Many energy analysts are looking at the trees — security problems in Nigeria, nationalism in Venezuela, dismantling major oil companies in Russia, problems getting production increased in Iraq and the status of Iran — and missing the forest.
Richard Nehring of NRG Associates, says experts should be focusing on the amount of oil estimated to remain, and how much time remains before alternative sources need to be in place.
“It’s very easy now to look at the insecurity in the oil fields, the increases of demand in China and India,” he said. “But we need to look at this from a long-term perspective, what it means for the industry. There are definite strains on the system.”
Nehring has worked as a database and oil field analyst for more than three decades – he saw the energy crisis of the 1970s and the drop in oil prices during the 1980s. But this year will be seen as a turning point for the energy market, he says.
Despite the rapid rate of new ways to increase production — Nehring cites deep-sea drilling on the coast of Brazil and off the Gulf of Mexico — he says even those sources are good for only the next 10 to 15 years.
“But the question is: how much oil is left,” he said. “And that’s hard to tell, because governments in many countries aren’t talking. What we can recover from those current resources — even the very heavy oil in Canada and Venezuela — is around 3 trillion barrels, ultimately.”
Oil production has room for slight growth, Nehring said, about 2 percent more or around 110 million barrels a day, which he estimates will happen around 2015. After that, oil production will have reached a plateau.
“But, by the latter half of this century, we’ll be finished as far as oil resources are concerned,” he predicted. “But this is certainly a turning point. Doubling the oil prices is like being hit on the head with a two-by-four. We’ll have to transition to something else. On paper, economists show the transition going very smoothly. But it doesn’t happen like that in real life. Change occurs with shocks, crises.”
Current technology with ethanol, biodiesel and hydrogen fuel cells might fill the nation’s energy needs, Nehring said.
“It’s going to take a massive effort,” he said. “We’re going to need innovation and expertise in a lot of areas. There’s no magic bullet to solve the problem.”
But Amory Lovins at the Rocky Mountain Institute said the issue isn’t how much oil is left: it’s how to implement conservation methods that reduce oil consumption. Implementing energy efficiency in all areas of life will save money and increase business profits, Lovins believes.
“Using energy more efficiently offers an economic bonanza … because saving fossil fuel is a lot cheaper than buying it,” he wrote in 2005 inScientific American. “Over the past decade, chemical manufacturer DuPont has boosted production nearly 30 percent, but cut energy use 7 percent and greenhouse gas emissions by 72 percent … saving more than $2 billion so far.”
Increasing end-use efficiency can “yield huge savings in fuel, pollution and capital costs,” he said, “because large amounts of energy are lost at every stage of the journey from production sites to delivered services.”
In 2004, the Boulder-based scientist authored Winning the Oil Endgame, a book that explored ways to reduce oil-dependency by building vehicles out of lightweight materials. The book is free at the RMI Web site: www.rmi.org.
“RMI’s analysis shows that full adoption of efficient vehicles, buildings and industries could shrink projected U.S. oil use in 2025 by more than half – 28 million barrels a day, which would lower consumption to pre-1970s levels,” he wrote.
Lovins estimates that the country will use 28 million barrels of oil every day by 2025 at current consumption rates, but could save $70 billion by that year by improving automobile efficiency and finding substitutes for oil.
“With the help of efficiency improvements, and competitive renewable energy sources, the U.S. can phase out oil use by 2050. Profit seeking businesses can lead the way,” he said.
The hallmark of Lovins’ plan is a switch in the auto industry: creating vehicles built with carbon composites, materials that are lighter than steel. So far, however, his ideas have been dismissed in Detroit as “too expensive.”
In the meantime, Nehring said the price increase is set by production needs. While many countries — such as Mexico and Venezuela — are not reinvesting profits into creating more efficient production, countries like Saudi Arabia are.
“Russia is investing money to the amount of $60 billion over the next five years to increase production,” he said. “Pemex in Mexico is being used as a cash cow, the potential is there to increase production, but so far, they haven’t invested in new technologies.”
Nehring is coordinating a meeting of leaders in the international oil industry in Colorado Springs. Scheduled for November, more than 100 people from 20 countries are expected to attend. The meeting is closed to the public, he said, so the officials can talk openly about the future of world’s oil industry.
“Oil sands are a real possibility,” he said. “They are saying they can produce 3 to 5 million barrels a day between 2015 and 2020. It could be the single largest source of production in North America during the next decade.”
Oil shale from the Green River formation is not as likely, he said.
“The cost of converting oil shale is always going to be about $5 to $10 more than the cost of a barrel of oil,” he said. “No matter what that cost is. It just takes too much energy to turn the shale into oil, unless there is a major technological breakthrough.”