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The Second Great Depression
≈
Causes & Responses
by
Colin Campbell
ASPO IRELAND
Outline
1. Geological Reality
“You have to find it first”
2. Discovery & Production starts & ends
–
growth is followed by decline
3. Explanation of Confusion
4. Consequences
5. Reactions
PETROLEUM
GEOLOGY
in
3 Minutes
On a mule in Colombia in 1960
Extreme Global Warming
gave excessive Algal Growths
90 & 150
million years
ago
Organic debris
Rifts formed as
the Continents
moved apart
And then came the rains
Chemical
reactions
converted
organic debris
into oil when
buried & heated
Rifts filled by
sediment
washed in
from
borderlands
N.W Europe
Oil Generating
Zones
Where oil is
and
where it is not
Geology of an Oilfield
Water well
Critical
Temperature
60-120 0C
Gas
Seal
Oil
Sandstone
Reservoir
Water
Migrating Oil
8
Depletion is Easy to Grasp
As every beer drinker knows:
“Glass starts full, and ends empty”
– The quicker you drink it, the sooner it is gone
• The same principle applies to oil and gas
How has this self-evident reality been concealed ?
• It is so obvious yet it is a
DEVASTATING REALISATION
A Fixed Quantity
Oil was formed in the geological past
– We can’t “grow” more
Are we Running Out?
– We started running out with the first barrel
– The last barrel is far in the future
But production begins to decline when half is
gone - THAT IS THE ISSUE
Why we need to know
Oil & Gas now dominate our lives
40% of traded energy is oil
>90% transport fuel is oil
• Trade depends on transport
Much electricity is made from gas
Critical for agriculture - people eat
– Fuels the tractor, transports the produce
– Gives synthetic nutrients and pesticides
Why were n’t we told?
Oil companies reported Commercial Reserves to meet
strict Stock Exchange rules
They under-reported discovery & revised upwards
– A comforting but misleading image of steady growth
– No conspiracy - just simple commercial prudence
OPEC over-reported
PUBLIC NUMBERS ARE VERY UNRELIABLE
• and difficult to decode
What the oil companies say
Denial gives way to Confession
Exxon-Mobil publishes the true position
Chevron-Texaco speaks of “inflection”
Shell’s admission causes financial furore
– Failed to obscure reality by merger
But Lord Browne of BP deliberately misleads
– Reserve/Production ratio
OPEC
Reserve
Reporting
Competing
for
Quota
Kuwait 1984
Produced = 23 Gb
Remaining = 64
Found = 87 (~90)
Cumulative Discovery, Gb
Reality and Illusion
2500
Illusion
Reality
2000
1500
Inflexion due to
falling Discovery
1000
Actual
As Reported
500
0
1930
1950
1970
1990
2010
2030
A few Examples
The same pattern everywhere
– but for minor variants
Production mirrors discovery
US-48
Peak to Peak 40 years
30
10000
25
8000
20
6000
15
4000
10
5
2000
0
0
1930
1950
1970
1990
2010
2030
2050
Production kb/d
Discovery Gb
Peak Discovery
Egypt
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1930
1000
800
600
400
200
0
1950
1970
1990
2010
2030
2050
Production kb/d
Discovery Gb
Peak to Peak 30 years
Peak to Peak 32 years
6
1800
1600
1400
1200
1000
800
600
400
200
0
Discovery Gb
5
4
3
2
1
0
1930
1950
1970
1990
2010
2030
2050
Production kb/d
Indonesia
Discovery Gb
35
14000
30
12000
25
10000
20
8000
15
6000
10
4000
5
2000
0
0
1930
1950
1970
1990
2010
2030
2050
Production kb/d
Russia
Peak to Peak 27 years
China
16
14
12
10
8
6
4
2
0
1930
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1950
1970
1990
2010
2030
2050
Production kb/d
Discovery Gb
Peak to Peak 44 years
United Kingdom
5
3000
4
2500
2000
3
1500
2
1000
1
500
0
0
1930
1950
1970
1990
2010
2030
2050
Production kb/d
Discovery Gb
Peak to Peak 25 years
United
Kingdom
Published by Dept. of Trade & Industry
Real Discovery Trend
60
60
Past
50
Future
Production
Gb
40
30
40
30
Past discovery
by ExxonMobil
20
Past after
10
0
1930
50
ExxonMobil
1950
1970
1990
2010
2030
20
10
0
2050
“Draining the tanks”
Surprise
Filling at 5 p.a
?
Total would fill
145 Yet-to-Find
945 Produced
1705 DISCOVERED
760 Remaining
Lake Geneva
Emptying at 25 p.a.
One in - Five out
Billion
barrels
Where is it?
Regular Conventional Oil
ME.Other
-2714
East
-44 23
Produced
W. Europe
-47 22
Reserves
Africa
-83
L. America
-110
N. America
-193
Eurasia
-191
ME Gulf
Yet-to-Find
65
71
30
146
-245
-250 -150
380
-50
50
150
Billion Barrels
250
350
450
All Oil & Gas
All boundaries fuzzy
50
Production, Gboe/a
Non-con Gas
40
30
Gas
NGLs
Polar Oil
Deep Water
Heavy
20
Regular
10
0
1930
1950
1970
1990
2010
2030
2050
The Illusion of new Technology
Oil industry uses very advanced technology
– No major breakthrough in sight
Technology holds production higher for longer
– increasing profit
– accelerating depletion
• Does not add Reserves
– save in special cases
1977 Internal Estimate : 12.5-15 Gb
Reported : 9 Gb
Technology added nothing
Prudhoe Bay
700
1989
Ann. Prod. Gb
600
500
400
300
200
1977
100
0
0
1
2
3
4
6
7
8
Cum Prod. Gb
8
9
10
10
12
First Half of Oil Age
Oil Age is a Single Cycle
First half lasted 150 years, stimulating great
expansion of :
–
–
–
–
–
Industry
Transport & trade
Agriculture
Population
Financial Capital
GE = GE
Growing Energy
equals
Growing Economy
Financial Capital
Banks created money out of thin air
– by lending more than they had on deposit
• Collateral was confidence in expansion
– fuelled by cheap oil-based energy
Prime benefit of Empire was financial rent
Previously British £ : now US $
Cause of wars
Population
Billions of People
6
5
?
First Oil Well
4
3
2
1
0
0
500
1000
1500
2000
Anno Domini
Equally depicts “Financial Capital” from oil-based energy
2500
Dawn of Second Half of Oil Age
World enters Uncharted Waters
–
Oil Price Shocks & Economic Recessions
Destruction of Capital to match energy supply
We face the “End of Economics”
–
–
–
Resource limits anathema to classical flatearth economists living in past
But new economic thinking emerges
The banks begin to understand
Price Shocks - the first signs
Five times what
it costs to produce
70
Brent Crude US $
60
Shocks as production
capacity limits breached
50
40
30
20
But prices crash
with recessions
10
0
1996
1998
2000
2002
2004
2006
2008
2010
The Second Great Depression
CE = CE
Contracting Energy
equals
Contracting Economy
Past debt losing its collateral
– heralding an unprecedented collapse of the
Financial System
• USA - technically bankrupt
Survival Strategies. 1- Inform
Stop giving false advice
– The IEA has been a political curtain behind
which its member governments hid
– But is now forced to change its tune
Provide valid public information
“Put your trust in the People” said Winston Churchill
2- Depletion Protocol
Cut oil imports to match world Depletion Rate.
– World price would moderate
• allowing poor countries to buy minimal needs
• avoiding profiteering by oil companies & M.East
• Force consumers to face reality
Proposal gaining momentum : to be discussed
– in Lisbon in May by senior politicians and
– in Rimini in October by “World Leaders”
Let this be the prime message from this conference
3- Stop waste: many easy steps
• Domestic & commercial Energy Audits
Variable charges to reward savings & penalise waste
A new “energy currency” (Proposed by Prof. Slessor)
– Better insulation & industrial heat recovery
– Heat pumps & modern light bulbs
Disallow energy costs as a charge against tax
– Stop tax-free aviation fuel
More public transport : car pooling, hitch-hiking
New behaviour & attitude
4- Turn to Renewables
A solar collector on every roof
Capture massive tidal and wave energy
Wind-power and hydro-power
Fuel crops (supplies 30% in Brasil)
Geothermal
Re-assess nuclear energy
New small fail-safe plants
But………..
Economic Recession suppresses oil demand
Oil prices sensitive to small imbalances
– may crash too
Unconventional Oil and Renewable Energy
do not compete with cheap oil
An added argument for the Protocol to make
sure they are competitive
Silver Linings
A new regionalism with local markets
New attitudes : non-consumeristic society
People learn to live in better harmony with
• themselves
• each other
• the Environment in which Nature has
ordained them to live
But the transition will be tough
Thank You
and
Good Luck