OUR MOST PRECIOUS RESOURCES:

OIL AND WATER:

NEVER THE TWO CAN MIX

IAEE Houston Chapter Monthly

Meeting

December 10, 2009

Houston, TX

By:

Matthew R. Simmons, Founder

Ocean Energy Institute

My Last Talk This Decade!

■ In 21 days, we will end the 1st decade

of the 21st century.

■ 10 years ago, we worried about:

– Y2K risk

– Return of Asian „Flu

– Oil and gas gluts keeping energy prices

very low

■ Over next decade, energy risks

materialized from thin air and became

second greatest threat, after global

warming, to global sustainability.

Source: The Economist,

March 16, 1999

A Decade Ago, Peak Oil

Was Not A Wide-Spread Term

■ Dr. Colin Campbell and Jean H. Laherrère had recently published “End of Cheap Oil” in Scientific America, but its emphasis was oil prices heading higher.

■ In summer of 2000, I helped draft presidential candidate George W. Bush‟s comprehensive energy plan:

– My task: To identify all areas of concern that required attention

– I did not understand the term “Peak Oil”

Over Last Decade, My Speaking Events

And Energy Grew Exponentially

■ A decade ago, I would give

3 - 5 energy talks per year.

■ In 2007, I gave 36 talks

■ In 2008, I gave 46 talks.

■ In 2009, I will have given

37 talks.

■ Audiences expanded from energy trade groups, political

forums, company retreats to universities and communities

around the globe.

■ And, as I spoke, my energy worries grew ever stronger.

Snapshot Of Past Talks

As We Near 2010,

Peak Oil Now Widely Debated

Source: EIA Monthly Energy Report – March 2008

■ Peak Oil is still not well

understood, but at least it is

loudly debated.

■ Lack of transparent flow

data from 300 super-giant

and giant fields keeps issue

in a fog.

■ Hard data showing high

quality light, sweet oil flows

are dwindling fast and make

it clear Peak Oil became

past tense in 2005.

We Still Have No Consensus On Plan

To Adjust To Declining Oil Flows

■ There are litany of solutions on how to reduce CO2

emissions to curb risk of global warming.

■ Most are unlikely to make

a big dent in current oil

use or electricity use,

either.

■ 2nd decade‟s big risk is

not climate change, but

ebb of high quality oil

flows (and possibly

natural gas and coal, too).

If Fossil Fuel Supplies Drop,

Oil Use Has To Drop, Too

■ Energy Physics 101: Energy use cannot exceed

available supply or shortages lead to hoarding, which

creates run on the energy bank.

■ So, how does world adjust to using less petroleum?:

– Travel less is only real solution

– This includes movement of food

and industrial goods, not just

people

■ We could embrace a radical

Plan B to “travel less”, but its

implementation needs to be

global, not local.

How Plan B To Use Less Oil Might Work

■ Four simple and realistic changes made simultaneously:– End long-distance commuting:

Telecommute...

– Eat locally grown food

– Transport by water first, light rail second, double rail track third and heavy trucks as last resort

– Manufacture goods close to where they are used

These changes will make BIG dent on current oil use.

Quantifying change difficult.

Reducing Use Of Electricity

Not So Simple

■ Most uses of electricity are already quite efficient:

– Home and building lighting uses tiny amount of power

– Air-conditioning and hot water heaters possibly lowest efficiency

■ Homes and buildings need

to be rebuilt Green:

– Old buildings “leak”

– Many new buildings were

never designed to LEED

standards

■ But, over time this can

change (“over time” is the

key word).

Reducing Our Need For Heat

Far More Complex

■ When temperatures fall below 40o,

risk of hypothermia rises.

■ Dangerous to live below freezing

temperatures without access to

heat.

■ Most of the world lives above 30o

and is subjected to winter

weather from November through

early April.

■ Natural gas and geothermal energy are only resources creating

instant highly efficient heat.

■ Many industrial processes also need high heat to melt and boil raw

materials.

Adjusting To Peak Oil Easier

Than Other Fossil Fuels

■ Oil creates 95% of all transportation energy.

■ And, oil is world‟s largest energy

supply.

■ Oil‟s use can be moderated by

global embrace of Plan B.

■ It will not be easy or instant, but

transition can be done.

■ Other fossil fuels far harder to

wean ourselves off.

Peak Oil And Other Fossil Fuels

Might Not Be #1 Problem

■ We know so little about most other

“scarce” resources.

■ Four ingredients which create a

scarce resource:

– One with few substitutes

– One that is non-renewable

– One with the greatest uses

– One which without access makes life

difficult

Why Oil Is Classic Scarce Resource

■ It meets all four scarcity ingredients.

■ Its current use is mind boggling:

– When world uses 85 MM B/D this = 2,023,810 gallons/day or 1,405 gallons/minute(everything on this graphic uses oil in its production)

■ Next to water, this is probably world‟s largest liquid consumed.

My Focus Has Now Shifted To

Limits To Many Other Key Resources

■ Peak Oil is “past tense”.

■ Peak global gas is probably

also “past tense”.

■ Black coal is heavily depleted.

■ Bigger concerns are scarcity

of other resources, starting

with WATER.

Source: Energy Forecast - August 2009

Many Valuable Resources

Are Already Scarce

■ Commercial fishing in many key waters have almost disappeared.

■ High quality gold, copper, tungsten, zinc, etc., are rapidly dwindling.

■ High quality iron ore and ingredients for aluminum are scarce.

■ China‟s growth spurt used up too many resources.

■ Now watch India, Brazil andand Middle East economiesstart booming, too!

Which Resources Will Soon Be

Most Scarce?

■ Laundry list is longer than most

think.

■ Energy is most serious and

easiest to quantify:– High quality sweet crude is now scarce

– Global crude flows have almost certainly peaked

– High quality methane has peaked

– High quality black coal is nearly

depleted

■ Many precious metals are rapidly

dwindling.

If The World Continues To Prosper,

We Will Exceed 9 Billion People

■ The USA population will grow significantly in next 40 years:– Young are not dying

– Old are living longer

– Baby Boomers are now

nurturing grandchildren

– Immigrants tend to have

high birth rates

■ By 2050, Middle East might have over 2 billion people.

■ By 2050, China and India‟s population could be 5 - 7 billion.

■ But, can one planet‟s resources support so many?

Can World Limit Its People Growth?

■ Chairman Mao instituted one child policy but implementation has been a struggle.

■ Wars and famines have also curtailed population growth.

■ Prosperity tends to lead to smaller families.

■ But, 2/3rds of globe still enjoy high birth rates.

■ Unemployed women tend to have more children.

We Face World-Class Problem

Even If Population Does Not Grow

■ If population levels out (which

some believe is happening)

real problem still remains:

“Per-person average

consumption rates and waste

production rates, now 32 times

higher in rich countries than in

poor ones, are rising steeply

around the world, as developing

countries emulate industrialized

nations‟ lifestyles. ”(Jared Diamond, NY Times - December 6, 2009)

Modern Energy Sources Are

Not Sustainable

■ Even if world‟s population growth ended, we still lack supply

for 80% of global population currently living in energy

poverty, to mimic our lifestyles.

■ The automobile was once an

American miracle.

■ Now, China has fallen in love

with the automobile:

– 18 cars/1,000 people in 2009

– USA has ≈900 cars/1,000 people

■ India‟s per capita oil use is ≈50% of China....and growing.

Could Water Be Even More Scarce

In Future Years?

■ Water (H20) is our most

precious resource.

■ Gravity drip water is already

scarce.

■ Aquifers are hard to

accurately measure.

■ Desalinization is difficult and

energy intensive.

■ Without water, nothing lasts

very long.

If Oil Is Precious, Water Is Priceless

■ Water is our most precious resource.

■ Without H20, there is no life or any

energy.

■ Earth‟s water supply is “limitless”,

but…:– 97% is seawater

– 3% is freshwater 1% is fresh surface water (only 0.036% is in

rivers and lakes)

Balance in polar caps, glaciers and permanent

snow

Potable Water Is Now Scarce

■ WHO estimates: 1.1 billion people have no access to

drinking water.

2.6 billion people have no proper means

of sanitization.

■ Global water demand

has grown 6X in last

century (2X population).

■ 60% of world population

expected to live in water

scarcity by 2025.

Not All Surface Water Is Easily Usable

■ Easily accessible surface water

only fraction of global water

supply.

■ Balance is brackish “ground

water” (in aquifers), recycled

water, grey water.

■ All ground water extraction

requires energy intensive

pumps.

Global Water Infrastructure Is Rusty

■ USA has one of the finest water and waste water

distribution systems on earth.

■ Most was built in response

to Clean Water Act of 1972.

■ Much of this infrastructure is

nearing end of design life.

■ The cost to keep clean water

available in OECD and BRIC

countries estimated to be $15 trillion between 2008 - 2025.

Water Is An Enormous Business

■ The global water industry is 3rd largest industry on earth

(after oil and gas production and electricity generation).

■ Steam electricity is greatest

water user.

■ Irrigation usage is second

(4%) and largest consumer

(70% of fresh water used to

irrigate).

■ Industrial uses rank as third

largest user.

■ Drinking water is relatively small user.

■ Bathrooms use more water than what we drink.

Some Intense Industrial Water Users

■ Semi-conductor industry uses 2,300 gallons of ultra-pure

water to manufacture one six-inch wafer.

■ Large semi-conductor plants use up to one billion gallons

of water each year.

■ Energy industry consumes enormous volumes of water:

– A 300,000 b/d oil refinery uses 21 million gallons/water/hour

or ≈210 billion gallons water/year

– 10,000 Barnett Shale gas wells have used up 70 billion gallons

of water in 3.5 years

Creating Useable Oil Involves Use Of

Copious Amounts Of Water

■ Many oil fields maintain reservoir pressure through massive water injection. Processed water (water cut) is then removed and re-injected with even more new water.

■ Heavy oils only come to surface through massive steam soaks.

■ Typical 300,000 B/D refinery circulates ≈500 billion gallons water per day.

■ No one has carefully quantified how much water it takes to consume 85 MM B/D each day.

Contrast Between Oil And Water

■ They do not mix (which is why aquifers become the basement of all great oil and gas fields).

■ Oil is depletable, non-recyclable resource.

■ Water is replenishable but, also depletable resource.

■ Oil is “privately owned”.

■ Water is generally a “public resource” and almost free.

■ Oil is an energy resource which has some substitutions.

■ Water has no alternative/substitute!

WHICH IS MOST VALUABLE?

Creating Modern Energy Involves

Vast Amounts Of Water

■ Power generation (other than hydro) requires steam.

■ Coal, nuclear, gas plants and refineries all need water to

function.

■ In theory, much is “recycled”

since steam evaporates into

the atmosphere.

■ All non-conventional energy

sources consume vast

amounts of water, most is

potable.

Water Use by Plant Type

900

800

700

600

500

400

300

200

100

0

Wa

ter

Us

e g

al/

MW

h

Creating Electricity Is America‟s

Largest Water Use

Billion Gallons

Total Use 408

Steam Electricity Utilities 196 48%

Irrigation 137 34%

Public Supply 43 10%

Industrial 23 6%

Rural 9.2 2%

America's Water Usage

Source: US Census Bureau

Water Consumption

Is Enormous

Pay Attention To Water Issues!

Water, Water Everywhere,

Nor Any Drop To Drink*

■ If our energy supplies are feeble

and in decline…

■ If our potable water is shaky, too…

■ How will the world survive through

2050?

■ It will be a struggle, unless we

invent a new energy source that

can scale and is technically viable.

■ Can the solution be energy from

the ocean?

*From Coleridge's Rime of the Ancient Mariner. 1797-98.

Ocean Energy Might Be Our

Only Viable Solution

■ Our oceans cover 71% of the globe.

■ 60% of the earth‟s population live within 50 miles of coast lines.

■ There is low risk we could ever run low on sea water.

■ If rising sea levels resulting from global warming is real threat, using sea water to create energy helps solve this risk, too.

UMaine, DOE And The Ocean Energy Institute

Are Launching Manhattan Project

■ Mid-Coast Maine will soon be home to a DOE energy research

laboratory. Three new offshore wind turbine projects will begin the

long march towards capturing energy from our oceans.

■ The big first project is world‟s largest offshore “deepwater” wind

project designed to create NH3 (liquid ammonia) from offshore wind.

ElectricityElectricity created

HydrogenOffshore Wind

Combine 3

Hydrogen with

1 Nitrogen

NH3

Liquid Ammonia

The By-Product Of Liquid Ammonia

Is Not Carbon

■ By-product is desalinated water

and sea salt.

■ With proper combustion, nitrogen

burned does not even create

nitrogen oxide.

■ NH3/desalinated water/salt could be

energy‟s genuine Holy Grail.

■ And, it scales as oceans are all over the

world.

■ Winds always prevalent around oceans.

The Oceans Hold The Key To

World‟s Sustainability

■ Offshore wind is real.

■ It can create electricity that

combined with water

creates hydrogen.

■ Three parts hydrogen and

one part nitrogen creates

NH3, which internal

combustion engines can

use today.

■ Next projects will include research into capturing energy

from oil seeps, aquatic plant life, tides, wave, currents,

OTEC and possibly kinetic energy.

Ocean Energy Is A New Business

■ The research/knowledge of capturing energy from our

oceans is where offshore oil and gas was in 1950s.

■ The Graduate promoted “plastics” as the promising future

in 1968.

■ Today‟s graduate should be promoting ocean energy.

Ocean Energy Would Be Needed

Even If...

■ Oil flows had not peaked.

■ Oil and gas infrastructure was not rusting.

■ Electricity grid was not past design life.

■ Oil was not primary source for North-East to heat their

homes and buildings.

But, unfortunately, all the above has transpired and

we are being hurled towards “non-sustainability”

World Lacks Game Plan

To Address Resource Scarcity

■ Too many experts always assumed technology and

ingenuity would create abundant and affordable

resources forever.

■ We lack any solid data on too many key aspects of

scarcity risks overwhelming next decade or two:

– No flow data on world‟s key oil and gas fields

– No data on water sufficiency or even accurate usage

– No data on energy expended in order to create usable energy by

unit

– No data on water consumed per Btu of energy supply

Some Data Transparency Exists,

But Much Of Data Lurks In Fog

■ World can demand key oil and

gas field flow rates (and should

demand this).

■ Obtaining remaining usable

fossil fuels by quality or energy

input to output or water

consumed is very hard to guess.

■ We clearly have some energy

sources that are net energy

losers and destroy large

amounts of good water. Some

rate high on both bad lists.

Field-by field

production data

Field-by field

production data

Is December 2009 Like

Summers Of 1914 And 1939?

■ Are we living in a dream

world of illusionary peace?

■ Are we now sleep walking

past a cemetery?

■ Could the ghost of Christmas

future lead us to quickly

change our ways?

“Men’s courses will

foreshadow certain ends, to

which, if persevered in, they

must lead,” said Scrooge.

“But if the courses be

departed from, the ends will

change. Say it is thus with

what you show me!”(Charles Dickens's, A Christmas Carol)

For information and/or copies regarding this presentation, please contact Laura Russell at (713) 546-7211 or lrussell@simmonsco-intl.com.