One of the questions that plagues me constantly is, “Why is energy journalism so bad?” Most mainstream articles about energy will leave you horribly confused at best, or horribly misled at worst. Today I will try to teach you how to read reports on energy without getting lost.
The topic came up again last week when my colleague Christopher Mims pointed up a sharp discrepancy between three recent stories by Reuters, published between November 21 and 24.
The first reported Saudi Aramco’s CEO Khalid al-Falih as saying that unconventional oil (heavy oil, synthetic oil from shale and tar sands, coal-to-liquids and so on) had eliminated global supply concerns, and would rise from 2.3 million barrels per day (mbpd) today to 8.4 mbpd by 2035. This would shift the global balance of power, he said, and reduce U.S. dependence on oil imports. Further, he expected conventional oil supply from Brazil and Iraq to rise. All of this was by way of explaining why Saudi Arabia had recently halted its ongoing $100 billion program to expand production capacity beyond its claimed 12.5 mbpd current capacity, and would not seek to expand it to 15 mbpd (a fact that was already widely assumed by most who follow the energy markets, but apparently was still considered newsworthy).
The second said that oil prices should remain high because global demand had remained strong, and would reach more than 89 mbpd this year according to the IEA. (The International Energy Agency, or IEA, based in Paris and serving at the pleasure of the 28 industrialized countries in the OECD, currently shows 88.7 mbpd for Q3 2011 under a liberal definition of “oil” which includes biofuels and certain types of natural gas liquids. The Energy Information Administration, or EIA, based in Washington D.C. and serving under the U.S. Department of Energy, shows 86.7 mbpd under a more restrictive definition, which excludes biofuels, non-associated natural gas liquids, and other components.) But while demand has been strong, the article noted that supply has been “inconsistent,” citing the loss of 1.6 mbpd from Libya, and various “hiccups in production in Russia, Britain, Norway and Nigeria.”
The third suggested that high oil prices “could strangle economic hopes,” and quoted the IEA’s chief economist Fatih Birol: “I hope that colleagues from the producing countries are also looking at the market indicators carefully, including the diminishing OECD stocks levels and the fragility of the global economic situation.” In his view, too little worldwide investment in oil supply would keep prices high enough to stifle the recovery of the global economy.
So which is it? How can three stories from a single source, published over a five-day span, simultaneously claim that supply is adequate and inadequate; and that prices would remain high due to strong demand, but would be so high that they would destroy demand?
Even worse, how can the IEA simultaneously claim in its new World Energy Outlook 2011 report that by 2035, the world needs to invest $20 trillion in oil and gas supply and infrastructure to add 47 mpbd of new capacity (equivalent to about five times Saudi Arabia’s production, or twice the production of all OPEC countries in the Middle East) to compensate for the decline of mature fields, or else risk “far-reaching consequences for global energy markets”. . . while at the same time asserting that the world must slash subsidies for oil and gas development and transition to renewables quickly in order to arrest climate change, starting now?
Welcome to my hell.
Let’s review a few of the common errors in energy journalism.
Uncritical acceptance of authority
Citing subject matter authorities is a necessary element of journalism, but so is casting a critical eye on what they say. Unfortunately, most journalists repeat what their selected authorities say verbatim, and rarely mention contrary views.
The main authority cited in nearly all articles about energy is Daniel Yergin, the Pulitzer-winning author of The Prize and an economist with the oil industry consultancy IHS CERA. Journalists love to quote Yergin. He always has an optimistic outlook on the future of oil, forecasting abundant supply and low prices. Editors love him too, and regularly grant him high-profile space in their publications (like this recent Wall Street Journal op-ed) to offer sunny pronouncements and spew invective on those who believe peak oil is a serious issue. The fact that his predictions have been continuously and badly wrong for the last decade straight doesn’t seem to phase them in the least, nor does his cozy (and well-paid) business relationship with oil companies. Hey, he won a Pulitzer, and is regularly described as “one of the world’s foremost energy authorities.” Good enough!
Other authorities often cited are active traders and portfolio managers in the oil market, but it’s a rare day indeed when the authors bother to ask whether those authorities might just be “talking their books.”
The authority problem leaks downstream, too. When a reputable publication makes errors, it often leads to a series of repetitions by even less skilled journalists who cite the original as fact.
The problem isn’t just authority, though. Dozens of serious petroleum geologists and analysts with real bona fides in petroleum forecasted the current oil supply plateau and the price volatility of oil beautifully over the last decade, while economist Yergin missed it. So why don’t journalists consult their views? This brings us to the next problem.
Optimism bias
Consider this recent example in the Financial Times. The author elatedly painted a picture of an impending era of energy independence as unconventional oil from gas shales caused a “U-turn in US oil supply,” even suggesting that, “in the coming decade the US will leapfrog Saudi Arabia and Russia to become the world’s largest producer of liquid hydrocarbons.”
The article went on to cite a jumble of relevant and irrelevant data, along with highly speculative forecasts represented as near-certainties. After sorting it all out, I found that the cited numbers didn’t add up: 10 mbpd currently produced by the U.S. and Canada (including about 1.5 mbpd from Canadian tar sands), plus a projected 2 mbpd of new “tight oil” production from U.S. shales, plus another 1.5 mbpd of projected new production from the tar sands gives me 13.5 mbpd, but the author slid directly from that data to a forecast by the National Petroleum Council (NPC), an oil industry group, projecting that the two countries would produce a whopping 22 mbpd by 2035!
Further sleuthing revealed the problem: the author had uncritically reported the best-case “2035 High Potential” scenario offered in the NPC’s latest report, in which production from tar sands rises to 6 mbpd; offshore Gulf of Mexico rises to 3 mbpd; “tight shale” (not to be confused with “tight oil”) rises from zero today to 1 mbpd; enhanced oil recovery technology adds another 0.6 mbpd, and Arctic production rises to over 2 mbpd.
The author did not mention that the NPC report also included an alternative, “2035 Limited” scenario, in which North American production actually falls about 1 mbpd from 2010 levels. ...
But a simple reality check should give any author pause before suggesting that some magical array of technologies will somehow double North American oil production over the next two decades, or that within the next decade unconventional supply in the U.S. and Canada, with a production cost in the range of $80 to $90 a barrel, will exceed supply in Saudi Arabia or Russia, where their production costs are half of that or less. And it doesn’t seem too much to ask that journalists bring a modicum of skepticism to their coverage of oil industry propaganda.
Let’s have another look at the chart of historical U.S. oil production, freely available on the EIA’s web site for anyone who cares to look at it:
That little bump at the end is what all the fuss over unconventional oil in the U.S. is about. I suppose if one ignores the production costs and flow rates and takes plenty of antidepressants, one could imagine that bump is a U-turn that could eventually send U.S. production back up and over its 1970 peak. But I assure you that once you spend a few thousand hours gaining literacy in the subject, such that you can read and understand these scenarios, such optimistic visions begin to sound more like whistling past the graveyard than serious forecasting.
Just remember this: In the eyes of most editors, an optimistic take on future supply is just good energy journalism. And a balanced, nuanced article with indeterminate conclusions doesn’t sell papers. But a pessimistic take (no matter how true, or buttressed by facts) is editorializing, which is bad.
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