Response to an Economist story on Matthew Simmons

July 11, 2008

The Economist had a story on Matthew Simmons titled:

The high priest of “peak oil” thinks world oil output can now only decline

Here is my comment:

The higher the visibility of this issue, the better, so I was glad to see an article on Peak Oil in the Economist. But the tone of some of the article was disappointing, starting with the headline referring to Matt Simmons as the “high priest” of Peak Oil, and concluding with “he and his disciples.” And these descriptions don’t even make sense – the article itself describes Simmons approaches as:
-learnt never to rely on wishful thinking
-prefers to rely on data rather than daydreams
-according to the American government’s own numbers
-he is an old and respected hand in the oil business
-long experience and deep knowledge of the oil industry

These are the approaches and credentials of someone who works with facts.

Finally, to say “someone who is so pessimistic about technology” is not true either; he is investing in alternative energy.

I think the tone of the article reflects the common human reactions to the issue of energy decline:
-it has never happened before (and therefore can’t)
-it would be a catastrophe if it is true (and therefore can’t be)
-someone or something will save the day (unbridled optimism)

These responses are natural reflections of the way our brains work. But they are not helpful responses in this situation, so we have to use rational analysis to figure out solutions. But we can’t find solutions if we don’t see the problem…

www.ThinkingforResults.com

www.EnergyPredicament.com


More misinformation from Neil Reynolds

May 16, 2008

I generally try to ignore Neil Reynold’s misinformation about the world oil situation, but his last column was too much (Big Oil firms aren’t the bandits here – May 16.) His claim that U.S. has “decades” of oil, if only they could drill offshore, is plain wrong. Taking his numbers (which seem to include total on-shore plus offshore oil) of 30 billion barrels proved and 112 billion barrels unproved, for a total of 142 billion barrels, the U.S. uses 20.7 million barrels per day or 7.6 billion barrels per year. My calculator says that is 18.7 years. Of course this ignores all the practical problems of ramping up production to deliver that oil on a daily basis. As to the EIA saying “proven reserves of oil will last 50 years”, well the EIA is the organization that 15 months ago forecast a drop in oil prices to $64 per barrel for 2008. The EIA is the organization that predicts by 2070 there will be more oil flowing daily from Alberta’s oil sands than the whole world currently consumes each day. The EIA is good at recording past history, but very bad at predictions.


The limits to growth

March 10, 2008

Back in the 1970s a group called the “Club of Rome” sponsored a research study – carried out at MIT – called “Limits to Growth.” Over the years, it has been pilloried as alarmist and just plain wrong. Now with energy decline, environmental issues, and population it is interesting to see what tactics were used to discredit the study. The Oil Drum has a good essay on this:
The demonization of Limits To Growth
and I posted a comment:

I think a key problem for those of us trying to prepare for the future is the tendancy of humans (reenforced by the media) to want “predictions.” I was struck by how the Limits to Growth study discussed scenarios – which opponents then claimed were predictions. Problem is, no one can predict the future – but we can reasonably consider the evidence and anticipate different scenarios as to what might happen, so as to be prepared, as Limits to Growth was advocating.

Even though the Limits to Growth didn’t fall into The Prediction Trap (the title of my upcoming book, which you can preview at my web site), their opponents realized the power of painting the study as a prediction. As noted, if you demolish one prediction, credibility for the rest of the information plummets – though for some reason this doesn’t seem to apply to economic predictions…

In fact, maybe that is the way out for Peak Oil awareness. Rather than trying to convince people of peak oil, maybe we should make a significant effort to publicize the predictions of peak oil deniers – like the oil price predictions that the EIA and others have made for years, that are widely off base.

P.S. Another frustrating piece of history: Jimmy Carter’s speech on energy April 18, 1977.


Once again, denier’s twisted arguments

March 4, 2008

The World Has Plenty of Oil

By NANSEN G. SALERI
March 4, 2008; Page A17

Many energy analysts view the ongoing waltz of crude prices with the mystical $100 mark — notwithstanding the dollar’s anemia — as another sign of the beginning of the end for the oil era. “[A]t the furthest out, it will be a crisis in 2008 to 2012,” declares Matthew Simmons, the most vocal voice among the “neo-peak-oil” club. Tempering this pessimism only slightly is the viewpoint gaining ground among many industry leaders, who argue that daily production by 2030 of 100 million barrels will be difficult.

In fact, we are nowhere close to reaching a peak in global oil supplies….

This is the beginning of an opinion piece by Mr. Saleri “refuting” peak oil. The link is:

http://online.wsj.com/article/SB120459389654809159.html?mod=opinion_main_commentaries

It is so tiresome, but I guess is necessary, to continually refute the propaganda put out by peak oil deniers. (It seems I am now in the “neo-peak-oil” club – a label I have not heard before.)
Mr. Saleri relies on the tried and true misinformation principle. His title “The World has Plenty of Oil” has virtually nothing to do with Peak Oil. No one who has seriously studied peak oil claims there is not a lot left.
But Mr. Saleri stretches the reserves argument to a new height; by beginning with “global resources in place” of 12 to 16 trillion, and saying we have only used 1 trillion, he paints a far rosier picture than even Exxon-Mobil does when they claim there are 3 trillion recoverable barrels. But then, Mr. Saleri’s consulting firm is all about raising the percentage of recovery by a few percentage points, so this fits with his agenda.
But I have fallen into his trap; Peak Oil is not about how much oil is below the ground, it is about how much the industry can produce each and every day. The U.S. has been declining since 1970. Mexico is in decline. The North Sea has passed peak. Each of these countries produce less oil – by about 3% to 8% each year – than they used to. Put another way, about 4 million barrels per day of NEW production is needed each and every year just to offset declines from older fields – and each year every field becomes older.
It doesn’t matter 1. how much is below the ground, 2. what percentage is recoverable, or 3. what the consumption is, the key question is how much is produced each day. And as for Mr. Saleri’s 4th point, that a “widely accepted tipping point — 50% of ultimately recoverable resources consumed” is a definition of peak oil – again, no one who has studied it seriously argues this is the case any more.
The evidence is out there. Look at this map of world production decline:
world oil map or this review of what oil company executives are saying:
energybulletin.net

Finally, “the Stone Age did not end due to a lack of stones” ? Give me a break!
Randy Park


CERA’s arithmetic

January 22, 2008

You may have heard about the recent report from Cambridge Energy Research Associates regarding the decline in oil fields. The richest media report is this one I just received from Australia:

Oil in plentiful supply

Carl Mortished | January 18, 2008

DOOM-LADEN forecasts that world oil supplies are poised to fall off the edge of a cliff are wide of the mark, say leading oil industry experts who warn that human factors, not geology, will drive the oil market.

A landmark study of more than 800 oilfields by Cambridge Energy Research Associates (CERA) has concluded that rates of decline are only 4.5 per cent a year, almost half the rate previously believed.

CERA therefore concludes that oil output will continue to rise over the next decade.

Only in CERA-land could an annual decline in oil production produce a rise in output! The truly bad news is that they say they have surveyed 80,000 oil fields covering 2/3 of world production. This is not good. Their number for world production is 91 million barrels/day, so a 4.5% decline of 2/3 of the 91 results in a worldwide drop of:

  • 2.7 million b/day in one year – more than all the current production of Alberta’s oil sands
  • 7.8 million b/day in three years – more than Kuwait, Iraq, and the United Arab Emirates put together
  • 12.5 million b/day in five years – more than Saudi Arabia, the world’s largest producer
  • 25.7 million b/day in twelve years – more than all the oil consumed by the United States (by far the world’s largest consumer, at 25% of the total) in 2006; or more than all the oil produced by all Mideast countries last year (Saudi Arabia+ Iran+ Iraq+ Kuwait+ UAE+ Qatar+ Oman+ Yemen+ Syria)
And these are the oil optimists!
Two points:
– oil decline rates seldom decrease, especially with mature oil fields, so this might be a best case scenario
– the sources often touted as the “saviours” like the Alberta oil sands? The optimistic  projections for the oil sands are around 5 million b/day in five or so years.
Time to get serious about conservation.

    May 2, 2007

    Curious as I am about any counter argument to Peak Oil (though I spend much of my time raising awareness in corporations about energy decline, I would be very happy to discover it is not true), I recently looked up an article that was claimed to counter Peak Oil.

    Having read it, I don’t think the article (written by Eugene Gholz – assistant professor of public affairs at the LBJ School of Public Affairs at the University of Texas at Austin and Daryl G. Press – associate professor of government at Dartmouth University) adds much insight into oil supply. (Not to mention that the Cato institute is financially supported by Exxon-Mobil, the largest Peak Oil denier.) The main point of their essay is “The United States does not need to be militarily active or confrontational to allow the oil market to function, to allow oil to get to consumers, or to ensure access in coming decades.” I would agree with that.

    They do admit that “Those arguments do not mean that the United States can ignore energy concerns. Global demand for energy is soaring and shows no sign of relenting. Furthermore, oil supplies, though currently abundant, will eventually begin to run low, and the world will eventually need to develop other energy sources.” Sounds like Peak Oil to me.

    Basically, the authors “simplify” the arguments around oil production to make their point about politics: “The amount of oil that can actually be “produced” at any given time,that is, extracted from the ground, transported to refineries, refined, and then transported in various forms to end users, depends on how much money oil companies have invested in a given field.”

    So where is Exxon-Mobil investing? Here is Rex Tillerson (Chairman and CEO) in March, 2006:
    “Return on capital employed, in our view, continues to be the best overall measure of financial performance, given the long-term and capital-intensive nature of our industry…. We have continued our superior performance with a five-year average return on capital employed of 21-and-a-half percent. …

    Before we leave ROCE you might be wondering, why is ExxonMobil allowing the extra cash on our balance sheet to effectively lower near term ROCE? … We’re going to continue to take a disciplined approach to how we manage cash and ensure we maintain the financial strength and the flexibility at all stages of the cycle to pursue any attractive opportunity, particularly those of significant size and scale. …

    In 2005, we generated record cash flow of over $48 billion from operating activities. Our current cash use rate is … $45 billion per year when you do the sums on our current Capex of about $18 billion a year, our dividend pay out of $7 billion a year, and the current level of share buy back at $5 billion per quarter.”

    So they’ve invested $18 billion a year in capital expenditures, and $20 billion a year in share repurchases. It seems that for Exxon-Mobil, there are few reserves that used to be difficult or costly to tap that have now become profitable.


    Elliott Wave International

    January 27, 2007

    From elliottwave.com, with my comments in bold

    I’ve tried several times to understand the principle behind Elliott Wave theory – the idea that you can predict the future – especially stock performance – simply by analyzing and extrapolating the past. It seems to me that there are far too many variables (for example new technology developments) that exist today that didn’t yesterday. They might convince me that the psychology of the markets goes through waves, but a finite resource like oil?

    Peak Oil, Peak Nonsense

    1/26/2007 5:05:14 PM

    The major stock indexes closed mixed on Friday (Jan. 26), and were lower on the week overall.

    *****

    It’s been less than a year since the world was nearly as awash in writings about “peak oil” as it is in crude oil itself. The psychology of the moment was so twisted that, for example, the op-ed page of the New York Times ran a 2,850-word piece titled “The End of Oil” (March 2006). It argued, among other things, that while the world’s crude supplies may be more than half gone, not enough was being said about peak oil.

    Still, a bogus argument will always seems less so in the ears & eyes of an audience that’s predisposed to believe it: oversimplification, misstatement, and ignoring the inconvenient (for starters) create nodding heads instead of furrowed brows. I can’t resist – this sounds like Elliott Wave Theory to me…

    Thus you can say — as the NYTs did — “oil is a finite commodity,” which sounds simple enough. So no one thinks too hard about how to define “finite” regarding crude oil. And, they get an implicit definition soon enough anyway: increasingly scarce and expensive, to the point that a drop of “4 percent of normal daily supply” would be enough to send oil prices to “$161 a barrel,” meaning that “millions are thrown out of work,” and the “quintessentially American lifestyle…suddenly becomes unsustainable.”

    Okay, then, how do you define “finite” regarding crude oil? Or do you believe it is infinite?
    Again, no one asked how a four percent fall in supply could make prices go up by a 2.5 multiple…

    while I’m not sure how the NYT got the numbers, the principle is a simply case of price inelasticity. There is no convenient substitute for oil, so people are willing to pay much higher than current prices to get it. (See the Gas Price Calculator at EnergyPredicament.com and try it yourself.) You know, the old supply and demand argument.

    …but the misstatements only got worse:

    “In the past several years, the gap between demand and supply, once considerable, has steadily narrowed, and today is almost in balance. Oil at $60 a barrel oil may be one manifestation.”

    If bringing demand and supply in balance could explain $60 a barrel oil, then that’s the price a barrel would have fetched more than 20 years ago — because that’s how long it has been since world supply was even close to falling short of demand. Easily accessible data from the Energy Information Administration make this clear, including the fact that world supply EXCEEDED demand in 2004-2005, when prices went UP dramatically.

    I’m honestly not clear what he is saying – is it that 20 years ago, the oil shortage produced price spikes? That’s exactly the point. Regarding supply and demand, it is impossible on anything other than an extremely short term basis (because of storage) for demand to exceed supply. What simply happened in 2004 – 2005 was that world events (Katrina, Nigeria) caused people and companies (for example airlines) to wonder about longer term supply. Thus they bought contracts into the future, sending up prices. Once again, the market at work.

    If you haven’t had enough yet, there’s always ignoring the inconvenient:

    “Despite the serious bets being placed on the tar sands, unconventional oil won’t be available in large enough quantities to make a real difference until well down the road.”

    Mind you, that was the only mention of “tar sands” in the entire 2850 word piece. And you have to wonder if that’s because any further mention might require acknowledging that 3.5 t-t-trillion barrels of oil are in tar sands of Venezuela and Canada… and that the “real difference” they make “well down the road” may just be about the time the supposed “peak oil” theory comes into play?
    Okay, this is REALLY “ignoring the inconvenient.” Peak production has already occurred in 33 major oil producing countries around the world including the U.S. (1970), Kuwait, Canada’s conventional oil (1973), the North Sea (2000), and others. So worldwide production is in decline almost everywhere.

    So what about the tar sands? The MOST optimisic projections suggest 3.5 million barrels of oil per day produced in 2017, out of current demand of about 85 million barrels per day. To do this would require massive amounts of natural gas, already in decline. For the umpteenth time, Peak Oil is not about how much is left in the ground, it is about how much can be extracted on a daily basis.

    Mind you, I’m not for or against anyone’s pet political cause, at least on this page — you can Tax The Rich, Hate SUVs, Stop Global Warming or embrace any other cause that’s compatible with the agenda(s) that usually seem to find “peak oil” so intriguing.

    What I won’t do is take off my thinking cap for anyone, ever. If you say likewise, I suspect you’ll find our analysis of the markets to be refreshing indeed — and more.

    Refreshing? I would call it naive.