Oil Sceptics Rebutted
By Matt Mushalik
An EcoTransit Sydney member posted the following article from Britain's Sunday Times to our lively talk list and asked one of our more active peak oil researchers to respond to the criticisms raised by David Smith. Mr. Smith's article is interleaved with responses by Matt Mushalik.
DS: Peak oil is a broad church. To be fair to A Crude Awakening, it is hard to argue too much with the definition on its website. “Peak oil doesn’t mean ‘running out of oil’, but rather ‘running out of cheap and plentiful oil’,” it says. The film is directed mainly at an American audience, profligate in its oil use.
MM: The film "A Crude Awakening" is counterproductive in that it doesn't offer any solutions. That triggers denial mode, e.g. in the author of this article, David Smith
DS:The “peak oil has already happened” argument was partly based on the fact that global oil production, on International Energy Agency figures, had never been higher than the 86.13m barrels a day of July 2006. That, however, is no longer true. World oil output in October was 86.5m barrels a day, 1m more than in October last year and 3m more than in October 2005. It edged up to 86.55m last month.
MM: Correct, but these are short duration spikes, not peaks. A parabolic trend line of all liquids peaks around now. As of September 2007 (73,499 mb/d) , the crude peak of May 2005 (74,287 mb/d) still stands. Although that peak could also be called a spike in relation to lower production on both sides of the peak, it is a turning point in the underlying peaking of a group of countries as can be clearly seen in the attached graph. The latest crude production profile up to September 2007 is attached. BTW, Matthew Simmons is using my graph in his slide shows.
( http://www.simmonsco-intl.com/research.aspx?Type=msspeeches e.g. in the Bermuda talk and the Offshore Safety Conference)
DS: Production in many oil-producing countries is constrained, not by geology but by politics. Iraq is producing only two-thirds what it did on the eve of the first Gulf war in 1990. That was no golden age, production running below potential because of weak investment during the Saddam era."
MM: One of the reasons Saddam took Kuwait was the issue of horizontal wells allegedly drilled by his neighbour, in itself a sign of maturing oil fields. Dr. Bakhtiari calculated Iraqi production could have been 5.5 mb/d by 2010 if everything had gone according to the Bush plan. It is clear the oil geological peak would be higher. BUT the underlying geological peaking - which is a process rather than an event - creates geo-political feed back loops which limit production, thus putting a cap on the geological peak. The best example is Iraq itself which was and is the only country in the ME with pre-peak oil. Bush and Cheney are oil men and knew about the approaching peak. They got Matt Simmon's assessment of giant oil fields when he was a member of Dick Cheney's energy taskforce in 2001 BEFORE 9/11. So they invaded Iraq to get extra barrels to push the peak a couple of years into the future. Our naive Howard either did not understand peak oil or he did not publicly admit it because of the oil war issue. Brendon Nelson called it energy security and he was immediately called back by Howard.
DS: Iran is producing well below potential.
MM: Dr. Bakhtiari calculated that oil exports from Iran will end sometime in the middle of the next decade. Iran has introduced petrol rationing, not really supporting the notion of having a lot of oil left.
DS: The most important reason for rejecting the “peak oil is here” argument, however, is that current production reflects investment decisions taken years ago, when prices were much lower. It was only just over three years ago that oil rose above $40 a barrel. A few years earlier it was $10-$11. Higher prices will bring more output on stream.
MM: This is an untested assumption. There is another negative feed back loop. Higher oil prices make exploration and oil field development more expensive, albeit exacerbated by the Chinese demand boom for steel. Many oil companies have invested their oil revenues outside the oil&gas sector and I guess that some of that money has been burnt up and is still being burnt up in the US subprime crisis. 80-90% of oil is from national oil companies who are obliged to work to the agenda of governments. We know what the have in mind: subsidies, election gifts, provision of services etc.
DS: A new study by Germany’s Energy Watch Group, which said the peak was in 2006, makes the astonishing admission that it took no account of prices.
MM: Because the laws of fluid mechanics control the flow of oil not wishful thinking of economists and journos.
DS: There is a long history of crying wolf on peak oil, dating back to the 1920s. The patron saint of peak oil, the geophysicist M King Hubbert, predicted in 1956 that oil output from the lower 48 states in America would peak around 1970 and he was right. He also predicted global production would peak in about 1990 and he was wrong.
MM: In a 1976 interview he said that a symmetrical global peak would be in 1995 (at 40 Gb/year) but that because of OPEC's "curtailment" in the 70s the peak would be shifted into the future ( http://www.youtube.com/watch?v=ImV1voi41YY and also http://www.hubbertpeak.com/hubbert/ )
DS: Colin Campbell, founder of the Association for the Study of Peak Oil and Gas, first called the oil peak in 1990 and then at regular intervals. His view today is that a peak remains imminent.
MM: The first really public warning was in 1998 in the Scientific American: http://dieoff.org/page140.htm with peaking between 2000 and 2010, albeit at lower levels. Even if the predictions were on the safe side (=earlier), to prepare for peak oil 10-20 years in advance (according to the Hirsch report) would do us no harm. A later peak is no comfort as declines after that peak will be steeper. If earlier predictions have not materialized then this does not mean the peak will not happen. In fact it means the peak is overdue.
And why does the author of the article not do his own estimate if he thinks he can do it better than Colin?
Yes, the crying wolf story is indeed a problem. But no one in government is listening anyway. So it is futile to discuss this. Matt Simmons is right that we'll see peak oil only in the rear mirror and that is what my job is all about: to lift the fog around that mirror. The US governmnet was in denial over its own 1970/71 peak even in the late 70s!
DS: Peak-oil people get excited about the giant Ghawar field in Saudi Arabia because it is apparently producing water rather than oil. The Ghawar “water cut” has reached 30% and bestselling books have been written on its imminent eclipse. But, as Michael Lynch, peak-oil sceptic and president of the consultancy Strategic Energy & Economic Research, points out in a paper, Crop Circles in the Desert, this is a low figure. The average water cut throughout the industry is much higher, at 75%. The Ghawar cut rises and falls but the field still churns out 5m barrels a day, even at the age of 50.
MM: The water cut in vertical onshore wells can be 90% and they still produce oil over many years. The limit will be the cost of pumping and other methods of enhanced oil recovery. 500,000 wells in the US produce an average of 10 barrels a day. But Saudi Arabia uses now high capacity horizontal wells. When they water up they do so quickly and when that happens they have to be shut. We don't know exactly how much Ghawar produces as Saudi Arabia will not publish field by field production rates. That's why Matt Simmons demands a 3rd party audit of field records. Stuart Staniford from TheOIldrum has written many articles about Ghawar. If Lynch is so keen on OPEC reserves he should get a bank guarantee from a Saudi bank according to SEC rules.
DS: Lynch is dismissive of another argument, that no big oilfields are being discovered. That, he said, is the nature of the industry – big fields are easier to find and smaller satellite fields around them come later. Large areas with the oil potential of, for example, Saudi, have not yet been fully explored.
MM: If Lynch knows where they are why doesn't he invest in oil exploration in those areas? The total amount of oil discovered every year is definitely going down, now around 7 Gb/a compared to 31 Gb annual production.
DS: There is, then, plenty of oil in the tank.
MM: It is definitely not in any easy-to-tap tank, it is in the rock, in trillions of pores. Oil is not oil. There is easy pre-peak oil, which is basically gone. And there is other oil, but in smaller fields harder to get, often with more sulfur and heavier. The energy profit ratio will go down. It was 1:40 in the golden days, is now around 1:15 and will decline in future (more energy needed to get the oil out of the ground). We can have a lot of oil but once the ratio is 1:1 oil production will cease for the purpose of gaining energy, no matter what the price of oil is. Oil may still be produced, using other input energy, but for other purposes e.g. greasing the rotor blades of our wind turbines, not gas guzzling around in cities.
DS: Opec says additions to recoverable reserves since the early 1980s have been three times cumulative output over the period.
MM: These are the so-called OPEC paper barrels. Read what the IEA has to say about it in WEO 2004 (attached). A former Aramco boss, Sadad Al Husseini, showed a table at a recent oil&money conference in London, where he had crossed out 300 Gb reserves as being resources. You have to be stupid not to see this as a hidden message on OPEC's paper reserves. It is equivalent to 30 years OPEC production.
DS: So why are prices so high?
MM: Because production can't follow demand. The US is printing money to pay for more expensive oil but that game is coming to an end. Cheap Chinese consumer goods kept inflation low but not for much longer as China is reaching its internal growth limits and inflation there is rising.
DS: Oil is expensive because of geopolitical uncertainty...
MM: Because of oil wars and geo-political feed back loops as described above
DS:...strong demand from the global economic boom of the past few years and speculative investment. Opec, which has most of the reserves, is happy to extract money from consumers to fund spending programmes.
MM: They are doing a life experiment with the world's economy if their earlier production cuts were voluntary.
DS: Most oil is in places we would not want it to be.
MM: Exactly. But for the oil market it does not matter whether we have a pure geological or a geological plus geopolitical peak. Less oil is less oil.
DS: Demand has responded to higher prices, but not enough.
MM: That is indeed a big worry. We are basically on a bumpy production plateau, with crude declining slightly and the price rises have been very high to bring demand down to supply levels.
DS: The International Energy Agency’s worry is not that oil has reached a peak – it expects a 50% rise by 2030 – but that demand will rise faster than supply. We will see how much impact next year’s economic slowdown has.
MM: The messages from the IEA are contradictory and reflect the internal conflicts in this organisation. At present it seems they don't believe in their own embellished WEOs anymore. It is the same story as with the IPCC. Governments force political editing and you have to read between the lines.
DS: How will the oil age end? In a speech to mark the bicentenary of the Geological Society, “Peak Oil – a metaphor for anxiety”, BP’s Michael Daly predicted that we would be debating when the oil might run out in 100 years’ time. Long before then, thanks to high prices, alternative energy sources, climate concerns and technological advances, we will have probably passed the peak – but for oil demand rather than supply.
david.smith@sunday-times.co.uk
MM: The author apparently thinks money can make energy. He should calculate how much fossil fuels are needed to build up clean, alternative sources of energy and how long that will take. The big drama unfolding now is that at the very moment we realize we are sliding into that global warming emergency that projects to reduce CO2 emissions will get stuck in diesel shortages. I predict that when that happens we'll see really drastic fuel rationing to SAVE oil for these projects. What will be more important: to transport solar panels to their desert location or to take your car to the cinema?
The Sunday Times will get an email from me to stop such mis-information and I'll basically copy this.
Regards
Matt