http://andrewsullivan.theatlantic.com/the_daily_dish/2010/06/betting-on-longshots.html is funny and serious about how we underestimate the probability and cost of low probability events

An oil company doesn’t just wake up one day and say “Gee, I think I’d like to drill for oil 5000 feet below the ocean’s surface! That sounds like fun!” They do it because they’ve run out of easy oil. They’re throwing every bit of technological know-how into projects that are just at the edge of human ingenuity and technology to get out the energy and keep the party rolling. And they don’t stop drilling at 5000 feet, that’s where they start. Sometimes, they go as deep as 35,000 feet.

That’s amazing technology. It’s also called going after the scraps.

And that’s pretty much it in a nutshell isn’t it?

This profile of his new young-adult novel, Ship Breakers also includes a nice Environment 101 analogy that also hits the nail right on the head with regards to the problem of energy consumption, carbon emission reductions and why it is so hard to get global agreement on such things.

Image: The Boston Globe, via The Big Caption

My problem isn’t so much with the whole “Drill Baby, Drill” chanting crowd. My problem is that most are shocked and appalled at the Deepwater Horizon disaster. I mean, come on.

It is a testament to the very good safety measures in place on the thousands of super tankers and thousands of ocean oil rigs that this kind of thing doesn’t happen all the time. All that safety stuff is there because the failure modes of supertankers and oil rigs are catastrophic. But nothing is foolproof, people. When the gods of probability rolls snake-eyes, its pretty disingenuous to start laying blame all over the place.

Oh sure, BP leased the rig so it’s their problem and honestly or not they downplayed the scale of it until last Thursday. So, everyone — including the government — took them at their word. But when they finally went, “oh, shit!” people are all like, “Why didn’t the government act earlier? This is just like Katrina!”

Bullshit. We asked for this. You want to blame someone? Look in the mirror. We’re junkies for the black stuff. This kind of thing is just the usual cost of doing business for people with the monkey on their backs.

This week more IEA people are going off the reservation and declaring that the IEA’s official statements regarding future oil supplies were basically just shit they made up and had no basis in reality.

“The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year,” said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. “The 120m figure always was nonsense but even today’s number is much higher than can be justified and the IEA knows this.

“Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further.”

IEA Petroleum Production Estimates (IEA, The Guardian)

The problem here is that the last time I looked, global demand for oil products was around 85m barrels a day. And that is in a depressed global economy. That only leaves about 10m bbl/day in excess capacity to support a robust economic recovery. Since plunging to $38 or so in April, crude futures have climbed consistently back up into the mid-60′s and 70′s this summer and have started to show support in the $80 range the last week or so. The upshot of all this is that as soon as economic growth begins to take off, demand is going to come close to supply and oil prices are going to go back to very high levels. This will effectively put the brakes on any serious recovery.

Time is not on our side in the move to move our economies out of their dependence on oil. To my mind, energy policy will need to be front anc center once the health-care debate is finished.

Implementing new power technologies like wind and solar that are not tied to always on generation facilitie will require substantial upgrades to our power infrastructure. NPR has this awesome infographic on the grid structure, power sources and more.

Via The Economist comes a nice little bit of infoporn on gas taxes in the OECD. You have to scroll down past all those economic backwaters, Britain, Germany, Japan, et. al to the very bottom to find the US. Poor Americans, being taxed to death by our Socialist Overlords.

But the first detailed assessment of more than 800 oil fields in the world, covering three quarters of global reserves, has found that most of the biggest fields have already peaked and that the rate of decline in oil production is now running at nearly twice the pace as calculated just two years ago. On top of this, there is a problem of chronic under-investment by oil-producing countries, a feature that is set to result in an “oil crunch” within the next five years which will jeopardise any hope of a recovery from the present global economic recession, he said.

Naturally, Oil prices jumped about two and-a-half bucks in response. Because it has been a while. Here is the last years’ oil futures prices based on the daily close at the New York Commodities Exchange (NYMEX).

Needless to say, we were both utterly stunned when I had to pay off last month.

It is really hard to get one’s head around the fact that the world has changed rather fundamentally in the last four months. Although I lost the oil bet, I am rather pleased that my bet on Barack Obama placed 21 months ago has paid off. If someone had told me on that evening that I could trade the $1000.00 for an Obama victory in November, I would have headed to the ATM right then and there.

The last week has brought an avalanche of emotions. I find myself a bit lost with my free time. Kind of like this guy:

But I think Andrew Sullivan hits it on the head for me:

It isn’t redemption: I don’t expect that from politics. I realize what I’m feeling is relief.

What I wrote last Monday was not meant casually. Knowing that the Bush-Cheney-Addington axis will be forced out of power is an immense, slackening relief. I’ve felt compelled by politics these past few years in ways I don’t like or enjoy. With men and women finally back in power I can trust to act reasonably and ethically and within the rule of law, I feel less hesitation in getting on with life.

I’m going to hammer at this one last time because it is really imperative that people begin to change their mindsets about oil and energy. There will be no going back to cheap gas, ever.

The good news is, we humans are very adaptable creatures; it is how we got where we are. But to adapt we have to recognize that our environment has changed.

The International Energy Agency is the energy planning and statistics agency for the OECD organization of industrialized countries, of which the United States is a member. In today’s Financial Times (the British equivalent of the Wall Street Journal) the IEA warns of tightening oil supplies:

The oil market will remain tight during the next five years as production from non-Opec countries stalls and demand growth remains relatively strong, the western countries’ energy watchdog warned on Tuesday.

The International Energy Agency’s warning is the starkest sign yet that even record oil prices above $140 a barrel have not yet not done enough to balance demand growth from countries such as China with sluggish supply increases.

The IEA said that annual non-Opec growth would slow to 0.5 per cent between 2008 and 2013, against demand growth of 1.6 per cent per year. The mismatch means the world economy would be more reliant on Opec, the oil cartel, and oil prices are likely to remain at record levels, analysts said.
…
The fast decline of fields – especially in the North Sea and Mexico where production is shrinking by more than 20 per cent each year – means that 14.8m of the 16m barrels of new supply from non-Opec countries over the next five years will go to making up for losses from old fields producing less and less each year.

But Opec is also struggling, with project delays impacting its ability to add new capacity. The IEA substantially downgraded its expectations for Opec crude capacity from 2008-2013, cutting earlier forecasts by 1.2m b/d.

Over at the Oil Drum Europe community blog, the very well-connected Jerome a Paris writes:

I have been told by a reliable source that the IEA has been forbidden by the US administration from updating their absurdly cornucopian oil supply and demand scenarios until the report that comes out late this year (after the election); that report, which will publish the result of a “bottom-up” analysis (ie a summary of all existing oil fields, their production and/or prospects) is expected to show that oil production is unlikely to reach the levels that so many have blithely assumed – notably on the basis of previous optimistic IEA reports. The IEA, which was deeply unhappy about the current lies to was supposed to present and support, has been leaking word of the expected content of that new report for many weeks now, including an increasingly alarmist tone in its official reports, such as today’s Medium Term Market Outlook.

Both articles are worth a full read.

I had a brief e-mail exchange this morning with someone who sent me The Truth About ANWR, A Heritage Foundation plea to drill in ANWR.

Even if we stipulated that ANWR can be exploited in an environmentally acceptable way, what’s the point?  Leave the oil in the ground, our grandkids will need it.

If we started exploitation now, we would manage to pretty much pump ANWR dry in our own lifetimes. My own back-of-the-envelope calculations based on having argued this issue for literally the last 20 years are thus:

5-8 years to bring it on-line.
Proven reserves of about 8 billion barrels (bbl), perhaps 11 billion if marginally productive fields are included.
Peak production of about 1.5 million bbl/day ( 18% of national demand)
US oil demand is about 8.2 million bbl/day in 2007
Once production has started ANWR will reach “peak” (50% pumped out, the rest harder and more expensive to get) in about 14 years. In about 19 years it would be essentially, “dry,” producing less than 20% of peak production or about 300,000 bbl/day.

So, start production now, 2008. Oil comes on-line as “cheap” domestic production about 2016. Fields peak out around 2030 (My oldest child will be 32, my youngest 28) and will be pretty much finished by 2039, the year I turn 74.

So what’s the point really? Titanic. Deck chairs.

I think this will be one of my last posts of doom-and-gloom. My attitude is fast becoming one that says, if people can’t overcome their preconceptions and wishful thinking enough to come to grips with the… inconvenient truths of the situation then the Devil take the hindmost. I’m tire of trying to educate people. The markets are going to do that for us.

Time to move on to solutions. Two no-brainers:
1. If you own a vehicle that gets less than 25 MPG highway either mothball it if it is something useful like a pickup truck or van or sell it/trade it in while you can. In another year or two you won’t be able to give them away and you are going to be supporting a bleeding financial sore.
2. Drive better. Just changing the way you drive any vehicle can get you better mileage.

This post is about the increasing ability of open-source groups to project power far beyond what we traditionally think of as guerrilla war.

To wit, an attack this week by the MEND guerrilla group on a Royal Dutch Shell drilling platform 75 miles off the coast of Nigeria. Keep in mind, this is for all intents and purposes, the open ocean. At sea, the horizon is about 11 miles.

The effective disabling of this platform takes 200,000 barrels per day offline. That is as much by which Saudi Arabia pledged last week to increase its production to offset higher prices. According to the BBC Report:

Nigeria’s valuable offshore oilfields had always been considered difficult for most militants to target, the BBC’s Alex Last reports from Lagos.

But early on Thursday, gunmen in boats reached the Bonga installation, Shell’s flagship project, for the first time.

…

A Nigerian navy spokesman confirmed reports that militants had kidnapped a US oil worker from a separate vessel on their way back from the raid.
…
The shutdown has cut a tenth of Nigeria’s total output in one go.

This comes on top of a reduction of at least 20% in recent years following inland attacks.

Capable of producing 200,000 barrels of oil and 150 million sq ft of gas per day
Oil and gas drawn up from 16 well heads on the ocean floor to a processing tanker

Our correspondent says Bonga was new, expensive and working well despite the difficulties and repeated attacks affecting the company’s inshore operations in the Delta.

So, an impoverished, rag-tag militia in Nigeria has the capability to launch an open-sea operation to disable a billion dollar oil drilling operation and cut the production of one of the worlds largest producers of light-sweet crude (the best kind) by one-fifth.

The takeaways from this lesson should be:

One: High oil prices are supply and demand based. The world is using as much oil as it produces every day. Disruptions in all the nasty places where God put the oil cause prices to go up because there is no give in the market.

Two: This is the downside the Internet Age of instant communications and global collaboration which has transformed the world in the last 20 years. While we were busy paying bills online, watching Linux and the free development community have been doing with the Internets: sharing and innovating. And not always in ways that are beneficial to those of us in the Good Ole US of A which invented the whole thing.