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Peak Nonsense

“The truth is that, just as so many did in the 1970s, a commodity cycle has been confused with a ‘new paradigm’ and (neo)Malthusian biases have cherry-picked data and made vague pronouncement (“the easy oil is gone”) with little more than some curve-fitting to support their conclusions.”

“We now have an elephant in the room, and its name is peak oil,” states Kjell Aleklett in an interview with James Morgan in ScienceOmega (June 10, 2013). Interviewer James Morgan adds: “Of course, it is possible to argue over the exact point at which global peak oil will arrive, but at some time in the not too distant future, we are going to have deal with this problem.”

And so here we go again on the trial of exhaustion theory, one step removed from the scientism of central planning where decline rates are projected and a social cost of depletion is calculated for an extraction tax. But it is all bad science. 

One reason that bad science persists is that too many non-experts trust scientists to produce valid, reliable work, and the article in ScienceOmega, an interview with Professor Aleklett, the director of the Association for the Study of Peak Oil, is an excellent example.

Of course, being an interview, it represents the opinions of Prof. Aleklett, but even the mildest of scrutiny would probably have prevented the publication.

False Retrospective

Aside from factual mistakes (such as his claim to have written the first peer-reviewed peak oil article), the interpretation of many issues is, at best, confused. Most important, the death of peak oil was due to an examination of the research, not the recent surge in shale oil production.

The expert community never paid more than passing interest in what was a debate, not between geologists (or scientists) and economists, as peak oil advocates argue, but between optimists and pessimists, with the former usually being knowledgeable and experienced, and the latter novices.

The original methods used to predict the peak of world oil production proved to be deficient: the theories were not based on science, but statistical analysis and curve-fitting, and the predictions repeatedly failed, rarely mentioned by Aleklett and his colleagues.

More recent claims that ‘natural science’ is now being used (which was supposedly the case in the 1990s research) are similarly flawed. The fact that a physicist is supervising the work doesn’t make it scientific: in fact, there work is roughly the same as mathematical models of stock market behavior.

New Peak Fallacies

The claim that oil production has peaked is also fallacious. In the past decade, petroleum production has risen by over ten million barrels per day (mb/d); it rose 2.5 mb/d last year despite a variety of political problems (Sudan, Syria, Nigeria, Libya, Iran)….

And Prof. Aleklett confuses the issue of differentiating production and consumption, describing it as double-counting. What is occurring is that the global recession and price-induced conservation have caused global consumption to slow; peak oil advocates mistakenly assume that this is because of production constraints.

Prof. Aleklett was not “right” in predicting the peak between 2009 and 2013, any more than his colleague was right in predicting the peak in 1989, 2002, 2008, or that global resources had peaked at 2 trillion barrels.

The deficiency caused by the lack of independent variables becomes obvious when examining his point about the EIA and IEA dropping their forecasts for oil production in 2030 by 25 mb/d, to 95, which he claims shows how attitudes have changed since “you first made your predictions.” In fact, they both show near-linear increases in production throughout the time horizon, which hardly suggests that they have been influenced by the prediction of a roughly 2010 peak.

Conclusion

The truth is that, just as so many did in the 1970s, a commodity cycle has been confused with a ‘new paradigm’ and Malthusian (or neo-Malthusian) biases have cherry-picked data and made vague pronouncement (“the easy oil is gone”) with little more than some curve-fitting to support their conclusions.

23 comments

1 Max { 06.26.13 at 2:44 am }

If you don’t know how much there is of something, how can you say it’s running out?
They seem to overlook the fact that nature is making more oil all the time.
Whenever they say there is less oil in the world, they find new sources. Its very similar to Al Gore going on about global warming, only to be meet with a blizzard.

God does have a sense of humor.

2 Ray { 06.26.13 at 3:05 pm }

If I recall my history correctly we were going to run out of oil in the late 1800s. All the oil in the US had been discovered. Then in 1901 Spindletop came in and oil was found all over the place in Texas. The peak oil predictions have a long history of being wrong.

3 JB { 06.26.13 at 4:59 pm }

It’s really about “Peak Cheap Oil”, discoveries have lagged consumption substantially since the “70′s. There have not been any “mega” field discoveries since North sea or Alaska. The Bakken is today producing about 800K B/Day w/5600 wells, that’s an average of 129 B/Day. There are similar results at other shale oil fields. And if the world is awash in oil, why is the price @ $100/B ? Why not $30 or $50 or $66 ?
Finally, have you noticed Climate Change? Tipping points are being breached with resulting non linear acceleration… burning fossil fuels are the leading cause of the increase in CO2. Happy Motoring… next exit..extinction.

4 Mike Lynch { 06.26.13 at 6:49 pm }

Gee, JB, you seem to have missed developments in recent years, including the mega discoveries in the Gulf of Mexico and offshore Brazil, among other places, most of which are just coming on line now. And price responds to a lot more than supply, like Middle East unrest. If we aren’t awash in oil, why are inventories so high?
Bakken is producing about as much as Ghawar, the grandaddy of all oil fields, so I wouldn’t be so dismissive.
And climate change is not relevant to any of my comments. You imply we needn’t worry, because there’s not much oil….

5 JB { 06.26.13 at 8:15 pm }

Ghawar is estimated to be producing 6 Million barrels per day or about 7.5 times daily the 800,000 barrels per day at the Bakken.
The big Brazilian find named Lulu is in 6000 feet of water and then another 16,000 feet of rock and sand below the water. The current production rate is 100,000 barrels per day. The cost of the first 15 wells is over $1 US Billion dollars.
Can you run a modern economy on$ 10 or $15 or $20 per gallon gasoline?? My point is simply we have built America on easy cheap oil and now its over. Expect major changes ahead.

6 Mike Lynch { 06.27.13 at 8:54 am }

Busted. I was careless about Ghawar production. Still, the point remains: Bakken produces more than most countries, including a couple of OPEC members (Gabon and Ecuador), and there are many other Bakkens out there.
Also, the question of Lula (the actual name) has just started production; if deepwater Brazil can proceed at $000, why do you think gasoline will triple or quintuple in price? You need more than an occasional factoid to prove that point, given the history of resource behavior.

7 JB { 06.27.13 at 10:38 am }

Why higher prices? Because places like Bakken and Lulu will not be drilled if prices aren’t high enough to generate a profit. Currently, Brazil produces about 3 Million BpD. The goal, after investing $200 + Billion US is to get to 6 Million BpD by 2020. That’s a lot of oil but by 2020 the world will be using an estimated 90 million BpD.
Bakken wells are expensive because they must be fracked every several years, the depletion rates are quite high 60 to 75% after 2+ years so more and more wells must drilled just to maintain current production.
Bottom line if crude oil falls below, say $75, most of this new production is simply not profitable, and this would include the Canadian Oil Sand projects as well. It’s somewhat of a free market, when prices go down, production goes down which eventually leads to higher prices. Of course, if higher prices stall the economy, then it becomes a vicious circle. Since global demand is edging higher, it will put upward pressure on pricing. So again, somewhere in your near future, you will see $10, $20+ gasoline. We are on path dependency… we are so committed to happy motoring in the US with suburbs and big box store living we are simply locked in to a demand pattern for higher prices especially with rising global consumption.

8 mlynch { 06.27.13 at 12:26 pm }

Your analysis is lacking a few steps. You cite difficulties, then give costs. Yet my analysis of costs suggests they are much lower. Oil sands began expanding in the 1990s, at $20 a barrel. What has changed since then to make costs so much higher? Again, you are confusing cyclical changes with secular trends. Costs did not suddenly triple for the world’s petroleum resources after decades of stability.
PS And it’s Lula, after the former president, not Lulu after a cartoon character I believe…

9 JB { 06.27.13 at 1:45 pm }

Actually, costs have moved much higher because the cheap EZ oil has been already tapped and in many cases exhausted. What’s left is the hard to tap oil like Lula or deep water Caribbean or Arctic or oil sands or fracked. So yes, the cost curve has shifted. Look for example at the Burgan field in Kuwait. There, about 150 wells produce just over 1 million BpD. Then there’s Texas which produces slighly more oil about 1.2 million BpD and here’s the catch – it takes 161,000 oil wells to do that. The point is that the EZ cheap oil has been discovered long ago and now what’s left is the expensive hard to produce oil. And if prices don’t exceed cost of production, then that marginal barrel won’t be produced, thereby lowering supply and forcing prices up to the point where it’s again profitable. With most of the world in a low growth or no growth mode, (think US and Europe), why indeed is crude around $100 today? Because the cost curve has a strong upward bias. And this curve will only get steeper as the EZ cheap oil depletes.

10 mlynch { 06.28.13 at 8:20 am }

“easy” is a very vague definition. My grandfather used a mule in Appalachia to moves rigs around, and I doubt he thought that was the “easy” oil.
You have a loose and static understanding of costs. They have a strong cyclical element.

11 rbradley { 06.28.13 at 12:09 pm }

“The easy stuff has been found” is a fallacy because oil and any mineral never had an ‘easy’ time of extraction and capture and use, and what is “hard” to extract today becomes easier tomorrow with technology.

12 ralfy { 06.30.13 at 4:24 am }

Peak oil is not about running out of oil but a drop in the production rate, and that has already taken place:

http://www.youtube.com/watch?v=YK730U0Q4NU

The IEA argues that at best we will increase energy produced from all oil and gas sources worldwide by 9 pct during the next two decades. The problem is that in order to maintain economic growth, energy demand has to go up by around 2 pct a year:

http://ourfiniteworld.com/2012/07/18/how-much-oil-growth-do-we-need-to-support-world-gdp-growth/

Hubbert predicted that U.S. oil production would peak in 1970 and that’s exactly what happened. He predicted that conventional production would peak in 1995 + 10 years, and both the IEA and BP just confirmed that conventional production peaked in 2005:

http://www.youtube.com/watch?v=BdgMrxzGgA8

http://www.economist.com/blogs/dailychart/2011/06/oil-production-and-consumption

To make matters worse, if you look at production on a per capita basis, that peaked back in 1979:

http://earlywarn.blogspot.com/2011/09/peak-oil-per-capita.html

On top of that, production has been dropping for major producers:

http://www.theoildrum.com/node/9946

Many events taking place today are connected to peak oil. For example, we are now resorting to non-conventional production. That’s because, as BP has shown, conventional production can no longer catch up with demand. What should be noted in this case is that the effects of peak oil (i.e., production reaching a peak and then dropping) can take place even before oil production peaks, i.e., when demand exceeds production.

“Easy” is not a vague term because you can look at the cost of extracting and producing oil in terms of energy costs. For more details, try

http://www.mdpi.com/journal/sustainability/special_issues/New_Studies_EROI

There are limits by which technology can make extraction cheaper, but they cannot negate physical limitations:

http://www.slate.com/articles/health_and_science/science/2013/02/u_s_shale_oil_are_we_headed_to_a_new_era_of_oil_abundance.html

More money can be poured into such ventures, but ramped up production won’t last, either:

http://shalebubble.org/

That’s why at best the IEA is forecast an increase to 12 Mb/d for North America, even as current consumption for the U.S. alone is already 19 Mb/d.

The results can be seen today: high oil prices, high food prices, chronic unemployment, a weakened global economy caused by a combination of peak oil and increased credit creation, long-term effects of global warming coupled with environmental damage, and increasing oil consumption for the rest of the world even with high oil prices even as oil consumption is dropping for the U.S., EU, and Japan given economic crisis:

http://ourfiniteworld.com/2013/04/11/peak-oil-demand-is-already-a-huge-problem/

Finally, don’t forget that problems with forecasting works both ways. For example, back in 2005, various pundings argued

13 ralfy { 06.30.13 at 4:28 am }

I forgot to add that it is expected that energy produced from all oil and gas sources worldwide will increase by 9 pct only as long as conventional production doesn’t drop. But production always follows historical flow rates, and even with better “technology” energy costs can still go up.

Ultimately, what should be noted in this case is not even a drop in production but production no longer meeting demand, the higher energy costs and decline curves for non-conventional production, and the effects of continued higher prices on the global economy.

14 mlynch { 06.30.13 at 10:03 am }

Gee, Ralfy, if that is your real name, I guess the first point to make is that our current economic problems reflect the collapse of the real estate bubble. Of course, we all know that real estate is finite, and prices only go up, right?
If you were more familiar with this subject, you would recognize that the IEA has made a number of ‘peak’ type forecasts before, and that the current one is far from definitive.
Also, the claim that production peaked is incorrect. I suggest you look at data, instead of youtube. Go to eia.doe.gov for actual production data, which shows a continuous increase. And the idea that production failed to meet consumption two years ago is interesting, except that it’s a definitional problem: consumption includes things like refinery gains, that aren’t included in BP’s production data. And inventories in the OECD (the only ones measured) are rising.
Per capita consumption is a measure of energy efficiency; we don’t ‘need’ energy demand growth of 2% per year to have economic growth, and EREOI is a relatively useless concept that I will explore in a subsequent post.

15 JB { 06.30.13 at 8:12 pm }

Really, EREOI is a useless concept?? Substitute capital for energy and then do some math. Show me please where any capitalist would invest capital knowing that the return is negative. For a conservative website, your concept of economics is ceremonial, that is to say, not reality based.

16 mlynch { 07.01.13 at 12:18 pm }

Actually, JB, every time you flick a light switch, you demonstrate the irrelevance of EREOI. Electricity has a horrible EREOI, maybe 0.4, yet that doesn’t seem to have any impact on the industry.

17 JB { 07.02.13 at 5:15 am }

Citing from Zero hedge referring to a Barclay’s research piece:
http://www.zerohedge.com/news/2013-07-01/dont-get-carried-away-shale-oil-boom. Quoting:
“it is perhaps wise to exercise a degree of caution over longer-term shale oil forecasts and for now we are sticking with our 2020 projections which imply a sharp slowdown in tight oil production compared with current levels. This is partly because of the steepness of decline rates for shale oil wells. For example, after two years a typical well in the Bakken-Three Forks drilled in 2012 is likely to be producing at less than 30% of its initial production rate. It also reflects the likelihood that many of the best plays for crude oil extraction are being developed early (recent disappointing performance relative to expectations at the newer Utica shale play in the north-east US and Canada backs this up) and that a lot of the very big productivity gains (shortened well drilling times, increased initial production rates and better rig efficiency) have already been made.”

Not my research…Wall Street research…. Go Read the entire post.

18 Mike Lynch { 07.02.13 at 9:04 am }

Well, JB, I’m certainly not opposed to caution, but since the same arguments have been made about shale gas, which has disappointed the pessimists repeatedly, I would also be cautious about this report.
That you only cite pessimistic reports suggests you have an inherent bias.

19 Francesco Aliprandi { 07.04.13 at 10:06 am }

mlynch wrote:

“Electricity has a horrible EREOI, maybe 0.4, yet that doesn’t seem to have any impact on the industry.”

Maybe you are confusing the efficiency of energy conversion with EROEI. Can you provide a reference for your figure?

20 Mike Lynch { 07.04.13 at 2:29 pm }

Energy conversion is a part of the”energy input”. DOE data shows that you get about 40% as much Btus out in electricity that you put in with coal and gas (combined; oil is trivial). That doesn’t include the energy costs of the plant, the workers commutes, etc.

21 Francesco Aliprandi { 07.04.13 at 4:19 pm }

Mike Lynch wrote:

“Energy conversion is a part of the”energy input”.”

Every modern CCGT has eta = 0.6 (at full load), but that has nothing to do with EROEI since there is no energy resource as input, it’s just a conversion.

Efficiency is the ratio of useful work delivered to the total energy input, where both are measured in the same energy units.

EROEI is the ratio of gross amount of fuel extracted in the energy transformation process to the economic energy required to make that fuel available to society.

Both citations are from “Energy and resource quality” (Hall, Cleveland and Kaufmann), p. 6 and 28.

Do you think that the EROEI of gas extraction changes if we decide to burn it for heating (eta ~1) or in a OCGT?

22 Mike Lynch { 07.05.13 at 8:21 am }

Um, I’m not sure how to respond to “there’s not energy resource as input” when talking about coal and gas being used to make electricity. Do you also exclude crude oil used to make gasoline?

And why only look at a minor part of the ‘resources’ including labor and capital, used to make the energy?

I think the EREOI of the gas burned to heat a house is different from the EREOI of the electricity used to heat a house if it’s made from electricity. Isn’t that a valuable bit of information?

23 Francesco Aliprandi { 07.05.13 at 4:11 pm }

Mike Lynch wrote:

“Um, I’m not sure how to respond to “there’s not energy resource as input” when talking about coal and gas being used to make electricity.”

We are talking about EROEI, aren’t we? If we agree with the definition I wrote (and you still haven’t provided one nor disputed mine), then the energy input in a coal/gas plant is zero, or free, from an EROEI point of view: it makes no sense to speak of EROEI of a process where no energy resource is harvested.

“Do you also exclude crude oil used to make gasoline?”

In a refining process? I’m afraid that is another conversion and its efficiency will always be less than one: see for istance this document.

“And why only look at a minor part of the ‘resources’ including labor and capital, used to make the energy?”

Because we know how to calculate the EROEI according to its definition. Once we have learnt that, we may move on and discuss the limits of the concept.

“I think the EREOI of the gas burned to heat a house is different from the EREOI of the electricity used to heat a house if it’s made from electricity.”

IMHO there exist no EROEI for gas burned to heat a building, nor for electricity generation in a coal plant; but I may change my mind if you could point me to a reputable reference.

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