Taking on Big Oil … And Winning

I made a submission to the National Energy Board’s Northern Gateway Advisory Panel back in February. I didn’t post my speech here because the energy situation has become so grave and depressing I feel it’s tainting my blog with negativity. However, a few people have asked to see what I said (and I wish I had stuck an audio recorder in my pocket — it was a pretty powerful speech I gave, starting off with a bit of trepidation which turned into forcefulness, frustration, and anger rising over the ten minutes to its peak when they cut me off). Here is the transcript I read from … very quickly. The only change I’d make is that it wouldn’t require North America’s entire proven reserves of natural gas to extract and refine the oil sands, it would only require half. And this would be mitigated by advancements in increasing the net external energy return, which is the net energy return adjusted for internally produced and process gas that is liberated from bitumen extraction and can be used in place of externally imported natural gas. Also, North America no longer imports half the oil it consumes. It’s now down to 1/3 as a result of falling consumption and increased production.

The Northern Gateway propaganda seems to have ended so it seems we may have been successful in thwarting the pipeline … for now. We’ll have to wait and see what happens after the US dollar hyperinflates and China emerges with the new reserve currency. Then they may be dictating whatever they want to us. On the other hand, America will still maintain its war machine, reserve currency or not, and I don’t think China would be interested in messing with that. So it seems more likely that America will just force control of the oil sands to supply North America instead, which seems like a much more sensible option.

It also seems that they may instead try to pursue the rail option to ship bitumen to Alaska ports instead. This would pose less of a risk for pipeline spills because the bitumen would be solid in the rail cars. But it would need to be heated up again at the port to reliquify it which would require further energy inputs. It also doesn’t address the sovereignty issue of our country’s assets being controlled by communists. Thanks for that, Stephen Harper!

Hello, thank you for listening to me. I am a soon-to-be Professional Mechanical Engineer (currently an EIT) with one year left until full accreditation. I am bound by APEGBC’s Code of Ethics, whose first line states that:

“Members … shall uphold the values of truth, honesty and trustworthiness and safeguard human life and welfare and the environment. In keeping with these basic tenets, members and licensees shall:

(1) hold paramount the safety, health and welfare of the public, and the protection of the environment…”

Since my professional specialization is in designing pipelines and factories, and doing energy analyses for power plants, I am therefore obligated by my professional code of ethics to comment on the danger presented to the public and the environment by the proposed Northern Gateway Pipeline.

One of my first thoughts when I heard of this pipeline idea was to question why we are proposing to export oil from North America, when North America is already a major oil importer. In fact, if you go to the BP Statistical Review, you’ll see that North America as a whole imports 3.2 billion barrels of oil a year. This is a full 10% of global oil production, of 31 billion barrels.

So why on earth are the Alberta oil companies proposing to EXPORT oil from North America, when North America already imports half of the oil it consumes? Well, because we can fetch a higher price in the Asian market than in North America, that’s why. Why is that? Because North America supposedly has a “glut” of oil. But if we have a “glut” of oil here, then why do we need to import half of what we consume? This doesn’t make sense.

The answer to that paradox lies in the status of the US dollar as the world’s reserve currency. In other words, oil is traded in dollars, and this enables the US to maintain extraordinary trade deficits, which are mostly composed of oil imports.

Now, this situation is all fine and dandy, as long as oil continues to be traded in dollars. But if you’ve been paying attention lately, the US Federal Reserve has officially announced that it will engage in unlimited monetary stimulus in an attempt the jumpstart the US economy. What this really means is that US debt is spiralling out of control and the only way they can service it is to print infinite amounts of dollars. This money printing will not end until the dollar’s value is destroyed through hyperinflation over the next few years.

In order to maintain the dollar’s status as the world’s reserve currency over the last few decades, the Federal Reserve has been suppressing gold prices, since cultures outside of North America value gold as a monetary asset, but the US wants them to hold dollars instead. The Chinese know this, which is why they have been buying up all of America’s historical gold stockpiles at artificially low prices. What this means is that when the US dollar hyperinflates and other countries reject it as payment for international transactions, then China will come out backing its currency with gold. Then China will have the new global reserve currency. THIS is why Alberta wants this pipeline built to China.

When this shift happens, the US will no longer be able to import 13% of global oil production anymore, and US oil consumption will necessarily drop by half. When this happens, the supposed “glut” of oil in North America will overnight turn into an extreme shortage. I am therefore wondering how further starving North America of vital energy resources is in any way “in the public interest”. We need the oil here. It’s our oil, not China’s.

Now, one could respond to this imminent shortage of oil in North America by proclaiming that, “No Problem, when this happens, we’ll just produce more oil here in North America to take up the slack. There is vast amounts in the Canadian oil sands and US oil shales, enough for centuries of supply.”

Actually, this is not so. In fact, US oil production peaked back in 1971 and has been dropping pretty much steadily ever since, despite all the media hype about the tight shale oil explosion in the Bakken. Those numbers are not significant in the grand scheme of things, and they merely offset declines from existing fields. Today, on a per capita basis, the US produces half the oil it did 40 years ago. This is a direct result of the phenomenon of Peak Oil. The US peaked 40 years ago, and now the world is at Peak Oil today.

“Again, No problem! Right? The Alberta oil sands will become the new Saudi Arabia, and we’ll be able to supply the world with oil for decades to come, and become one of the wealthiest countries as a result! Just like Saudi Arabia did!”

Yet again, this is not so. If you go look at the Alberta Energy Resources Conservation Board’s annual report (this is the branch of the Alberta government that overseas the energy sector), on page 2 of that multi-hundred page document, you will see that the entire recoverable Alberta oil sands deposit amounts to 170 billion barrels. The entire underground resource is 1.8 trillion barrels, but only about 10% of this is actually recoverable as real oil. The estimated ultimate recovery is 315 billion barrels, which supposedly accounts for future technological advances and price increases.

These numbers sound big, but in fact the entire recoverable Alberta oil sands deposit, according to the Alberta government, represents SIX YEARS of global oil consumption. And would you believe that the Alberta oil sands deposit represents about a quarter of the world’s remaining oil reserves? Therefore, the world’s current oil reserves will last maybe another 30-40 years, at current consumption rates.

“But we’ll be discovering LOTS more oil in the future, right?” No, unfortunately, global oil discovery rates are vastly below consumption rates. All the best deposits have already been creamed out. We are now left with difficult, slow, and expensive oil deposits in the Arctic or deep ocean, and of course the Alberta and Venezuela oil sands.

From this it can be understood that the reason there has been such focus placed on the Alberta oil sands lately is NOT because it is a particularly good oil deposit. It’s actually pretty poor quality. Rather, there has been so much focus because the world is rapidly running out of light sweet crude. This is why oil prices have risen so much over the last few years, and these high prices are necessary to make the Alberta oil sands activities economically viable.

In fact, global oil production rates have not increased in over 7 years, despite prices more than doubling over that period. This is the ultimate proof that the world is at, or very near, Peak Oil.

The reason the Alberta oil sands deposits require such high oil prices is twofold. Firstly, it isn’t oil – it’s solid bitumen, like pavement. This has to be refined into oil. The processes required to do this are complex and capital intensive, and therefore expensive. Secondly, they require vast amounts of external energy to be brought in to do the work of both extracting and upgrading the bitumen into synthetic crude oil.

If you look at the Royal Society of Canada’s recent multi-hundred page report on the oil sands, you will see that these processes require natural gas inputs of about 1/5th of the energy contained in the final produced oil. Therefore, the Alberta oil sands deposits have a net energy return of 5:1. You have to put in 1 unit of energy, and you get 5 out. This compares with historical light sweet crude, of which the world is now rapidly running out, with about 100:1 or even 200:1 net energy return.

These numbers highlight the historical trends in oil extraction. We’ve always gone for the deposits with the highest net energy return first, and we’ve since worked our way down to the poorest quality reserves which we’re now left with. This 5:1 net energy return ratio will continue to drop as the best oil sands deposits get developed first.

But the problem here is that you can only go so low. There is no such thing as a perpetual motion machine, so when we approach a net energy return of 1:1, that oil sand will not be available to us as a source of energy. In fact, in order to provide enough surplus energy to run the rest of society, a minimum net energy return of about 4:1 is required, which is pretty close to where we are now. This is why the vast expanses of Colorado oil shale are not recoverable as a source of energy, and why production rates there are effectively zero, despite there being trillions of barrels of oil-equivalent kerogen solids underground — it’s not oil.

Currently, according to the website of the Canadian Association of Petroleum Producers, the easy-to-produce deposits of natural gas are in decline. And when you do the number crunching, it turns out that in order to process the entire recoverable oil sands deposit of 300 billion barrels would require more than the entire proven North American natural gas reserves of about 300 trillion cubic feet.

The fantastic claims made in the media about how North America has centuries of natural gas left are pure fabrication. These refer to the total underground resource, not the recoverable reserves. Furthermore, when oil production soon begins declining, then consumption of natural gas will inevitably increase to compensate.

So then, how are we as a continent responding to the Peak Oil problem? Well, we’re trying to dig it out of the ground and export it even faster, leaving us with even less oil in the future!

I suggest that this is not in the best interests of our country, nor our children’s future, nor even our own future, because these oil shortages are happening right now, not merely decades down the road. Simply adapting to less energy in the future when we run out of oil will not be a feasible strategy, because there is a certain minimum amount of energy needed to maintain complex modern society.

The unfortunate problem we face is that on a global scale, 1/5th of global energy use, according to the FAO, is dedicated to food production and processing. In order to produce 1 Calorie of food in North America requires about 7 Calories of fossil fuel inputs. Food comes from fossil fuels. Without fossil fuels, or an equivalent energy substitute, it will not be possible to maintain 7 billion people on the planet. Therefore, we have no choice – we MUST replace fossil fuels with alternative energy before they run out, or quite simply most of the world will starve. We currently appropriate about 20 % of the planet’s net primary production for food and biofuels. Without external energy inputs such as from fossil fuels, we would easily push this well beyond 100%, which is not possible. We have overshot the planet’s carrying capacity by about 5 fold.

On a global basis, 97% of global energy supply comes from burning complex carbon molecules, which includes fossil fuels, biofuels, and food. The other 3% of global energy supply comes from the so-called renewables of nuclear, hydro, wind, and solar. So clearly, alternative energy has a long way to go to make a dent in overall energy supply. Given that we are at Peak Oil today, we really ought to be intensively developing renewable energy systems right now.

Are we? Basically, no. Hydro is nowhere near capable of replacing fossil fuels on a continent-wide basis; it’s a no-go because we’ve already dammed the best rivers.

Timed out here…

But the problem in North America is that we have a cultural infatuation with economic growth. Currently, in Canada, that economic growth comes primarily from increasing unsustainable fossil fuel extraction activities. Therefore, Canada’s economy is growing at a rate greater than the increases in contributions from renewable energy such as hydro, wind and solar. We are becoming EVEN MORE dependent on fossil fuels, not less! At a time when the world is running out of fossil fuels!

The problem we face is that it requires energy to build out renewable energy infrastructure. Currently, that comes from fossil fuels. I have to ask what we are going to use for energy when it comes time to develop renewable energy systems in a big way, once we’ve sold all our oil to China and we desperately need what little fossil fuels we still do retain for food production.

This is why economic growth built around exporting our remaining oil deposits overseas is not in any way in the national interest. Our national interest is in keeping these precious energy reserves here and using them to build out a renewable energy infrastructure before it’s too late.

Thank you.

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