Thursday, July 08, 2010

What Most Believers in Peak Oil Fail to Consider.

A lot of otherwise normal, well-functioning persons are firm believers in the idea that global oil production has irrevocably peaked -- or is soon to peak irrevocably. Whether such a peak will result in total global collapse, or simply lead to widespread economic hardship, is a point of contention within the peak oil community itself.

But the essential reasoning upon which most peak oil believers appear to base their quasi-ossified expectations is inherently invalid. The past production rates of national oil companies cannot reliably be used to predict future production potential for wells that are controlled by national sovereign oil companies -- and yet that is exactly what is being done by peak oil prognosticators and associated grifters.

True, oil production is likely to decline, causing oil prices to rise. But the reasons for the decline are critical to understand, if one wants to comprehend what is happening.

From an interview with Rick Rule:
The most important theme that people need to understand with regard to conventional oil is that most conventional oil that is produced in the world and sold for export is not produced by companies like Shell or Exxon or Total, in other words it’s not produced by major oil companies. It’s produced by national oil companies, where the shareholders aren’t public shareholders but rather sovereign governments, and that’s important to understand. It’s important for investors because most of the national oil companies have been, for some period of time, diverting substantial amounts of the cashflow from their domestic oil industries into other domestic spending programs that aren’t oil related, thereby starving their domestic oil industry of sustaining capital. I think this has gone on for so long that several of these national oil companies have production decline curves that are irreversible for the next decade. The consequence of that is that several countries, particularly Mexico, Venezuela, Peru, Indonesia and perhaps Iran, will cease to be oil exporters within 5 years, even if they start spending now, which they aren’t able to do. The impact of that is that as much as 20% of world export crude will come off of export markets and that could lead to a truly precipitous increase in price. The only hope that oil import countries have is that sustaining capital investments have increased in Saudi Arabia, the United Arab Emirates and Kuwait. These three countries, with the help of a resurgent Iraq (if it does resurge), are the importing countries’ only hope for moderated oil prices in the next 5 years. It’s my belief that production declines as a consequence of a lack of reinvestment will be greater than the production adds and I suspect we will see sharply higher world oil prices in the next 5 years. _GoldSeek
Many peak oil disciples will claim that it makes no difference whether oil production declines due to lack of investment, or due to lack of oil. Clearly, however, they are being disingenuous when making that assertion.

More from Rick Rule on Peak Oil:
Peak oil is more an economic and political phenomenon than it is a geological phenomenon. I think we’re past $40 peak oil but I don’t think we’re past $200 peak oil. There are technologies, as an example, miscible CO2 flooding to recover oil from allegedly depleted oil fields. There are new basins, albeit remote, frontier basins. There are new technologies that allow dry gas or LNG to be substituted for liquid oil. It’s an economic function because these technologies and substitutions require higher energy prices. At $200 oil, we’ve got lots of oil. _GoldSeek
Again, many peak oil proponents will claim that it makes no difference why oil prices climb higher. The very fact of higher oil prices will vindicate their beliefs, according to the true believers and disciples. But again, clearly, they are wrong. If prices are high, but oil is plentiful, either the world will move on to cheaper forms of energy and fuel, or technology will be spurred by higher prices to achieve more efficient economies of production in the more difficult oil (and oil equivalent) fields.

If a nuclear renaissance does come about, demand for fossil fuels will decline precipitously across most of the world -- except for specific applications as engine fuels. But at the rate that biomass and microbial fuels are progressing, it is likely that demand for oil and oil equivalent for fuel will begin to decline quickly after the year 2030.

Peak oil is a religion. And like most religions, the majority of followers do not have a clear understanding of exactly what it is they are supposed to believe. They only know that they believe it, and they are right, dad-blame-it! Meanwhile, the world keeps turning.



Blogger jimvj said...

This article is mostly attacking a straw man. Most Peak Oil adherents do not claim that more investment will not make ANY difference. They correctly point out that most of the giant oilfields have been found, developed, and produced to the point that they are in severe decline. Newer finds - since Peak Oilists realize that the earth is finite - will in general be smaller, in more remote places, and have lower EROI (Energy return on energy invested).

This is in contrast to cornucopists who blithely predict that global production will increase to 120 mbpd from the current 86 or so mbpd in a few years. This requires finding about 3 or 4 Saudi Arabia's worth of production capacity. Actually, if depletion of current production is > 5%/year, it could require finding even more new capacity.

Given this, who are the realists and who are the pie-in-the-sky BS'ers?

8:28 AM  
Blogger Noah Smith said...

You are right that if national oil companies have been underinvesting (and thus understating cheaply recoverable reserves), the oil peak is farther off than it currently appears.

But the idea that peak oil is wrong. Peak oil is correct. If oil peaks because of demand destruction, that's bad for the economy. But if oil peaks because of technological substitution, that's good for the economy. Peak oilers, by and large, think that what we ought to be doing is putting a ton of resources into technological development, so we can make sure we hit the good kind of peak sooner instead of the bad kind of peak later.

9:10 AM  
Blogger al fin said...

Noah: I think I understand what you are saying, although you really do not explain what you mean by the term "peak oil."

Unfortunately, peak oil is only "right" in the most trivial of senses: Looking back from a point in time 500 years in the future, we will almost certainly be able to point out a date or time period where crude oil production "peaked" permanently -- at least up until that point.

But among the true believers of the orthodoxy of peak oil, the term "peak oil" is about as well defined as the term "god" is in religious circles. And serves roughly the same purpose as an organising principle -- however vague.

Is peak oil an absolute historical peak in production? Peak in supply? Peak in affordable supply? Peak in sweet light crude? Or do you include heavy oils and oil sands? What about CTL, GTL, BTL?

Do you believe the "tool up time" to unconventional liquids will take too long to avert the catastrophic effects of "peak oil" (whatever it means)?

A lot of "peak oilers" were delighted at the idea that the Macondo spill might drive oil prices through the roof -- and cause the US to outlaw all offshore drilling. That sounds like a bit of self-fulfilling prophecy of peak oil, if you can get your political proxies to create peak oil artificially in that way.

"Political peak oil" is the most rational form of peak oil to believe in, since clowns and jokers like Hugo Chavez, Ahmedinejad, Obama, Putin, etc. can always find ways to prohibit oil / energy production politically -- or drag their production infrastructure down into the dirt from neglect, and make the entire issue a moot point.

9:36 AM  
Blogger Bill Reiswig said...

Peak oil is most certainly not a religion. Oil is finite and at some point it's production will most certainly peak. Just like it has in the US and most countries. Certainly National Oil companies do not invest in their infrastructure in the same way that international companies do. Peak Oil proponents merely hold that we are nearing the all time peak in production now rather than decades from now from the combination of financial, political, geoligical and technical reasons. Careful reading of the Oil Drum for example will show all these causes discussed.

Claiming that we have plenty of 200$ oil -- enough to produce the 110 million barrels a day that the IEA predicts decades from now disregards whether nations and consumers are willing to go into debt enough to finance that oil, whether or not at that price oil subsitutes become viable, whether climate change becomes so harsh that brutal measures become necessary to cut back on oil, and most importantly that the 200$ oil has an amazingly poor EROEI. That is--- its a poor energy source, technically super difficult to get at and risky (deepwater horizon) exremely polluting (the oil sands), and practically impossible to produce at high production rates. Its vastly easier to produce 5 mbd from a field like Gwahar than the Canadian Oil Sands that will be asked to produce that same amount in a few decades. The latter will not happen because the infrastructure demands of water, natural gas, roads, workers, and pollution levels will be too high to allow it.

There is quite a bit of evidence frankly that OPEC nations have overstated reserves historically because the amount they are allowed to produce is based on their reserves. Saudi Arabia, despite decades of production have never restated reserves in that time downwards despite no new major fields being discovered...

10:30 AM  
Blogger al fin said...

To say that peak oil is a religion is merely to assert that many of the pillars of peak oil (beyond the trivial truism that "all resources are finite") must be taken on faith.

But that is not as much of an insult as some may take it, since the human brain is constructed to generalise based upon very little evidence.

Many of Bill Reiswig's assertions fall into the realm of faith based beliefs.

"Peak Oil proponents merely hold that we are nearing the all time peak in production now rather than decades from now from the combination of financial, political, geoligical and technical reasons."

Yes, I have heard that from peak oil proponents -- for a number of decades, in fact, I have heard precisely the same idea from peak oil proponents. I even believed it once, a long time ago.

"Its vastly easier to produce 5 mbd from a field like Gwahar than the Canadian Oil Sands that will be asked to produce that same amount in a few decades. The latter will not happen because the infrastructure demands of water, natural gas, roads, workers, and pollution levels will be too high to allow it."

Ghawar oil is preferable to Ft. McMurray bitumens, true. But the direction of the technology is the opposite of what you describe. It is the public relations for oil sands that suck. The reality holds a lot more promise than most peakers will readily admit.

"There is quite a bit of evidence frankly that OPEC nations have overstated reserves historically because the amount they are allowed to produce is based on their reserves."

Perhaps. On the other hand, there are some good reasons to believe that the Saudis have understated reserves in an attempt to stay out of the line of fire.

The US and Canada have drilled over 90% of all exploratory wells, while most of the oil reserves are elsewhere. A lot of oil-rich areas are relatively under-explored.

Peak oil believers maintain a faith in the scarcity of affordable reserves which goes far beyond the evidence. It is almost as if they wish the world to run out of oil for some reason. What could that reason be? Who knows?

12:09 PM  
Blogger Kinuachdrach said...

Bill Reiswig said: "Careful reading of the Oil Drum for example will show all these causes discussed."

Naw! Too much of what is on The Oil Drum is technological & economic illiterates bleating their Luddite doctrines. Little college socialists who never grew up. Idiots who believe that they will be able to grow titanium-frame bicycles with synthetic rubber tires in their post-apocalypse window boxes.

(A few of the articles and comments at TOD are quite good -- but only a few).

Al Fin makes an excellent point here -- students of Peak Oil need to become more "nuanced", to use a Clintonism.

People have been crying wolf about Peak Oil since the 1860s. Yes, the wolf will come eventually, but we need to become more thoughtful in our analyses.

There is no shortage of economically-viable power -- nuclear, gas, coal. But how does that help us with transportation fuels?

Can we tax our way to Nirvana? EU leaders tax the hell out of their serfs -- and the EU imports as much oil as the US.

5:52 PM  
Blogger al fin said...

K asks a good question: "There is no shortage of economically-viable power -- nuclear, gas, coal. But how does that help us with transportation fuels?"

Billions of dollars are being spent trying to learn how to convert biomass to liquid fuels. These liquid fuels range from gasoline, diesel, and jet fuel, to ethanol, butanol, dimethyl ether, and more.

It would be cheaper to convert coal, natural gas, heavy oils, oil shales, and oil sands to hydrocarbon liquids than biomass. So if it becomes economically viable to produce liquid fuels from biomass, then you know it is certainly economically viable to do the same with gas and coal.

The same is true for making plastics and a wide range of high value chemicals. It can be done with biomass. Eventually it will be done very economically and on a large scale -- using biomass. But it would be cheaper to do it with coal or gas.

That is in the near to intermediate future. For now, we have to drill offshore and in the Arctic because those are almost the only places not yet closed off to private production.

As far as nuclear's contribution to liquid fuels, well it is broad and deep. Nuclear fission produces a lot of heat and it can also produce a lot of electric power. When you produce oil sands, you can use a lot of both heat and power. The same for the kerogens of oil shales.

Many of the (probably unrealistic) schemes for converting CO2 directly into hydrocarbon fuels are based upon ready access to the output of a nuclear reactor.

Not all practitioners of "peak oil" are ignorant religionists. Some of them are hard-headed pragmatists. They are more likely to be on the lookout for solutions, rather than constantly and blissfully wallowing in doom and woe.

It is the reverent devotion to defeatism that offends me the most about the true religionists of "peak oil."

1:14 PM  
Blogger Neil Bates said...

The very fact of oil being expensive would be destructive, so that's not a counter to complaints of dwindling oil. "Plenty available" - no, supply and demand means it costs more since there's less (even though people are willing to pay somewhat more per gallon, they can't buy as much and many will give up.) If oil at say $200/bbl then the total world purchase (in constant dollars) can't be the same bbls as before, who's got the money? What you mean is - given the amount purchased, more of it can be from oil shale etc, so what? We can't keep BAU anyway.

It's silly to pick on PO because you think things aren't as bad (quantitatively) as most of them do, even if you do offer an intriguing argument about the conduct of national oil companies. The principle of PO is right, hence it's not a "religion." And finally, what's this about "the best of humanity"? How do you know who's best?

BTW Is this a good rundown? They're not very optimistic. But I'm conditionally optimistic (the only way to be): if we handle it well and start organizing to better energy policy, we might make out OK. It can't be BAU.

5:56 PM  
Blogger al fin said...

I sympathize with your concerns about the planet, the air, the water, all the horsemen of the apocalypse. But since our resources for actually doing anything are relatively scarce at the moment, we need to avoid chasing after wild gooses that will eat our gold and leave us bankrupt to deal with the genuine problems we face.

Neil, I assure you that I am not picking on Peak Oil. I take exactly the same attitude toward Global Warming Catastrophe as I do toward Peak Oil Doom. The same for Overpopulation Apocalypse and Industrial Pollution Armageddon. They're all the same to me. Scams in search of true believers willing to contribute to the cause.

Here is an interesting look at a portion of the increase in non-OPEC fuels coming along: Source

If prices between $70 and $80 a barrel can bring new resources and projects to bear, imagine what sustained prices above $100 would do?

A lot of folks have remarked that when oil prices peaked in summer 2008 close to $150, that there was no increase in production. As if all it takes is a wave of a magic wand and instantly production will rise.

In fact what we are seeing now, 2 years later, is partially a coming to fruition of some of the projects put into play years ago, when prices began climbing. It takes time to bring industrial projects to completion.

The argument for Peak Oil Doom is very similar in many ways to the argument for Global Warming Catastrophe. Begin with so many basic truisms and tautologies that a person's mind goes to sleep from near-fatal boredom, then take a giant leap to a conclusion of impending doom that is completely unfounded by the evidence.

A great scam if you can get it, boys, just great. It can certainly keep you in cigars if you can con enough marks into the game. But then, that isn't so different from most any other religion.

5:07 PM  

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