Catalyst  

The ABC's Catalyst program this Thursday has a feature story on peak oil.

What would happen if the world were to start running out of oil? Conventional wisdom says we’ve got 30 years, but there’s a growing fear amongst petroleum experts it’s happening much sooner than we thought – that we are hitting the beginning of the end of oil now. So how soon will the oil run out, and can we stop our economy collapsing when it does? How prepared are we for the real oil crisis?

This weekend's Australian Financial Review also has a look at peak oil with an article called "Over a barrel: oil peak debate heats up" - as usual, no link becuase it is hidden behind their stupid paywall. The WA STC's Bruce Robinson comments:

"The decline of existing fields is motivating scientists to form research groups like that being launched at the University of Western Australia"

Today's Weekend Australian Financial Review, Page 16, has a useful story about Prof Aleklett's visit, and some dissenting views from a visiting Nobel Prize-winner, Economist Vernon Smith who says ASPO's oil peak predictions are "baloney", an economic fallacy. He expects oil to sell for $15/bbl in the near future.

Smith says ASPO's peak oil scenario is wrong because it treats oil like a fixed resource, something he argues that analysts should not do until extensive exploration rules out significant future discoveries.

[BR: One could almost say that this point has probably been reached, with the decline in discoveries since the mid 1960's]

The ASPO Peak of 2010 leads the story, but there are a number of minor reporting inaccuracies, including attribution of the formation of ASPO-Australia to the University of Western Australia. UWA is hosting a public lecture by Prof Aleklett (Monday 21st, 6:30), but that is as far as it goes. ASPO-Australia is being launched at a media conference elsewhere, earlier on Monday, but one can see how the confusion may have arisen in the haste of catching newspaper deadlines

In fairness to Vernon Smith as well, it is possible that what is reported is also not a fully accurate summary of what he said.

Online Opinion's feature this month "Oil’s not well - life after petrol" is rolling along, with new articles appearing by Sherry Mayo (No silver bullet for oil in crisis), Chris "The Feral Metallurgist" Shaw (Peak oil - keep your eye on the donut and not the hole) and an excellent piece from Briton John Busby (Adopting an energy lean lifestyle) which looks at Australian natural gas and uranium reserves and how we might want to use them in future. I've been meaning to do some investigation of our natural gas reserves as I've seen wildly conflicting numbers about them in the past few months. Like many things, this is on the back burner for the moment though.

From Sherry Mayo's article:

Our modern industrial way of life is based on the assumption of cheap plentiful oil and we are profligate in our use of it. Our modes of transport, city-planning and supply chains were never conceived with energy efficiency in mind, so there are enormous gains to be made in changing the way we do things. Some of these changes will happen quite naturally and quickly. With high oil prices imported food will become expensive food, making local produce more attractive to consumers. This will reduce fuel use in freight and discourage over-centralised distribution networks. Other longer term changes such as improving public transport will require real political will, but they will be essential for those on lower incomes in outer suburbs who will be hardest hit by rising fuel costs. Further into the future, our settlements and work patterns may change radically, moulded by the constraints of scarce and expensive oil.

Dealing with peak oil will be just one step on a long road to a very different and more sustainable way of life, and many other issues such as CO2 emissions, water use and salinity, will all have to be dealt with along the way. Nevertheless, peak oil is an increasingly urgent issue and despite the remaining uncertainties we can’t afford to wait and see, hoping that something will turn up. As was observed by WA minister for Planning and Infrastructure, Alannah MacTiernan, at last year’s Oil: Living with Less conference, “It is … certain that the cost of preparing too early is nowhere near the cost of not being ready on time”.

And from John Busby's piece:

According to the BP Statistical Review 2005, Australia has reserves of 2,460 billion cubic metres (bcm) of natural gas, from which it produces 35.2 bcm annually: it consumes 24.5 bcm and exports 30 per cent of the production. If all the gas in the reserves can be extracted, at the current rate it would last 70 years, but as the gas reserves of other countries decline the demand for liquefied natural gas (LNG) will escalate. Gas will increasingly be used as a substitute for oil for the production of jet and motor fuels and petrochemicals.

Unfortunately most of the world’s reserves of gas are “stranded” from consuming countries, being located in uninhabitable places like Prudhoe Bay on the Alaskan north shore and the Barents Sea to the north of Russia or at the remote North West Shelf of Australia (Gorgon). Remoteness results in energy losses. Natural gas is purified before it is liquified into LNG - a process that consumes around 15 per cent of the original gas volume. More is lost as it “gasses off” during the long voyage to its destination,although some of the released gas feed turbines used to propel the tankship. (This gas is used to propel the gas turbines of tankers.)

On arrival the LNG is re-gasified for addition to a natural gas pipeline network for augmentation of local supplies and for distribution. So-called gas-to-liquids (GTL) processes have been developed to produce liquid fuels, such as jet fuel, petrol and diesel from natural gas, but the thermal efficiency is poor, resulting in a loss of 50 per cent of what remains of the original gas.

So, as oil passes its peak in production, more gas will be used to substitute for the traditional mobility fuels, so bringing gas’s own peak in production forward, especially as the reserves are effectively reduced by the inefficiencies in its liquefaction and conversion. Peaks in oil and gas production will mean more use of coal for liquid fuel synthesis. Fuels synthesised from coal were used in Germany in World War 11 and latterly in South Africa where Sasol developed processes to avoid the effect of sanctions.

The Gorgon gas field is not so “stranded” for the Australians. However, it may be necessary to deny others access to its reserves. Internal demand may bring the practice of exporting 30 per cent of production to an end. Currently, 37 per cent of the oil consumed by Australia is imported.

Britain is now a net importer of natural gas and it could be that the past exports of its surplus production may in retrospect be seen as ill advised. Perhaps Australia will also regret its beneficence.

On the subject of Australian natural gas, Woodside were talking up their export prospects this week - with the US East Coast now being mentioned as an export destination for LNG (no one seems to rate their chances of getting a west coast terminal up and running now).

Senior executives of Woodside Petroleum were keen to highlight its strong production growth profile in both oil and liquefied natural gas at its annual investor briefing in Sydney yesterday.

While Woodside raised this year's production target slightly to 59 million barrels of oil equivalent (boe) from the 58 million boe guidance released in August, it noted 2006 production would rise 30 per cent as new projects came on stream.

And Woodside LNG sales from the planned Pluto and Browse projects off the coast of Western Australia could come from an unexpected place: the US east coast.

Although it takes 57 days for a tanker round-trip to LNG import terminals in Massachusetts or Louisiana versus a 20-day round-trip to Japan or 40 days to California, growing US natural gas demand has opened up a new market for gas from those developments. Pluto should deliver its first production in 2011, with Browse beginning to sell LNG from 2011 at the earliest and 2014 at the latest.

"Australia is very clearly on the radar of many US LNG buyers," gas marketing director Reinhardt Matisons told analysts and institutional investors. Woodside had already received approaches from buyers on the US east coast.

One note to consider for all oil and gas investors is the increasing cost of exploration and production, with one investment bank here noting the following after Woodside's presentations:

Woodside forecasts its 2006 exploration spend to be approximately A$500m, nearly doubling its annual number of planned exploration wells to approximately 40. Woodside aims to manage its exploration risks by spreading 85% of its 2006 spend in what it calls 'proven provinces', areas in which commercial oil or gas production is established.

...

Adjusted Net profit after tax revised down 4% in 2006 and 2% in 2007. Forecast exploration cost increases going forward has increased expensed exploration costs.

...

We consider the key themes of the strategy day to be positive, with particular regard to future LNG developments at Pluto and Browse providing potential upside to our valuation assumptions for these potential developments. Costs remain an uncertainty for future project developments but we remain comfortable with Woodside's approach to managing this risk.

In terms of local gas consumption, natural gas fired peaking plants are currently the preferred way of handling demand spikes for electricity (electricity price volatility seems to be increasing as far as my casual observations go, with a number of large spikes in recent months). AGL has announced a plan to build a new gas fired plant on the outskirts of Sydney using coal seam methane gas from their partnership with Sydney Gas (thus explaining why the partnership exists).

Australian Gas Light, the country's biggest energy utility, said it might build a $200 million gas-fired power plant near Sydney to meet rising demand in NSW.

The proposed 300 megawatt plant south of Campbelltown could be ready by 2009, AGL said in a statement to the stock exchange. It said the plant might be expanded to 500MW.

NSW could require 750MW of new power capacity to run at peak demand times between 2010 and 2014, AGL said, citing the National Electricity Market Management Co, which oversees the power market. "The site will be supplied by gas from AGL's wholesale gas portfolio, which includes its 50 per cent joint venture with Sydney Gas Ltd," AGL managing director Greg Martin said in the statement.

Australian carbon emissions have risen 23 percent over the past 13 years, which demonstrates what happens when you don't mandate a cap (or put a well flagged regime of carbon taxes in place) - no one bothers doing anything.

Global warming is having an impact on the oil price, with the thus far warmer than usual US winter being blamed for slumping crude prices despite declining inventories.

Finally, gold bugs will be happy to see the ever rising gold price is being reflected in share prices for the dew remaining local gold mining companies.