as a clear sign that peak oil is close.

On top of the bottom up analysis from Rembrandt/TaskforceUnity and Chris Skrebowski pointing to peak oil within a decade and the top down ultimate recoverable reserves analysis of Hubbert and Campbell indicating the same thing.

There's three completely different arguments that produce the same conclusion.

[backstop]

Clv -

your observation of 3 arguments giving cross-bearings on the fact of peak oil seems to me spot on.

Yet it begs a critically important question.

Given demonstrable foreknowledge of Peak Oil, what phenomena, or highly potent coalition, has prevented timely preparatory spending on alternative energies ?

To put this in context, the UK govt, with long civil service expertise in energy markets, can be assumed to have had at least as much foreknowledge as any other player, yet its spending on "Renewables" (for the sake of the climate) is only just starting to equal its spending on rural bus services. (!)

Given that the options for alternatives' development long preceded any possibility of their launch causing a panic, and that their significant availability would not now crash oil prices, I'm left with a range of possible "lobbies for strategic negligence" options.

Of the latter, I wonder which seems most credible to you ?

regards,

Backstop

[bobcousins]

I think Peak Oil can be explained by considering investment, instead of geology. There is no geological reason why oil companies should produce cheap oil before the expensive stuff. But when you realise that investors put money into oil companies to make a profit, and also add in the effect of competition, it explains why cheap oil is produced first, and the expensive stuff later. The stuff with the best return on investment (ROI) is developed first.

It also explains why the logistic curve applies, because growth becomes limited. Remember investors don't have to invest in oil companies, if they see a better return they take it elswehere. Initially, oil that is cheap to produce has the best margin, so ROI is high. This attracts investors. As you move along the the curve, margin is reduced, ROI is reduced, and less investment takes place.

So peak refinery does not show anything wrong with Peak Oil theory. In fact, at the point of highest production the growth rate is expected to be zero which means no investment in new infrastructure (only replacements). We are at that point where the balance of investing in oil versus not investing is neutral. As we go forward, refinery capacity will reduce, not because of shortage of oil, but shortage of people willing to invest in a low ROI.

I like this idea because it relies on well-known market forces. There is no requirement for anything conspiratorial. If Peak Oil theory relied on all the people involved knowing about it and making it happen - that is not a theory just a self-fulfilling prophecy. This is not Twelve Monkeys.

So don't worry guys, Peak Oil theory is working out beautifully all by itself.

[Joe0Bloggs]

I hear this 'refinery won't pay itself back now' argument all the time

How long DOES it take a refinery working at fully capacity to pay for itself?

[backstop]

JoeOBloggs -

is that including constuction time or just operating-years ?

I'd be interested to have clear numbers on these items too.

regards,

Backstop

[BW3]

You do an IRR, Internal Rate of Return, that includes accumulated interest during construction. What interest rate and how many years did you finance your house for. Now, the company expects to make several percent per year profit over the interest they pay the banker for repayment of the loan. Otherwise they would buy bonds at no risk (they expect to make more than they could by investing in T bills to compensate for the risk).

[backstop]

A further consideration is of the investors' confidence of supply, be that on some Arabian or other peninsular, from some undersea-pipeline, or shipped to an import dock in a significantly increased tanker capacity.

Given that confidence in the reliability of any of these is not what it was, so the risk-premium has to be raised.

Just how significant to overall figure that premium would be I'd be interested to learn.

regards,

Backstop

[seahorse]

In the news today was an article that Saudi Arabia plans to build 10 new refineries operational in 2011. Please note would not appear to alter the view of ICF that there will be a refinery capacity crunch at least through 2010, and possibly out to 2020. ICF says we need another 9 mbpd in refinery capacity by 2010. The problem is these projects will not be operational until 2011 and will only add another 2.4mbpd in capacity, when we need 9 mbpd more by 2011.

Here's the article:
$this->bbcode_second_pass_quote('', 'P')osted on: Wednesday, 28 September 2005, 15:00 CDT
E-mail this to a friend Printable version Discuss this story in the forum Change Font Size: A A A
Opec Plans to Build at Least 10 New Oil Refineries By 2011
Opec plans to build at least 10 new oil refineries in its member countries by 2011. This would increase the current capacities by nearly 3% and make it possible to process another 2.4 mil barrels/d worldwide

. The plans apply to Saudi Arabia, Kuwait, Qatar, Venezuela and some other countries. By end 2005 Venezuela is to announce it wants to build a new refinery in Brazil.

[LadyRuby]

Refinery constraints are a good thing. How much do you want to bet that when Cheney had his top secret energy group meeting they came to the conclusion that forced but panic-free energy shortages would be a good way to cut our growing consumption?

[marko]

$this->bbcode_second_pass_quote('backstop', 'C')lv -
Given demonstrable foreknowledge of Peak Oil, what phenomena, or highly potent coalition, has prevented timely preparatory spending on alternative energies ?

.... I'm left with a range of possible "lobbies for strategic negligence" options.

Of the latter, I wonder which seems most credible to you ?

[turmoil]

$this->bbcode_second_pass_quote('LadyRuby', 'R')efinery constraints are a good thing. How much do you want to bet that when Cheney had his top secret energy group meeting they came to the conclusion that forced but panic-free energy shortages would be a good way to cut our growing consumption?

[cube]

$this->bbcode_second_pass_quote('seahorse', '.')......... The problem is these projects will not be operational until 2011 and will only add another 2.4mbpd in capacity, when we need 9 mbpd more by 2011.
..........

[backstop]

Marco -

glad to see the question explored.

First, yes I'd agree that the oil industry has relevant motives, both financial and cultural, and the UK govt has been subservient to Shell et al at least since 1919 to my personal knowledge.

However, the oil lobby also has strong disincentives in the economic turbulence that is now pretty inevitable, not least in being blamed for failing to act despite demonstrable foreknowledge.

Second, there's the issue of the US hegemony resting on the petro-dollar (in the '90s roughly half the IIIW's foreign currency earnings went, in dollars, to pay the fuel import bills). Sustainable energies, by massively advancing energy self-reliance around the world, would have been developed at the expense of the hegemony the petro-dollar buys.

Third, there's another option that fits but at first sight looks a little bizarre. It is that the nuclear industry has survived on thin air and no major accidents since Chernobyl. Serious investment in the sustainables would have been the death knell for its chances of using this time, with both GW & PO gaining sudden serious status, to bounce back to life & a swathe of fat contracts.

In reality, it is still one bad accident away from being merely an historical engineering folly, and offers no serious rationale for its superiority over the sustainables, but it does have huge corporate, political & media clout.

One small bit of history may be instructive here. In the early '80s a man called Walter Marshall, head of the UK's national generating board (CEGB) (later sacked by Thatcher for cooking the nuclear books and wrecking the industry's privatization) put the first large Wind turbine in the Shetland Islands, as remote from London as possible. Journalists flown to the opening got great dinners, good photos, and never went near again, and so never heard of the noise pollution and other disbenefits.

For a decade rather questionable data was fed to the UK govt's civil service about the turbine's performance and costs, and the idea was firmly established that Onshore Wind was patently the best non-fossil option. As a result, turbines were imposed here and there across the beloved British landscape, splitting the public right down the middle on the issue.

Blair has accelerated Wind Power's deployment, and is threatening to impose thousands more on this land, overriding stiff opposition.
Yet the press is strong on the intermittency issue and 20% of supply ceiling, and increasingly loud on our ageing nuclear capacity.
A month ago I saw the predictable and long-awaited press headline -"Which would you rather- Wind Turbines or Nuclear Power?"
Yesterday (despite Govt-commissioned reports against) Blair let on he aims to 'decide on' a new tranche of nuclear next year.

Beyond Marshall's reputation as an extremely devious high-grade power-player, I've no evidence of his foresight of such an exceptioally neat outcome.
_______________________________________

These are the three main possibilities I've seen as "lobbies for strategic negligence." I'd be glad to know what you make of them and their inter-actions, as well as of any others you think likely. Their influence in yielding the present refinery shortage is of course patent: if there hadn't been negligence over the sustainables' development, we wouldn't have a refinery shortage.

regards,

Backstop

[seahorse]

Cube,

I don't know the "life expectancy" of a refinery. Its a good question that you raise. I hope someone has an answer to it.

[retiredguy]

To my way of thinking it would be logical to site new refineries where the bulk of the remaining oil resides. That new refineries are being built in the ME makes sense.

Is there enough remaining crude in the US to justify the buillding of new refineries here? Wouldn't the new refineries rely primarily on imported oil?

My prediction: The US government will underwrite the construction of any/all new refineries in the US. Similar incentive to that given the nuclear industry in the new energy bill. The American public will assume the financial risk.

[LadyRuby]

$this->bbcode_second_pass_quote('retiredguy', 'T')o my way of thinking it would be logical to site new refineries where the bulk of the remaining oil resides. That new refineries are being built in the ME makes sense.

Is there enough remaining crude in the US to justify the buillding of new refineries here? Wouldn't the new refineries rely primarily on imported oil?

My prediction: The US government will underwrite the construction of any/all new refineries in the US. Similar incentive to that given the nuclear industry in the new energy bill. The American public will assume the financial risk.

[marko]

$this->bbcode_second_pass_quote('backstop', 'H')owever, the oil lobby also has strong disincentives in the economic turbulence that is now pretty inevitable, not least in being blamed for failing to act despite demonstrable foreknowledge.

[dunewalker]

Marko, I agree whole-heartedly with your last paragraph regarding humans' effects on the landscape. On a 1 to 10 scale the detrimentalosity
of wind generators is about a 1.

[backstop]

Marco -

thanks for your thoughtful reply.

The perspective by which I evaluate Onshore Wind Power is that of the opportunity cost measured in other options' lack of development.

Consider first, Offshore Wind Power, with potentially no landscape impacts and so no public resistance costs, far greater o.a. potential, and better continuity of supply, balanced by somewhat greater start-up costs.

Consider second, Offshore Wave Energy, with no landscape impacts and so no public resistance costs, hugely greater o.a. potential (EU research in the '80s reported a potential to meet 80% of EU15 power demand) and far better continuity of supply. Yet R&D has been so utterly limited that I've yet to see credible comparisons on start-up costs.

Consider third, Coppice Woodland for Energy, with strong landscape gains and likely public support, significant carbon banking and exceptional biodiversity, multi-energy-form potential (solid/gas/liquid/power), no intermittency problem due to supply-on-demand, widespread global replicability, and reasonable start-up costs.

It is in light of the near total failure to develop these plainly preferable options, and the rush to focus still more investment into patently deficient Onshore Wind Power, that I see the latter primarily as a distraction and an excuse for the growth of nuclear.

Therefore I suggest that further investment in mega-scale Onshore Wind or nuclear would be at the expense of the technologies that we urgently require.

___________________________________________

Woodcutter -

T Blair spoke a couple of years back about the need for society to learn once again to respect nature - The present industrialization of the landscape by immense turbines that is fragmenting peoples' view of its uplifting beauty, as a means to protect nature from human impacts, seems to me perverse, counter-productive and doomed to failure.

Regards,

Backstop

[aahala]

If a country had to make a choice, between having the oil or having
the refineries, it might be better to choose the refineries.

Neither is worth much without the other. Except there are oil producers
who are dependent upon the oil money and will never ever have the
funds left over to build the refineries or won't last three years it might
take to build the them.

US refinery capacity has exceeded US oil production for decades, the
ratio is possibly greater now than ever and is likely to grow in the
future. We do need to reduce the gap between demand and refinery
capacity--here's a novel idea, how about reducing demand.