Peak Oil News: Peak Oil, Peak Nonsense

Friday, January 26, 2007

Peak Oil, Peak Nonsense

Market Watch

By Robert Folsom

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.

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."

Again, no one asked how a four percent fall in supply could make prices go up by a 2.5 multiple, 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.

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?

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.


At 7:44 PM, January 31, 2007, Anonymous Anonymous said...

It's so easy to be a cynic of peak oil - after all, history is on your side: several people have predicted the date of the peak in the past and it didn't happen, so therefore the idea is obviously bunk. It's so easy to scoff at peak oil as a cause of tree-hugging, unwashed, eat-the-rich greenies (you give yourself away towards the end of your rant). So easy to endow technology with a god-like ability to solve any problem, including providing limitless cheap oil.

World oil production will peak within a few years. Substitutes will become increasingly used, such as CTL, GTL, ethanol. It won't be the end of the world. But as the cheap, easily accessible, large deposits of oil further deplete, production won't be able to keep up with demand and you will see a peak in world oil production. It's such a no-brainer that I am amazed that you can't see it.

At 4:10 AM, February 01, 2007, Anonymous Anonymous said...

As for oil sands being the solution, take a look at the reality. By far the largest operation is Canada's Syncrude, run by a consortium of oil companies including Conoco Phillips, Murphy Oil, Nexen and Imperial Oil. Syncrude runs the largest mine of any type in the world, employing 14000 people, and consuming vast quantities of natural gas and water (so much gas that Canada's natural gas exports to the US are declining). It represents a capital investment of many tens of billions of dollars. And it has taken them 40 years to get production up to 350,000 barrels per day. After another huge capital investment (around another 10 billion dollars) they hope to get production up to 500,000 barrels per day by 2020.

Now the EIA expects global oil demand to be over 100,000,000 barrels a day by 2020. So Syncrude could provide a half of one percent of this.

Of course there are other oil sands projects just starting up, as many of the oil majors rush to get a piece of the action. But what production level can realistically be expected from them, given how difficult and resource expensive it is to exploit the oil sands? Remember that Syncrude has been doing this longer than anyone and have developed the best technology there is, and still they are only able to ramp up very slowly.

What's more interesting is to ask the question of why the oil majors are so keen to get into oil sands, given the enormous costs and technical/environmental difficulties involved. It's far, far cheaper and easier to pump conventional oil out of the ground. An explanation might be that they can no longer pump enough conventional oil (thank you peak oil theory!). Despite some of the highest oil prices in history, look at the recent production numbers of the oil majors - Conoco Phillips down, BP down, Shell down, Exxon Mobil up slightly (after a year of heroic - and unsustainable - drilling activity).


At 2:07 PM, February 18, 2007, Anonymous Rosie said...

yes anonimous i agree.

At 3:00 PM, October 25, 2007, Anonymous Anonymous said...

All right!

I live in Mobile Alabama and a proposal for an LNG terminal was recently defeated.
I feel better about this now that I have learned that we have an almost unlimted supply of natural why did we need this gas terminal anyway?
Those folks at Exxon must have taken leave of their senses..they need only to read this web page and relax...we are swimming in crude and have all the natural gas that we can inhale.

At 8:42 AM, December 08, 2008, Blogger Andrew said...

As we slide into recession, and possibly a deep, protracted worldwide depression, just shy of two years after the original blog entry, economic collapse was once again caused by the bankers, not the shortage of any natural resources.


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