Tuesday, January 25, 2011

Networked Resources, Declining Quality and the Peak Oil Argument.

The Peak Oil argument focuses on the question "How much oil?" We spend a lot of time discussing the exact inputs for Hubbert Linearization projections of URR, in order to calculate the moment of Peak Oil. Sadly, the question of “How much oil?" is a lot more complicated than it seems.

As I have said previously, theoretical discussions about oil reserves are pointless. In theory, the amount of oil available is an arbitrary number. Oil can be made from any organic source: coal, NG, biomass, or whatever. If enough energy is available, it can be made from CO2 and water.

This applies to ALL resources. Minerals can be extracted from sea water if access to energy is unconstrained.

Here is my point in what I will call a “thought bite”:
Resource constraints are about reserve QUALITY, not reserve QUANTITY.

Low quality is what is killing us, not low quantity. Alternately, we could argue that the constraint is low energy. If energy was cheap and unlimited, then recoverable resources would be unlimited. We need to look at the availability of oil within a networked system, not just as an isolated resource.

The fact that the word "liquids" is now being used instead of oil is frankly inconvenient to people who fly the Peak Oil banner. We typically conflate the two words by issuing a hand-waving argument that amounts to "When oil peaks, liquids will peak". But frankly this argument represents a chink in our armour - “unconventional oil" and all sorts of other non-oil liquids are now counted under the broad category of "liquids".

Synthetic and other manufactured liquids don't fit neatly into our Hubbert Linearization model. In fact, they will invalidate the model until such time as we can prove (not deliver hand-waving argument, PROVE) that production of these liquids is limited, irrelevant, or correlated with oil production). What we need to prove is that there is a practical limit to production of synthetic "liquids".

Many factors impact on this practical limit. In my last post at TOD I looked at the interactions that would ultimately limit production (http://anz.theoildrum.com/node/6974). I'm not sure I can put a provable numeric limit on production. Nor can I put a provable date on the Production Peak for liquids. But I can show that we have evidence that these points are either close or past.

A Different Way to Look At It.
Consider the situation here in Australia. We mine iron (and zinc, silver, aluminium, coal, NG, and lots of other stuff - but let's stick to considering iron).

Historically, it was quite possible to refine iron from very low quality sources. Vikings would smelt iron from a layer of iron-rich mud that got deposited as a layer in bogs and swamps (http://en.wikipedia.org/wiki/Bog_iron). This was a very energy-intensive process and consequently a sword was an item of great value - passed down from father to son.

However, when we started mining iron in Australia the ore was very pure. Steel could be made cheaply from our ore. As mining has continued in Australia we have consumed the high-quality ore and been forced to mine ores of lower quality – and even change to different types of ore.

At first this was not an issue. There is a simple mathematical reason for this. If your ore drops 1% in quality, from 90%pure to 89% pure then the increase in effort required to produce a given quantity of steel is negligible (around 1% extra energy required) - however the picture is very different at low ore qualities. If you drop 1% in quality from 2% pure to 1% pure ore then the amount of ore you must process to get the same amount of steel doubles. Consequently the energy required doubles (or near enough). Energy consumption required to process the ore increases geometrically as ore quality drops.

The energy required starts from almost negligible, initially rises very slowly, then passes through an inflection point, and from there rises at a frightening rate.

Similarly, we find that other factors are following a similar pattern to further complicating the extraction of resources. For example, depending on the resource, one or more of these is likely to be true:
- The amount of overburden that must be removed is constantly increasing
- The depth of the mine is constantly increasing, with associated complications
- Political/physical/geographical constraints are adding risk and difficulty
- The physical type of resource extracted is increasingly lower-quality (for example we now accept brown coal instead of anthracite and in place of free-flowing light sweet crude we now search for tar sands and oil shales).

This geometric increase in difficulty as quality declines is a well known relationship and not terribly controversial. However the consequence is dramatic. This raises an important question. How widespread is this phenomenon right now? How far along the geometric curve are we?

Where Are We?
To answer this, let us look at a range of both energy and non-energy resources:
1. Oil. We have gone from oil gushing from wells at energy returns of at least (estimated) 100:1 to oil that is manufactured by digging up tar-soaked sand and refining this using a series of energy and resource intensive processes for an energy return that is estimated to be in single digits.
2. Coal. When I was a boy at school we were taught that there were three main grades of coal: Anthracite, bituminous coal, and brown coal. Anthracite was the stuff we used and exported. Bituminous got used a bit inside Australia, but wasn't worth exporting. Brown coal was useless waste that you dug through to get to better grades. But then, when I was a kid I was also taught that the population of Earth is 2.3 Billion people. The situation now is that Australia’s production of anthracite is declining. Even brown coal is mined and exported.
3. Iron. Australia used to export high-grade hematite ore (96% of iron ore exports). Those days are drawing to a close. We now increasingly mine and export a different kind of ore - Magnetite. Magnetite is a chemically different and lower-grade ore that must be processed to increase its grade before it is shipped.
4. Other industrial metals. Silver is an interesting metal. Despite a dramatic increase in price, demand continues to rise, driven as much by its value as an industrial metal as by its status as a precious metal. We are producing more of it every year here in Australia. The attached graphic (of waste rock produced while mining silver) pretty much says it all.

I think that tells us where we are in the curve doesn't it?

So. To produce energy we are finding that we must invest a geometrically increasing amount of energy. Because of the increasing difficulty, we also need to invest a geometrically increasing amount of other resources (eg steel) which in turn requires a geometrically increasing amount of embedded energy to produce (mostly coal and oil).

Obviously this gets us into a positive-feedback loop. We need more energy in order to produce more energy.

Our Position.
So here is a recap of our position:
1. Historically our prosperity has been based on the fact that producing resources yielded more resources than it costs. This resource “profit” is a requirement for all other productivity. Our economy requires this profit. Ultimately, our society and our civilization are built on the simple fact that more energy and resources are produced than are consumed in the production process.
2. However the cost (expressed in terms of energy and resources) to produce energy and resources (which was previously relatively flat) is starting to rise geometrically, and there are positive feedback effects in place.
3. This will result in less "net resources" for our society and this trend will continue to worsen geometrically.
4. Our economy depends on a steadily expanding resource base. We are facing an ongoing decrease in net availability of resources. This will lead to a decline in the economy. This decline will have a knock-on positive feedback effect:

NOTE: My concern is that the progression is geometric. The problem is almost negligible until you hit the inflection point and then the curve goes vertical.

This progression will end when the geometric curve reaches the inflection point and starts to go vertical - because at that point the diminishing returns from energy will rapidly lead to a resource squeeze that will cause our society to go through some marked changes.

How would you know that you are approaching the inflection point? Here are some signs:
- Increasing resource/commodity costs. Oh dear.
- Since money is a proxy for the net resource "profit", if this "profit" starts to decline you would start to see financial problems. Again... oh dear.
- You would start to see graphs that "hockey stick" upwards. Such as the attached "waste rock.jpg".... Oh.... Dear.


My point reduced to a “thought bite”:
Economically recoverable resources in a good economy may be beyond the reach of a declining economy.

.....So, to return to the original question - “How much oil do we have?" There are two answers:
1. In theory we can make arbitrary amounts of oil. So we have near-infinite quantities.
2. In practise at some point (probably within the next few decades) we will find that we can not even produce all the oil that is currently listed in "reserves" because this stuff is going to take more energy and resources to produce than we have readily available. Some of this oil may be produced gradually, in coming decades, but not at any significant production rate. The rest will stay as a reserve that is not commercially recoverable in a declining economic environment.

Some of the really “hard oil” may never be produced because the economy may not be able to put together the prodigious combination of energy and resources necessary to find and produce oil in impossibly difficult locations.

Oil and resources that are economically recoverable today may not be economically recoverable if the economy declines.

Discussions of Hubbert Linearization to produce URR and from there project an exact date for Peak Oil are interesting but no longer relevant. It is time to start preparing for a future that is not like the past.

I joined the Peak Oil movement so that we could mitigate the effects of PO and ensure a bright future for my children. I believe that we have passed an inflection point. That battle is lost.

The future will not be like the past. We must deal with multiple related and interacting problems - resource depletion, climate change, population overshoot, and resource contention. I don't think that the result will be "Mad Max", but it won't be "lawyers and accountants chatting over white picket fences in suburban bliss" either.

We need to move away from trying to define exact global URR. The problem is more complicated than that. It is a problem of quality not quantity. It is true that we have a problem of decreasing geological availability, but the problem presents itself in the form of declining quality squeezing us at the economic margins, not a problem of simple unavailability.

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