A Farewell To The Oil Drum

I started blogging (at Peak Energy) about peak oil in late 2004, having become interested in the topic over a period of years. I'd first started thinking about oil depletion when working on systems for collecting and managing large volumes of oil exploration data in the mid 1990's. Not long afterward I worked for Woodside Energy at a time when their main development project was the Laminaria / Corallina floating oil production facility in the Timor sea. A few years later production from this project had dropped below 50,000 barrels per day from an early peak of 180,000 bpd. Around the same time I came across the writing of Colin Campbell and Ken Deffeyes and began to consider what the global oil depletion picture looked like (the war in Iraq and the steadily rising oil price also added to the interest factor).

2004 was the year where blogging exploded in popularity and a vast range of writers emerged from obscurity. A number of these began mentioning peak oil and a loosely knit community of bloggers quickly formed around the topic. At the time the traditional observers of the topic were mostly retired geologists from the oil industry and academia following in the footsteps of M King Hubbert (such as Jean Laherrerre, Walter Youngquist and Ali Samsam Bakhtiari as well as Campbell and Deffeyes), along with some writers such as Richard Heinberg and a vibrant (albeit wildly pessimistic) online community of neo-malthusians hanging out at forums such as the "Running On Empty" groups, "Energy Resources" and "Alas Babylon" - usually heavily influenced by Jay Hanson's infamous "dieoff.org" site - and various fringe websites like Mike Ruppert's "From The Wilderness" and Mark Robinowicz's "Oil Empire". There were also 2 news aggregation sites focusing on the topic that had started up - Energy Bulletin (now Resilience.org) and PeakOil.com - both of which assembled a steady stream of news on peak oil and related topics.

In 2005 The Oil Drum appeared, with Prof Goose (Kyle) and Heading Out (Dave) quickly building a large following that eclipsed that of the other sites commenting on the subject. I was pleased to be invited to join as a contributor in 2007 and spent a very enjoyable 3+ years writing for the site on a regular basis and co-editing the TOD ANZ site with Phil Hart.

After a time I found a combination of factors led me to become less active and eventually stop writing original work for TOD - in no particular order a couple of changes of job, moving house twice, getting divorced, having a couple of kids who required more of my time and a general depletion of interest caused by writing on the same broad topic for more than 5 years.

It has been disappointing to see some of the commentary about TOD's closure claiming that it indicates "fracking has killed peak oil". Personally I've been amazed TOD has lasted as long as it has, which has been a credit to the editors and staff, especially with so many contributors drifting away over the years.

If I look back to when I first started, none of the peak oil blogs around at the time are still publishing - the ones that come immediately to mind include Past Peak, Mobjectivist, Peak Energy (US), The Energy Blog, Jeff Vail's A Theory Of Power, Peak Oil Optimist, Life After The Oil Crash, Karavans and a myriad of temporary blogs created by a guy calling himself the "Flying Talking Donkey" - all of which ceased for the reasons cited by the TOD board (or due to ill health on the part of the author). This isn't a phenomenon unique to peak oil blogs - none of my favourite blogs from 2004 still exist today - the best sustainability blog of the time, WorldChanging, closed down several years ago, Bruce Sterling's "Viridian Design" did the same as did Billmon's "Whiskey Bar" and Jeff Well's "Rigorous Intuition".

So from that point of view TOD has done remarkably well to have lasted for more than 8 years.

The decision to narrow the focus of the site some years back didn't help in my view but I suspect the end result would have been the same regardless - though I tend to think allowing all of the "Limits To Growth" to be analysed may have kept the energy levels of the contributors up for longer and perhaps encouraged a wider range of contributors to participate.

It is true, however, that global oil production has not declined in the way that many (if not all) of the peak oil writers of 10 years ago predicted. While the predictions can be qualified ("conventional oil production has peaked" or "oil production per capita has peaked") the "total liquids" number clearly hasn't yet and this is the important one along with the oil price.

There are 4 obvious avenues open for dealing with peaking conventional oil production:

• 1. Find more conventional oil
• 2. Exploit unconventional oil sources
• 3. Become more efficient in our use of oil
• 4. Switch to alternatives

Over the years a lot of peak oil analysis has tended to focus on how far the first item can be pushed and what could happen once the limit is reached, with short shrift being given to the other 3 avenues (unless "powerdown" counts as "more efficient use of oil") - and even the amount of conventional oil available being somewhat underestimated (Iraq being the example I always used).

The ability of the oil industry to expand unconventional oil production (the shale oil boom being the obvious example though production of tar sands and heavy oil deposits are also increasing) has been the key factor in pushing the date of the peak out further into the future (I liked Stuart Staniford's quip that this could possibly be characterised as the "frantic scraping of the bottom of the barrel").

The dawning of the "gas age" has also kept fossil fuels in the picture for time being, with substantial unexploited conventional natural gas reserves being developed and unconventional gas production growing strongly.

While these developments have thus far dashed the hopes of the doomer community the fact remains that even if the whole world was made of oil, there would still be a finite supply of it - and thus at some point we will need to transition to alternative sources of energy, assuming the temperature of the planet hasn't risen to a point that makes it uninhabitable in the meantime.

It's this transition to alternative energy which captured most of my attention when writing - and which I'll make the topic of my second parting post for TOD - "Our Clean Energy Future" - which I hope to have ready soon.

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Peak oil researcher says shale profits proving ephemeral

FuelFix has a post on Shell's recent profit decline and asset writedowns, driven by poor performance from their North American shale oil assets - Peak oil researcher says shale profits proving ephemeral. The post points to an article by Art Berman, continuing his long line of analysis questioning the longevity and financial basis of the shale oil boom - Shale boom profits bypass big oil. Even the Wall Street Journal was prompted to ask "So why has Shell just wiped $2 billion off the value of some shale assets supposedly rich in the hydrocarbon liquids that everyone craves?". They couldn't come up with an answer.

A prominent proponent of peak oil theory — the idea that global petroleum production will peak and then begin dropping off permanently — says that recent Big Oil profit drops show that profits from shale are more elusive than commonly expected.

Many of the oil industry’s big players wrote down the value of their shale assets for second quarter — a move that indicates the continuing challenge of making many of the shale plays financially viable, according to Art Berman, a petroleum geologist and director of the Association for the Study of Peak Oil. Berman, a Houston-area geologist, has been questioning the economics of shale gas for years, particularly in terms of the potential reserves.

Last week, Shell reported a 20 percent profit drop for second quarter, which it partially attributed to write-offs of some of its shale positions rich in natural gas liquids and oil, according to Simon Henry, Shell’s chief financial officer, at the second quarter earnings call.

“Recent revelations and write-downs of shale assets in North America by Shell, ExxonMobil and Chevron support our research that big companies cannot make money on low rate-low volume shale wells,” wrote Art Berman in an article on Petroleum Truth Report. Berman said that when ExxonMobil purchased XTO Energy in 2010, it began the acceptance of shale reserves as a potential income driver, and optimistic estimates were made about the potential production of many of these wells. But falling oil and gas production helped push earnings down 57 percent for the second quarter.

Berman predicts that the companies will begin to move out of the shale plays because of the difficulty in making them profitable. “I believe that we are seeing the slow liquidation of these organizations but they cannot let the investment public know that this is what is occurring,” Berman wrote. “Hence the cornucopian rhetoric about the shale revolution and North American becoming the next Saudi Arabia –pure poppycock, of course.”

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Commentary: Is Peak Oil Dead?

Resilience.org has a post by Steve Andrews of ASPO USA - Commentary: Is Peak Oil Dead?.

Q: So, in your opinion, M. King Hubbert more or less had it right, at least in the big picture, not down at the granular level?

A: Some have mentioned that, “well Hubbert….back in the 1950s and 1960s he didn’t have access to the concept of unconventional oil or shale oil plays. He did good work, but it was only applicable to the conventional oil he knew about.” I would propose that it doesn’t really matter and that in hindsight, after a couple of more years, it will be more evident that effectively he did take unconventional oil into account because the unconventional oils are not easy oils.

Conventional oil--which was found in huge quantities, in giant fields in the 40's and 50's - well those giant fields had huge reserves and high porosities and permeabilities - meaning they would flow at very high rates for decades. This is in contrast to a relative few shale oil plays which have very low porosity and perm and which must be hydraulically fractured to flow. Conventional oil is just a different animal than unconventional oil; some unconventional oil wells have high initial rates of production, but all of these wells have high decline rates. Yet it’s essential that we produce this oil. Without unconventional oil, what we wind up with is essentially Hubbert’s cliff instead of a Hubbert’s rounded peak.

I think Hubbert anticipated a lot of incremental efforts by the industry to make the right-hand or decline side of his curve a more gradual curve rather than a sharp drop. He was thinking about secondary recovery, though perhaps it was too early for him to think about tertiary recovery, but those are the types of incremental efforts that he would have anticipated. Likewise, I would say that unconventional oil is another incremental type of recovery, at least compared to conventional oil.

Q: So the peak oil problem isn’t dead yet, as has been shouted in a few headlines?

A: Our bottom-line problem here is that if we ignore peak oil as a result of these plays, we ignore it at our peril. This is no time for complacency.

Peak oil is still a looming transportation problem—a huge one. I would suggest that we’ve made some progress…some things have been done. We’ve made several years worth of efforts collectively, whether it is more movement towards electric cars, mass transit, scaling down our vehicle purchases, or driving less due to price signals. But we’ve only just begun and we have a long ways to go in order to deal with the still-looming Hubbert’s peak, in order to not deal with the severe consequences that Bob Hirsch wrote about in his 2005 research for DOE.

The big problem is that it’s hard to be proactive when there’s no current crisis. We’re a country of optimists. That’s helped us do what we do, including the development of new technologies to create, innovate and develop better than anyone else in the world. I think it’s imperative to maintain a positive outlook. At the same time, peak oil is something unique. Peak Oil is not reflective of optimism or pessimism, or positive or negative; it’s just the result of the finite volume of oil the Earth was endowed with, and the rate at which that oil can be produced. Some way or another we’ve got to get to where we can be proactive, and we’ve got to work together.

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Drilling Fast To Stay On A Plateau In the Bakken

Rune Likvern has a very long look at shale oil production statistics for the Bakken in North Dakota at The Oil Drum - Will the Bakken “Red Queen” Have to Run Faster?.

This post is an update and continued expansion to my previous posts about tight/shale oil in Bakken/Three Forks in North Dakota (ND):

* Is Shale Oil Production from Bakken Headed for a Run with “The Red Queen”? * Is the Typical NDIC Bakken Tight Oil Well a Sales Pitch?

This post documents:

* At present oil prices Bakken tight oil has the overall prospects of being profitable. * Between 70-75% of the studied wells (well cost @9Million and oil price @$90/bbl) were found to have a prognosis for being at or above breakeven (being profitable). * If (or rather when) average well productivity declines further, this will add a new meaning to the term tight oil. * Developments in average well productivity.

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Peak oil ? What peak oil ?

Ugo at Cassandra's Legacy has an interesting graph (part of an article by John Laherrere at The Oil Drum) showing global oil production per capita - Peak oil? What peak oil?. Its certainly one peak of oil production that couldn't be argued with...

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Reports of the Death of Peak Oil Have Been Greatly Exaggerated

Kevin Drum has a blog post at Mother Jones on the death of peak oil - Reports of the Death of Peak Oil Have Been Greatly Exaggerated.

A week or so ago, there was a mini-flurry of blog posts announcing that peak oil was dead. Thanks to shale oil, tar sands, heavy oil, deepwater oil, and all the other kinds of oil that the peakists didn't know about, the world was now practically drowning in the stuff.

The whole thing was very strange for several reasons. First, the peak oil community not only knows about all those kinds of nonconventional oil, its forecasts have always included them in minute detail. The question isn't whether they exist, it's when production declines in existing mature fields will outpace the modest amounts of new oil we're getting from nonconventional sources and new drilling technologies. Second, the world isn't drowning in oil. There's no dispute that shale oil has ramped up over the past few years, but it's added only a couple of million barrels a day to worldwide production and it's likely to start declining pretty quickly (within five or ten years or so). It's really not that big a deal on a global scale. Third, peak oil has never been only about the exact date that production of oil hits its highest point. It's been about how long production will plateau; how steep the subsequent decline will be; how expensive it will be to extract nonconventional oil; and how much oil prices will spike up and down as demand bumps up permanently against supply limits.

Hell, a few years ago even the International Energy Agency‌—which historically had refused to acknowledge production limits even theoretically—finally admitted that peak oil was a reality. When you lose the IEA to the dark side, you really ought to just admit defeat.

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Peak oil lives

The Guardian has an article on the misplaced belief that peak oil is dead - Peak oil lives, but will kill the economy.

Last Monday's BBC News at Ten broadcast a report by science editor David Shukman arguing that concerns "about oil supplies running dry are receding." Shukman interviewed a range of industry experts talking up the idea that a "peak" in oil production has been "moved to the backburner" - but he obfuscated compelling evidence in his own report contradicting this view.

"There's still plenty of oil - we just haven't got all of it out of the ground yet. There's not a real danger of there being no fossil fuel," one oil company executive told the BBC. "There's enough oil in this country for another 100 years with our present technology and there's more around the world to be found yet."

Following a chorus of industry hype on the wonders of shale gas and fracking, Shukman finally referred in passing to a new scientific paper published by Eos, Transactions - the newsletter of the American Geophysical Union - saying that the paper "supports the assertion that a peak in oil production is 'a myth' but argues that the rising cost of extraction could itself provide a limit, and may act as a brake on economic growth." He then closed his report with the following quote from a leading industry figure: "The era of cheap oil is over, but we're a long way from peak oil - costs will go up but the technology will respond."

The thrust of the message was that peak oil is a myth because we're not running out of oil. Even if costs go up, this will automatically spur the technological innovation that will make continued extraction of expensive oil viable.

But Shukman's characterisation of the new Eos paper is a combination of falsehood and half-truth. Far from describing peak oil as a myth, the paper's conclusions are far more nuanced, and point to an overwhelming body of evidence contradicting the industry hype that the rest of his report parrots uncritically.

"Peak oil is not about oil reserves or resources, neither of which translates directly into production rate", the Eos paper points out. "Peak oil is not about running out of oil but about its peak in production...

"So is the idea of peak oil a myth? If readers are expecting an abrupt decrease in oil production, then it is. But if they understand that the manifestation of peak oil is a struggle between supply and demand that is resolved through global oil markets, they will understand that the data shows that peak oil can originate from economic as well as geological factors."

Indeed, peak oil does not suggest we are 'running out of oil', but that a peak in conventional oil production will create an increasing reliance on more expensive, unconventional forms of oil and gas which have a far lower energy output. According to the Eos paper, we seem to be arriving at that point:

"Global production of crude oil and condensates... has essentially remained on a plateau of about 75 million barrels per day (mb/d) since 2005 in spite of a large increase in the price of oil. Even more important, the global net oil exports from oil-exporting countries (oil production minus internal consumption) have peaked and are in decline."

The Eos paper goes on to point out that while "total oil production has plateaued, production of oil from older existing fields has been in decline, dropping roughly 5% annually, corresponding to a loss of 3-4 mb/d." Although production from unconventional oil and gas has balanced this decline, they are "difficult and expensive" with "very low energy return on investment (EROI)." In simpler terms, "it takes energy to get energy, and more is required to produce energy from unconventional sources."

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Crucial Differences Between "Peak Oil" & "Peak Oil Debate"

D Ray Long of ASPO USA has a post on one of the reactions to the impending demise of The Oil Drum - A Buzzfeed Attack On Peak Oil Deserves A Buzzfeed Response. He also has some follow up pieces - Crucial Differences Between "Peak Oil" & "Peak Oil Debate" - Part 1 and Crucial Differences Between "Peak Oil" & "Peak Oil Debate" - Part 2.

"Mentions of “peak oil” in news publications peaked between July 2007 and July 2008, according to Nexis" and "Web search interest in “peak oil” peaked in August 2005 and spiked again in May 2008."

I spoke on this a little before, but I continue to be amazed by how many very smart people just don't understand how silly they look when they use THIS as evidence of Peak Oil's demise.

If "internet popularity" was the true measure of importance, we'd have given the keys of the world to Justin Bieber a long time ago. And if you looked at how many people were talking and writing about terrorism in August of 2001, those guys would probably conclude that topic peaked forever in the early '90s.

I'm shocked I have to keep repeating this, but "We judge Peak Oil by oil production rates, if you're looking at anything else, you're doing it wrong."

"Oil prices also peaked around then, hitting $145 per barrel in July 2008."

It's like Zeitlin forgets to include the second half of that sentence. His own chart shows that oil hit $145, retreated, and then resumed its march back up. RIGHT NOW as people are falling over themselves proclaiming the death of Peak Oil, oil is back in the triple digits and at 15-month highs. Over the past decade-plus, the price of oil has more than tripled.

Peak Oil can never really die, because oil is a finite resource and any finite resource peaks in production. But you can kill it in the court of public opinion, and for that to happen you'd need two things:

1) You need daily production rates to continue to skyrocket, leaving far behind any peaks of the past. But you also need something more difficult.

2) You need what AEI's James Pethokoukis called the "wonder-working power of technological innovation" to actually reduce oil prices, much like Moore's Law for computers has made memory cheaper year after year. If you're in a production boom, but you then have to turn around and tell the people of the economy that they'll have to keep paying a larger share of their income for gasoline... is that really a net win?

In oil production, you access the easy and cheap oil first, then move on to the more difficult and more expensive oil later when prices allow. That's why conventional crude oil production has already peaked, and the only thing keeping total oil production from declining are gains from much more expensive unconventional sources.

Anyone seriously telling people that Peak Oil is dead, really needs to have a strong answer when regular people ask why prices are still so high.

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Peak oil, not climate change worries most Britons

Reuters has an interesting column on some polling done in Britain - Peak oil, not climate change worries most Britons.

Most people in Britain want to reduce reliance on fossil fuels, but due more to fears of shortages and rising prices than to fears about climate change, according to a poll developed by researchers at Cardiff University and funded by the UK Energy Research Centre.

Nearly 2,500 people were surveyed across England, Scotland and Wales in August 2012. The results, published on Tuesday in a report on "Transforming the UK energy system: public values, attitudes and acceptability," provide a trove of information about public opinion on climate and energy policy.

By a large majority, respondents were either very concerned (24 percent) or fairly concerned (50 percent) about climate change and thought it was partly (48 percent) or mainly (28 percent) caused by human activity. Only a minority thought fears about climate change have been exaggerated (30 percent), though more expressed uncertainty about what the effects will really be (59 percent).

Nearly everyone agreed with the statement that Britain needs "to radically change how we produce and use energy by 2050". ...

By overwhelming majorities, those polled were fairly or very concerned gas and electricity would become unaffordable (83 percent); Britain will become too dependent on energy from other countries (83 percent); the country will have no alternatives if fossil fuels are no longer available (83 percent); and petrol will become unaffordable (78 percent).

Nearly four out of five respondents agreed the country should reduce its reliance on fossil fuels (79 percent). When asked for their reasons, respondents cited concerns about fossil fuels running out, being unsustainable or non-renewable (48 percent), costly (7 percent) and implied dependence on other countries (5 percent), compared with worries they are harmful to the environment and polluting (19 percent) or contribute to climate change (17 percent).

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Has Peak Oil Been Vindicated Or Debunked ?

The impending demise of The Oil Drum seems to have prompted something of a resurgence in interest in peak oil.

Matthew Yglesias has a post at Slate on the state of the peak oil debate - Has Peak Oil Been Vindicated Or Debunked ?. I love the way the oil price graph demonstrates the impact the supposed flood of shale oil (combined with the great recession) has (or more accurately, hasn't) had on oil prices - as we switch from depleting conventional oil to unconventional oil, the floor price for oil gets ever higher and the environmental damage per barrel gets bigger - just as peak oil theory predicts...

I will admit that I've always found the "Peak Oil" debate to be a little bit confusing, especially because both the words "peak" and "oil" turn out to have some ambiguity to them. But recently a couple of my favorite bloggers were debating the implications of the "unconventional oil" boom for the debate, with Karl Smith proclaiming peak oil dead while Noah Smith says it lives on. My approach would be to try to skip past some of these definitional issues and look at prices.

Above you see the nominal prices for Brent Crude Oil and West Texas Intermediate. As you can see, historically the prices are identical because oil is a globally traded commodity. You can also see that in the late 1980s and throughout the 1990s the price was low—around 20 dollars a barrel. These were the happy days in which the oil crises of the 1970s had been put behind us, and everyone got to hail the economic genius of Ronald Reagan and Bill Clinton. You can also see the supply disruption induced by Iraq's invasion of Kuwait and the subsequent geopolitical crisis that left George H.W. Bush without the reputation for economic mastery that Reagan and Clinton enjoy. Then you see a rise, then a fall, then a steady rise. Eventually the rise gets really crazy and people are in freak-out mode. Then comes a global recession and a huge collapse in prices. At this point we look around the wreckage and wonder wtf just happened. Was there an amazing oil bubble comparable to Irish real estate? Or has the recession just pushed prices down artificially?

Now with some subsequent years of data we can see that despite the slow growth in developed countries prices have very certainly not returned to the halcyon days of the Reagan-Clinton years. We can see that the Iraq/Kuwait price spike actually looks like a bit of a joke. We can see the impact of the unconventional oil, which has created this anomalous gap between the WTI price and the Brent price. It's a big gap. This is nothing to sneer at. Not only is it causing an economic boom in North Dakota and select portions of Texas, but it plausibly explains some of why America's overall economic performance has been so much better than Europe's. But even so, America's oil boom hasn't pushed U.S. oil prices back down to mid-aughts levels and it certainly hasn't pushed U.S. oil prices back down to 1990s levels. The good old days of genuinely abundant liquid fuel really do appear to be behind us.

It's probably worth noting the WTI - Brent spread mentioned above has disappeared now - you have to keep on drilling pretty fast if you want to maintain production from fast depleting shale oil wells - and the previously exponential rate of growth in drilling has now stopped as Stuart Staniford shows in the chart below - US Oil Rig Count and Oil Production.

The Slate article above references this blog post from Noahpinion - Peak Oil is dead! Long live Peak Oil!.

One of my favorite websites, The Oil Drum, is shutting down, and I am mad! Everyone is attributing the shutdown to the death of the "Peak Oil" meme, which in turn is attributed to fracking. The first is probably true; Peak Oil mania is over. But the second is false. Fracking has not killed Peak Oil. It just hasn't fit the narratives that many of the Peak Oilers spun.

The thesis of Peak Oil is simple: Global oil production will soon peak and begin to decline. But there were two possible stories that the Peak Oilers told about how this would happen:

"Good Peak Oil": In this case, we find something that's better than oil, and switch to that, just like we once transitioned away from whale oil. In this case, oil prices and production would both fall.

"Bad Peak Oil": In this case, we don't find something better than oil, and as oil becomes more scarce, the price would go up, while oil production and overall economic activity both contracted.

What we got was neither of these. Or more accurately, we got a little bit of both, coupled with something else that doesn't fit with either story. What happened was this:

1. Global demand for oil increased, due to growth in emerging markets, pushing up oil prices in the 2000s - from around $20 to over $100, a five-fold increase.

2. At the new higher price, it became economical to tap expensive oil sources like tight oil (fracking), deepwater oil, and oil sands.

3. Even at the new higher prices, it has not been economical to increase "conventional" oil production. Instead, all net production increases have come from "unconventional" sources. And most of that "unconventional" production is not actually "oil" at all, but "liquids", which includes things like natural gas liquids.

4. There was a several-year lag in the mid-2000s where global oil production plateaued even as prices increased. This culminated in a dramatic spike in oil prices in 2007-8 which then subsided due to the global recession and the dramatic increase in unconventional oil production.

5. Oil prices are still over $100, even as global growth has been slow. Meanwhile, oil usage in rich countries has declined significantly.

This story does not easily fit with either of the Peak Oil scenarios. But it has important elements of both.

First of all, the peak in conventional oil, coupled with a dramatic surge in unconventional oil, looks a lot like the "Good Peak Oil" scenario, in which technology produces a new alternative energy source, and we switch to the new thing.

But the seemingly permanent increase in oil prices, and the fall in oil demand in rich countries, fit the "Bad Peak Oil" story. It indicates that the world is hitting oil supply constraints.

(And of course what the Peak Oilers missed was unconventional oil itself. Some of them missed the technology entirely, while others merely failed to anticipate that the industry's terminology would switch from "oil" to the more weaselly "liquids".)

So what happened was NOT that we switched to something better than oil. We switched to something worse than conventional oil: unconventional oil, which is more expensive to extract and/or to refine into usable products. This has left us permanently poorer than we would be if conventional oil hadn't hit global supply constraints. Filling up your gas tank is twice as expensive now, in real terms, as it was two decades ago. And that looks unlikely to change. In the wider economy, increased transportation fuel costs may be a main driver of the Great Stagnation, which manifests most clearly in the stagnation of transportation technology since the 1970s.

Basically, what happened is this: Scarcity attacked humanity, and Human Ingenuity battled back. Through heroic efforts, doomsday was averted. But Ingenuity did not win a smashing victory, as it did when we switched from wood to coal, or from whale oil to oil. Instead, humanity was forced into a fighting retreat, with Ingenuity executing a brilliant rear-guard action and forcing Scarcity to call off its pursuit...for now. But humanity has lost ground.

And Scarcity may not wait very long before launching another attack. Future increases in shale oil production (including tight oil and oil shale) is likely to be a lot more expensive than the low-hanging fruit we have picked thus far. Coupled with continued rises in developing-country oil demand and continued decline in conventional oil fields, this could cause another rise in oil prices. That will bring back the "Peak Oil" meme, which only seems to interest most people as an investment story. But sadly, The Oil Drum will not be around to chronicle the return of Peak Oil.

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More Signs of ‘Peak Us’ in New Study of ‘Peak Oil Demand’

Andrew Revkin at the NYT has an article looking at a study on peak oil occurring due to demand factors rather than supply factors - More Signs of ‘Peak Us’ in New Study of ‘Peak Oil Demand’.

Back in 2010, I asked this question: “Which Comes First – Peak Everything or Peak Us?” My focus was whether humans could use the gift of foresight to curb resource appetites in ways that would avoid having the peak imposed on us by shortages or human-induced environmental shifts like climate disruption.

There are growing signs the answer is yes. First came work pointing to “peak travel.” Then I wrote about a study foreseeing “peak farmland” — an end to the need to keep pressing into untrammeled ecosystems to expand agriculture.

Now comes this fascinating paper in Environmental Science & Technology: “Peak Oil Demand: The Role of Fuel Efficiency and Alternative Fuels in a Global Oil Production Decline.”

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A place where the peak oil crowd gathered is no more

Platts has a nice article noting the end of The Oil Drum - A place where the peak oil crowd gathered is no more.

There used to be a website driven by a completely non-transparent metric that would rank the “importance” of various Twitter feeds similar in their areas of interest. It’s defunct now, and the name of it is forgotten.

It would look not only at the number of followers, but other things like how many followers your Twitter feed’s followers had, how often your Tweets were re-Tweeted, and so on.

The @PlattsOil feed consistently ranked second in the oil category, for whatever that was worth. It was always a harmless time-waster to check and see how we were doing. And how we were doing was that from our #2 perch we were always looking up at the Twitter feed of The Oil Drum, which was the primary website for a dialogue on Peak Oil.

And now The Oil Drum is closing up shop.

Those people in the industry who have long believed that the devotees of the peak oil movement were completely wrong have been rejoicing the last few years as North America’s output keeps rising. They see the Peak Oil movement as another bunch of failed neo-Malthusians. The demise of The Oil Drum is sure to add to that feeling of glee.

In the announcement that the site was shutting to new content, to be kept online only as an archive of old posts, The Oil Drum’s owners said nothing about any shift in beliefs regarding the world’s ability to produce more oil. The possibility of shutting the site was “a discussion we have had several times in the last year, due to scarcity of new content caused by a dwindling number of contributors. Despite our best efforts to fill this gap we have not been able to significantly improve the flow of high quality articles.” The monetary requirements of maintaining the site also were cited.

The mission statement of The Oil Drum said it “seeks to facilitate civil, evidence-based discussions about energy and its impacts on the future of humanity, as well as serve as a leading online knowledge-base for energy-related topics.” Despite that lofty inclusive language, it still was pretty much an intellectual hangout for the Peak Oil crowd.

Andrew Leonard at Salon also notes TOD's passing - Peak oil’s death has been greatly exaggerated.

Sad news from the world of Peak Oil-awareness. On July 3, the Oil Drum, a fabulous one-stop-shop for news, analysis and discussion of energy issues, announced it was shutting down after an informative eight-year run. As of July 31, there will be no more new content published at the Oil Drum.

Back when I was covering environmental issues more regularly, the Oil Drum was one of the first places I’d go to get context on breaking news related to energy issues. The Oil Drum was also one of the best places to get educated about the threat of peak oil: the argument that the world was rapidly reaching the point — or had already reached it — of global maximum production of oil.

We don’t hear so much about peak oil these days. The most obvious reason: the deployment of technological advances that have increased production from old wells or made possible the extraction of fossil fuels from previously uneconomic sources, i.e., fracking. One commenter on the Oil Drum’s announcement went so far as to claim that “fracking had killed The Oil Drum.” Another posted a Google Trends documenting the sharp decline in searches for the phrase “peak oil” as contrasted to the sharp rise in searches for the word “fracking.”

I asked the Oil Drum whether the fracking-killed-the-Oil-Drum theory had any merit. Here is what “Joules Burn” told me (emphasis mine):

I think it is more the case that the majority of contributors (and editors and tech staff) are just burned out (sorry for that pun…). It takes a lot of effort to research and write quality articles, have reviewers whack at them for awhile, and then deal with the comments that come in (some useful, some not). I can think of many examples where folks just ran out of things they were passionate to write about. Even a regular (until recently) guest contributor stopped publishing on his own blog for this reason. Some have been pulled in different directions (including myself) with jobs and family and such. In short, there is probably no single reason. But as this is a collaborative effort of many individuals (and indeed with some differences of opinion on some issues), we just decided we no longer had critical mass and wanted to end at this still somewhat high point rather than let it morph into something unrecognizable.

I think TOD slowly died for a variety of reasons and editor and contributor burnout (or simply moving on to other things) was a major one.

Writing about the same topic (or set of topics) for free year after year (and having to deal with the local community while doing so, many of whom could be incredibly abrasive) can't be sustained forever - especially as people find new interests or have career and family demands take more of their time.

TOD also suffered from editorial divisions on topics such as global warming which resulted in some contributors moving on (in my view this was a prime reason for Stuart Staniford moving on, which was a major blow to the quality of the site) or taking a lower profile. This was always an annoyance to me - how we could (as a group) discuss peak oil as an example of "The Limits to Growth" while studiously ignoring (after a year of debate) or occasionally deriding another limit never made any sense to me.

The often heated division between traditional peak oil doomers and more rational peak oil observers was another large fault line that could never be adequately addressed. Abuse from the doomer community resulted in other contributors (Robert Rapier being the best example of this in my view) either moving on or taking a much lower profile. In retrospect, this was one of a number of reasons I drifted away - endlessly debating people who will illogically declare that civilisation will end soon as a result of peak oil or that nuclear power will solve all our problems or that global warming is a left wing conspiracy becomes incredibly tiresome after a while and you find yourself having to choose between letting people use your articles as a soapbox for their nutty views or wasting vast amounts of time debating the same topics endlessly with them.

I think the straw that broke the camel's back though was the ill-fated "Moving Forward - Towards A Kinder Gentler (Smaller) Oil Drum" declaration, which sapped energy from the site and demotivated contributors such as myself who wanted to look at a wider range of topics than simple oil depletion. Admittedly this was always going to be something of a turning point - Gail's editorial decisions were often baffling to me (as were her endless series of postings warning of financial doom), the Campfire posts, though wildly popular, simply fed the prevailing doomer mentality, and leading figures such as Prof Goose and Nate Hagens had drifted away from making regular contributions. The choice to downsize and become more tightly focused on a limited group of topics was the catalyst for things ending where they did in my view.

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Fracking: A new dawn for misplaced optimism

The Independent has a jaundiced look at the shale gas boom in the US - Fracking: A new dawn for misplaced optimism.

You would think we were swimming in oil. The International Energy Agency's (IEA) latest World Energy Outlook forecasts that the United States will outstrip Saudi Arabia as the world's largest producer by 2017, becoming "all but self-sufficient in net terms" in energy production. While the "peak oil" pessimists are clearly wrong, so is a simplistic picture of fossil fuel abundance.

When the IEA predicts an increase in "oil production" from 84 million barrels a day in 2011 to 97 in 2035, it is talking about "natural gas liquids and unconventional sources", which includes a big reliance on "fracking" for shale gas. Conventional oil output will stay largely flat, or fall.

The IEA has been exposed before as having, under US pressure, artificially inflated official reserve figures. And now US energy consultants Ruud Weijermars and Crispian McCredie say there is strong "basis for reasonable doubts about the reliability and durability of US shale gas reserves". The New York Times found that state geologists, industry lawyers and market analysts privately questioned "whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves." And former UK chief government scientist Sir David King has concluded that the industry had overstated world oil reserves by about a third. In Nature, he dismissed notions that a shale gas boom would avert an energy crisis, noting that production at wells drops by as much as 90 per cent within the first year.

The rapid decline rates make shale gas distinctly unprofitable. Arthur Berman, a former Amoco petroleum geologist, cites the Eagle Ford shale, Texas, where the decline rate is so high that simply to keep production flat, they will have to drill "almost 1,000 wells" a year, requiring "about $10bn or $12bn a year just to replace supply". In all, "it starts to approach the amount of money needed to bail out the banking industry. Where is that money to come from?"

In September, the leader of the US shale gas revolution, Chesapeake Energy, sold $6.9bn of gas fields and pipelines to stave off collapse. Four months ago Exxon's CEO, Rex Tillerson, told a private meeting: "We're making no money. It's all in the red." The worst-case scenario is that several large oil companies at once face financial distress. Then, says Berman, "you may have a couple of big bankruptcies or takeovers and everybody pulls back, all the money evaporates, all the capital goes away."

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How High Oil Prices Will Permanently Cap Economic Growth

Bloomberg has an article by Jeff Rubin arguing that high oil prices cap economic growth ("permanently" - though I'd argue its really until we reconfigure our economies to be based on renewable energy) - How High Oil Prices Will Permanently Cap Economic Growth.

For most of the last century, cheap oil powered global economic growth. But in the last decade, the price of oil has quadrupled, and that shift will permanently shackle the growth potential of the world’s economies.

The countries guzzling the most oil are taking the biggest hits to potential economic growth. That’s sobering news for the U.S., which consumes almost a fifth of the oil used in the world every day. Not long ago, when oil was $20 a barrel, the U.S. was the locomotive of global economic growth; the federal government was running budget surpluses; the jobless rate at the beginning of the last decade was at a 40-year low. Now, growth is stalled, the deficit is more than $1 trillion and almost 13 million Americans are unemployed.

And the U.S. isn’t the only country getting squeezed. From Europe to Japan, governments are struggling to restore growth. But the economic remedies being used are doing more harm than good, based as they are on a fundamental belief that economic growth can return to its former strength. Central bankers and policy makers have failed to fully recognize the suffocating impact of $100-a-barrel oil.

Running huge budget deficits and keeping borrowing costs at record lows are only compounding current problems. These policies cannot be long-term substitutes for cheap oil because an economy can’t grow if it can no longer afford to burn the fuel on which it runs. The end of growth means governments will need to radically change how economies are managed. Fiscal and monetary policies need to be recalibrated to account for slower potential growth rates.

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Peak cheap oil is an incontrovertible fact

I'm always a little dubious about Ambrose Evans-Pritchard but this column (wondering about the hype over Maugeri's mistaken analysis of peak oil) is worth a read - Peak cheap oil is an incontrovertible fact.

Brent crude jumped to $115 a barrel last week. Petrol costs in Germany and across much of Europe are now at record levels in local currencies. Diesel is above the political pain threshold of $4 a gallon in the US, hence reports circulating last week that the International Energy Agency (IEA) is preparing to release strategic reserves.

Barclays Capital expects a “monster” effect this quarter as the crude market tightens by 2.4m barrels a day (bpd), with little extra supply in sight. Goldman Sachs said the industry is chronically incapable of meeting global needs. “It is only a matter of time before inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand,” said its oil guru David Greely.

This is a remarkable state of affairs given the world economy is close to a double-dip slump right now, the latest relapse in our contained global depression. ...

So we face a world where Brent crude trades at over $100 even in recession. Fears of an Israeli strike on Iran may have spiked the price a bit, though Intrade’s contract for an attack is well below levels earlier this year. Iranian sanctions may have cut supply by more than the extra 900,000 bpd pumped by Saudi Arabia. Japan’s increased reliance on oil since switching off most of its nuclear reactors has played its part.

Yet the deeper force at work is the relentless fall in output from the North Sea and the Gulf of Mexico, endless disappointment in Russia because of Kremlin pricing policies, and the escalating cost of extraction from deep sea fields.

Nothing has really changed since the IEA warned four years ago that the world must invest $20 trillion in energy projects over the next 25 years to feed the industrial revolutions of Asia and head off an almighty crunch. The urgency has merely been disguised by the Long Slump.

We learned in the 2006-2008 blow-off that China is now the key driver of global oil prices, with consumption rising each year by 0.5m bpd -- now a total 9.2m bpd in a world market of 90m bpd. Demand is broadly flat in Europe and America.

So what will happen when China latest spending blitz gains traction? The regions have unveiled a colossal new spree on airports, roads, aeronautics, and industrial parks: a purported $240bn each for Tianjin and Chongqing, $160bn for Guangdong, $130bn for Changsha, and so forth. Sleepy Guizhou has trumped them all with $470bn. Your mind goes numb.

What will happen too when car sales in China surpass 20m next year, as expected by the China Association of Automobile Manufacturers? ...

World opinion has swung a little too cavalierly from the Peak Oil panic four years ago to a new consensus that America’s shale revolution -- and what it promises for China, Argentina, and Europe -- has largely solved the problem.

Much has been made of “Oil: The Next Revolution” by Harvard’s Leonardo Maugeri, who forecasts an era of bountiful supply and cheap oil as global output capacity rises by almost 18m bpd to 110m bpd by 2020.

Sadad al-Huseini, former vice-president of Saudi Aramco, has a written a testy rebuttal, arguing that Dr Maugeri assumes a global decline rate of 2pc a year from oil fields compared to the IEA’s estimate of 6.7pc. There alone lies the gap between crunch and glut. ...

The shale revolution has profound implications for America’s role in the world and the global balance of power, but let us not get carried away. Oil experts noticed how many crews in the Bakken field were told to stand down when crude prices dipped earlier this summer. “Supposedly cheap shale turned out to be rather expensive shale in that, as soon as Brent fell to $90 per barrel, a large proportion of US shale oil in key regions seemed to lose all its rent,” said Paul Horsnell from Barclays Capital.

Prichard's column points to this article by Sadad al-Huseini - Don't Count on Revolution in Oil Supply.

Leonardo Maugeri's recent paper Oil: The Next Revolution on the presumed future abundance of oil supplies rejects the pessimistic outlook of limited increases in oil capacity over the next decade. It suggests global oil capacity will exceed 110 million barrels per day by the end of the decade, putting an immediate end to concerns regarding constrained long-term oil supplies. This conclusion is based on an assessment of new projects with a reported capacity of 49 million b/d before a downward adjustment to 29 million b/d to allow for completion risks and reserves depletion. Maugeri holds two PhDs, one in Political Science and one in Economics, and has extensive executive experience with ENI in strategies and developments and in petrochemicals.

In putting forth this optimistic thesis, Maugeri apparently sets aside a variety of technical realities, including the difference between natural gas liquids (NGLs) and conventional oil, reserves depletion versus capacity declines, and proven reserves as opposed to speculative resources.

The report mixes NGLs, which feed petrochemicals and domestic or industrial fuel applications, with conventional oil, which is the main source for transportation fuels. When fractionated, NGLs yield propane, butane and light naphtha. These products cannot replace oil distillates such as gasoline, diesel or jet fuel.

For example, NGLs grew from 7 million b/d in 2003 to an estimated 12 million b/d in 2011 but provided no relief to the demand for transportation fuels, which was surging across those years. The growth in NGLs is now forecast by the IEA to reach an ambitious 20 million b/d by 2030. Impressive as this may be, NGLs will remain at best marginally relevant to transportation applications until widespread changes occur in the technology and infrastructure of the auto and trucking industries. Given cost and complexities, there is no evidence that this is likely to happen within this decade.

In regard to capacity declines, the report appears to confuse oil reserves depletion with capacity declines. In the world of petroleum engineering, depletion quantifies residual reserves in the ground, while declines define a reservoir's ability to sustain a given level of production over time. Incremental reserves in modern discoveries are added early in a discovery's life while production declines are a subsequent development related to reservoir factors including changing fluid compositions and diminishing reservoir energy. Maugeri's suggestion that incremental reserves may offset capacity declines mixes up speculative exploration variables with reservoir engineering realities.

The report takes exception to the IEA's 2008 estimate of an average 6.7% global oil capacity decline and offers an equivalent estimate of less than 2% per year. This low estimate is apparently based on the observation of historical production rates from major oil producing countries. It is not clear how the author extracted the convoluted effects of offsetting market volatility, spare capacity utilization, natural production declines, and ongoing new capacity investments from such historical trends.

The IEA’s 2008 study, on the other hand, applies well-established petroleum engineering principles to 800 post-peak fields that make up the majority of global oil supplies. The natural decline rates of these fields were reported to average 3.4% for 54 supergiant fields, 6.5% for scores of giant fields and the 10.4% decline rate for hundreds of large fields. At the IEA's 6.7% level of capacity declines, the current 74 million b/d of conventional oil supplies (which exclude NGLs, biofuels, nonconventionals and various other liquids) would require 5 million b/d of supplemental new capacity annually just to maintain a flat level of supply. Based on these assessments, Maugeri’s 29 million b/d of "risked" new capacity would only replace declines through 2017. Even the full 49 million b/d of new projects would only extend current liquids production on a flat trajectory to 2021.

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Mitt Romney: peak oiler?

Ugo Bardi has an interesting post on some of Mitt Romney's past statements on peak oil - Mitt Romney: peak oiler?. Of course, Mitt has flip-flopped on pretty much every issue going so its unlikely he will stay the course on this one...

I was surprised to read what Cory Suter in "Polycimic" reports about Mitt Romney's 2010 book "No Apology; The Case for American Greatness. " In the book Romney speaks about Peak Oil, cites Matt Simmons's book "Twilight in the desert" and says that, "whether the peak is already past or will be reached within a few years, world oil supply will decline at some point." And then he doesn't say that the solution is just drilling more. He says that using less oil and in finding alternatives for it are just as important as solutions.

Did any other presidential candidate with serious chances to win ever say something like that? I haven't checked the whole history of the US elections, but I can tell you that once I asked personally to Al Gore (after his unsuccessful run for president) what he knew about Peak Oil and he seemed to me less knowledgeable than Mitt Romney appears to be in his book.

On the other hand, regarding Mitt Romney there is always the joke that says (h/t "Jules Burn"):

A conservative, a moderate, and a liberal walk into a bar. The bartender says "Hi Mitt!"

At least, you can say that the guy is flexible. Anyway, here are the paragraphs about peak oil reported by Cory Suter from Romney's book (note that I can't check the original book, but this information seems to be reliable).

“Our own policies interfere with free-market mechanisms. We subsidize domestic oil and gas production with generous tax breaks, penalize sugar-based ethanol from Brazil, and block investment in nuclear energy. Our navy assumes the prime responsibility for securing the oil routes from the Middle East, effectively subsidizing its cost. Thus, we don’t pay the full cost of Middle East oil, either at the oil-company level or at the pump.” (232)

“Market economists also identify a number of externalities – real costs that aren’t captured in the price of fuel – the most frequently cited of which are the health-care costs of pollution and the climate costs of greenhouse gases. There is a further externality: potentially leaving the next generation in the lurch by using so much oil and energy ourselves – domestic and imported – that our children face severe oil shortages, prohibitively expensive fuel, a crippled economy, and dominion of energy by Russia and other oil-rich states. No matter how you price it, oil is expensive to use; we should be encouraging our citizens to use less of it, our scientists to find alternatives for it, and our producers to find more of it here at home.”

“Many analysts predict that the world’s production of oil will peak in the next ten to twenty years, but oil expert Matt Simmons, author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, presents a compelling case that Middle Eastern oil production may have already reached its peak. Simmons bases his contention on his investigation into the highly secretive matter of the level of reserves in the Saudi oil fields. But whether the peak is already past or will be reached within a few years, world oil supply will decline at some point, and no one predicts a corresponding decline in demand. If we want America to remain strong and wish to ensure that future generations have secure and prosperous lives, we must consider our current energy policies in the light of how these policies will affect our grandchildren.” (233)

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David Strahan On Monbiot's Peak Oil U-Turn

David Strahan has a look at George Monbiot's strange about face after Leonardo Maugeri's paper on peak oil was published - MONBIOT PEAK OIL U-TURN BASED ON DUFF MATHS.

In his column of July 2nd George Monbiot recanted peak oil, claiming “the facts have changed, now we must change too”. Much of the article was spent regurgitating a recent report by Leonardo Maugeri, a former executive with the Italian oil company Eni, which Monbiot breathlessly reported “provides compelling evidence that a new oil boom has begun”.

Plenty of ink has already been spilled by oil depletion experts exposing some of the wildly optimistic assumptions contained in Maugeri’s report. More damning is that the work is shot through with crass mistakes that render its forecast worthless.

When I interviewed him, Mr Maugeri was forced to admit a mathematical howler that would disgrace the back of an envelope, and it also became clear he did not understand the work of the other forecasters he attacks. It also looks as if he has double or even triple counted a vital component of his predicted oil glut.

Maugeri forecasts the global oil supply will soar by almost 18 million barrels per day to around 111mb/d by 2020, the biggest increase in production since the 1980s, which he claims could lead to prolonged overproduction and “a significant, stable dip of oil prices”. So, arrivederci peak oil.

Maugeri claims this looming glut has three legs: booming upstream investment by the oil industry; the rise and rise of unconventional production such as US shale oil; and a tendency among forecasters to over-estimate massively the rate at which production from existing oil fields declines. The first point is uncontroversial, the second is moot, but the third is the most important; without it, Maugeri’s glut evaporates.

All oilfields eventually peak and go into decline as production is sapped by falling reservoir pressures, and as water increasingly dilutes the flow of oil from the well. Measuring the impact of these declines on aggregate oil production is a complicated business, but vital to predicting the future oil supply. There have been two primary studies of decline rates in recent years: one by the International Energy Agency in its 2008 World Energy Outlook; and another by the oil consultancy IHS-CERA.

Maugeri cherrypicks numbers from the IEA study and misrepresents them to claim that “most forecasters” work on decline rates of 6 to 10 percent. He then argues this is incompatible with the observed growth of the oil supply over the last decade – and therefore must be wrong – and uses this conclusion to justify his inflated oil production forecast. But the whole thing is a straw man; an email he sent me revealed he simply doesn’t understand the IEA numbers. The IEA’s global decline rate is actually 4.1%, and CERA’s broadly agrees, at 4.5% (see here for more detail).

Even if we were to accept his 6 to 10 percent range, Maugeri has got his sums horribly wrong. In the key section of the report, he claims that even the lower end of the range “would involve the almost complete loss of the world’s “old” production in 10 years”. But this is laughable. A 6% annual decline over 10 years leaves you with 54% of your original production, because each year’s 6% decline is smaller volumetrically than the previous one. So over a decade the decline is 46% – and very far from an “almost complete loss”.

When I put this to him, Mr Maugeri seemed genuinely confused, and tried briefly to persuade me the loss was much larger. “If you have a 6% decline each year over a 10 year period, the loss of production is close to 80%”, he said, but then the penny dropped. It looks to me as if he compounded 6% in the wrong direction – for growth, not decline. “Maybe on this you are right”, he conceded sheepishly. So by his own admission, Mr Maugeri has overestimated the alleged overestimation of production decline by almost three-quarters(1).

Nowhere in his report does Mr Maugeri explicitly state his own decline rate assumptions. The closest he gets is the unsupported claim that “I did not find evidence of a global depletion rate of crude production higher than 2-3 percent when correctly adjusted for reserve growth”. And yet his actual assumptions appear to be far lower. By analysing Maugeri’s forecasts, Steven Sorrell of the Sussex Energy Group and Christophe McGlade, a doctoral researcher at UCL Energy Institute, have shown his actual global decline rate for 2011-2020 is just 1.4% – scarcely a third of the established estimates. Replacing this implicit rate with the IEA number eliminates the Maugeri glut entirely, slashing his production forecast for 2020 to below his estimate of current production capacity. Sorrell concludes “Since most analysts expect average decline rates to increase over this period, this projection must be considered optimistic”. So, buongiorno peak oil.

When I challenged Mr Maugeri about the discrepancy between the 2-3% decline rate and the 1.4%, he said the difference was explained by reserves growth – the tendency to squeeze more oil than originally expected from existing fields, through new technology, the exploitation of secondary reservoirs and so on. But in that case he seems to have counted it twice, to judge by his quote in the paragraph above. Or possibly even three times, since the notion of reserves growth is already accounted for in the existing estimates. Both the IEA and IHS-CERA numbers are observed overall decline rates: they reflect the actual loss of production that happened after – or in spite of – all the industry’s investment to boost flagging output at existing fields.

“If Maugeri has adjusted decline rates for future reserves growth, he has either double counted, because it’s already in the existing forecasts, or assumes a massive acceleration in reserves growth in future”, explains Richard Miller, an oil consultant who previously worked for BP, and was the first to spot Maugeri’s dodgy maths. “Either way, it’s not credible”. When I emailed Mr Maugeri to check if he understood the definition of the IHS-CERA decline number he had quoted, I received no reply.

Perhaps it’s not so surprising. Maugeri is a long standing cornucopian, and has form in the slapdash stakes. In a previous article for the journal Science(2), he sought to disprove peak oil modelling using a graph of Egyptian oil production. Sadly, the graph he printed was not for Egyptian oil production. Worse, if it had been, it would have demolished the very point he was trying to make(3).

What is astonishing is that George Monbiot finds Maugeri’s work so “compelling”. How many times have I read Monbiot banging on about the importance of peer review? Strange then that he should gush that this report was “published by Harvard University” but fail to mention it had not appeared in any peer reviewed journal, and worse, had been funded by BP. I suspect both those organizations may live to regret their involvement. What about Monbiot? If he is as intellectually rigorous as he likes to make out, he will perform not one peak oil u-turn this month, but two.

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Maugeri on peak oil

James Hamilton at Econbrowser has a look at Leonardo Maugeri's paper on peak oil - Maugeri on peak oil

Carpe Diem, Reuters, FTalphaville, and WhaleOil are among those calling attention to a new paper by Leonardo Maugeri, senior manager for the Italian oil company Eni, and Senior Fellow at Harvard University, which concluded:

Contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. This could lead to a glut of overproduction and a steep dip in oil prices.

Based on original, bottom-up, field-by-field analysis of most oil exploration and development projects in the world, this paper suggests that an unrestricted, additional production (the level of production targeted by each single project, according to its schedule, unadjusted for risk) of more than 49 million barrels per day of oil (crude oil and natural gas liquids, or NGLs) is targeted for 2020, the equivalent of more than half the current world production capacity of 93 mbd. [After factoring in risk factors and depletion rates of currently producing oilfields], the net additional production capacity by 2020 could be 17.6 mbd, yielding a world oil production capacity of 110.6 mbd by that date.

Here I take a look at some of the details of Maugeri's analysis.

About half of Maugeri's calculated 17.6 mb/d in net additional production capacity comes from two countries-- the United States and Iraq (see his Table 2). I have earlier discussed the situation for the United States. To briefly recap, more than half of the increase in total U.S. oil production since 2005 has come from biofuels and natural gas liquids, neither of which should be added to conventional crude production for purposes of calculating the available supply. Another important contribution to recent U.S. production gains has come from shale/tight oil. I agree with Maugeri that this will be an important factor in the future, but it is not cheap, and there are some big uncertainties in extrapolating recent gains, about which I will have more to say below.

But first let's take a look at Iraq, which by itself accounts for 5.1 mb/d, or 29% of the net combined global gains that Maugeri is anticipating. His starting point for these calculations (see his Table 1) is the "production target" associated with a dozen oil fields for which the Iraqi government has signed contracts with oil companies. These targets call for these fields to reach maximum levels of production which, when added together, come to 11.6 mb/d. To win a contract, oil companies had to specify two key parameters: a "target" level of production and a remuneration per barrel, with awards going to the companies that specified the highest target and lowest remuneration. Some have characterized the announced targets simply as propaganda. Once awarded, there seems to be a separate process in which the production targets get renegotiated. Maugeri acknowledges the logistic and security challenges in meeting the targets, and accordingly cuts the official estimates in half. Doing so would still be a stunning achievement, requiring an Iraq that would be substantially more stable and successful over the next decade than it has been over the last three.

A separate issue is that new production from places like the U.S. and Iraq are needed in part to replace declining production flows coming from mature fields. A key question in any study like this is the assumed magnitude of that decline. As Stephen Sorrell notes, Maugeri does not state his assumed rate, and confuses the issue by mixing discussions of the depletion of an existing reservoir (for which purposes Maugeri is correct to raise the offsetting factor of additions to reserves) with the declining production flow rate from a given field (the relevant number for purposes of calculating the net addition that new fields bring to annual production). Sorrell suggests we can infer the implicit assumed decline rate from Maugeri's Table 2, which reports a difference between his adjusted gross additions and adjusted net additions of 11 mb/d. That seems to imply that Maugeri is assuming that the total decline in production from existing fields between now and 2020 will be 11 mb/d, which I calculate to correspond to a 1.4% annual decline rate (ln(82/93)/9 = -0.014). As Sorrell notes, this compares for example with the IEA's (2008) substantially less optimistic numbers:

Based on data for 580 of the world's largest fields that have passed their production peak, the observed decline rate-- averaged across all fields and weighted by their production over their whole lives-- is 5.1%. Decline rates are lowest for the biggest fields: they average 3.4% for super-giant fields, 6.5% for giant fields and 10.4% for large fields. The average rate of observed post-plateau decline, based on our data sub-set of 479 fields, is 5.8%.

... I agree with Maugeri that new production from places like the United States and Iraq is going to be very helpful. But I think he substantially overstates the case for optimism. If we are counting on sources such as shale/tight oil, oil sands, and deepwater to replace production lost from mature conventional oil fields, the days of cheap oil are never going to return.

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Peak oil debunked? The mechanisms of denial at work

Ugo at Cassandra's Legacy has a look at Leonardo Maugeri's paper on peak oil - Peak oil debunked? The mechanisms of denial at work.

In 1989, Ronald Bailey published an article in "Forbes" where he attacked the 1972 "Limits to Growth" study by saying that:

“Limits to Growth” predicted that at 1972 rates of growth the world would run out of gold by 1981, mercury by 1985, tin by 1987, zinc by 1990, petroleum by 1992, copper, lead and natural gas by 1993."

No such statement existed in the "Limits" book, nevertheless Bailey's attack had an incredible success. It went viral and was repeated over and over by people who never worried about checking it. Eventually, it generated the legend of the "mistakes of the Club of Rome", still alive and well today and still at the basis of the widespread negative opinion of the "Limits" study. (this story is described here, as well as in my book "The Limits to Growth Revisited.")

The demolition of the "Limits" study remains today a classic example of the mechanisms of denial in scientific communication, as described, for instance, by Naomi Oreskes and Eric Conway in "Merchants of Doubt." Similar mechanisms have been at work against climate science, studies on the health effects of smoking, pollution studies and more. However, the idea that we are close to the peak of the world's oil production ("Peak Oil") had remained so far relatively immune to this kind of denial.

That may be changing with the publication of Leonardo Maugeri's recent study titled "Oil: the next revolution" which has generated a true tsunami of posts and articles all based on the concept that "Peak Oil has been debunked." We may be seeing a snowballing effect similar to the one caused by Bailey's 1989 article that destroyed the credibility of "The Limits to Growth."

To make my point clear, let me state that Maugeri's work is a serious study. Surely, it can be criticized (e.g. here, here, and here), but it is far better than Bailey's piece of pure slander and other propaganda pieces aimed, for instance, against climate science. But that has little to do with the mechanisms of denial. The problem is that most people - including decision makers - have no time, no inclination, and no expertise to go in depth in issues such as resource depletion. So, when facing a complex and nuanced issue they tend to choose the interpretation that they like best - it is called "confirmation bias." Now, surely good news are better than bad news and for most people an apparently authoritative study that says that we are not running out of oil is preferable to the gloom and doom of most depletion studies.

The problem is that Maugeri's thesis is based on preciously little: mainly on a new assessment of the oil reserves that takes into account the so called "unconventional" resources. Lately, the growth in this sector has been remarkable, true, but all what this "oil revolution" could do so far is to stave off the decline that would have occurred if we were relying only on conventional oil. Still, the fact that we haven't seen a well defined peak in the world's oil production is sufficient to give weight to Maugeri's ideas. Paradoxically, the numerous attempts of criticizing the study may have been counterproductive in giving it a visibility that it hardly deserves.

A couple of decades ago people started referring to the "Limits to Growth" study as "Club of Rome's mistake". Are we going to see Peak Oil described as "ASPO's mistake"? It is too early to tell, but we can rule out this possibility. Especially if oil prices were to collapse in the near future - as they did in 2008 - most people would take that as a vindication of Maugeri's thesis. Never mind that the price collapse would also cause a decline in production - as Maugeri himself clearly states in his study. Most people perceive the problems with oil only in terms of prices, not of production. If we are going to see this kind of events unfolding, it will take a lot of time and effort to redress the public perception on Peak Oil, just as it is taking a lot of time and effort to fight the perception that the "Limits" study had been "wrong".

On the other hand, Maugeri's work may simply be forgotten when it will be clear that the "oil revolution" he predicts is not materializing. Communication is a field where prediction is always very difficult, even more than with oil production. The only thing we can say for sure is that we are sensible to the viral diffusion of legends. It is the way our mind works; it has not evolved for long range planning.

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New Energy Report from Harvard Makes Unsupportable Assumptions

The Oil Drum has a post looking at the paper from Leonardo Maugeri that prompted George Monbiot's strange about face on peak oil - New Energy Report from Harvard Makes Unsupportable Assumptions.

As for US production, this is tied to increasing production from all the oil shales in the country, which will see spurts in growth similar to that seen in the Bakken and Eagle Ford.

I estimate that additional unrestricted production from shale/tight oil might reach 6.6 mbd by 2020, or an additional adjusted production of 4.1 mbd after considering risk factors (by comparison, U.S. shale/tight oil production was about 800,000 bd in December 2011). To these figures, I added an unrestricted additional production of 1 mbd from sources other than shale oil that I reduced by 40 percent considering risks, thus obtaining a 0.6 mbd in terms of additional adjusted production by 2020. In particular, I am more confident than others on the prospects of a faster-than-expected recovery of offshore drilling in the Gulf of Mexico after the Deepwater Horizon disaster in 2010.

As I noted in my review of the Citicorp report this optimism flies in the face of the views of the DMR in North Dakota – who ought to know, since they have the data. The report further seems a little confused on how horizontal wells work in these reservoirs. As Aramco has noted, one cannot keep drilling longer and longer holes and expect the well production to double with that increase in length. Because of the need to maintain differential pressures between the reservoir and the well, there are optimal lengths for any given formation. And as I have also noted, the report flies in the face of the data on field production from the deeper wells of the Gulf of Mexico.

It seems pertinent to close with the report’s list of assumptions on which the gain in oil production from the Bakken is based:

* A price of oil (WTI) equal to or greater than $ 70 per barrel through 2020

* A constant 200 drilling rigs per week;

* An estimated ultimate recovery rate of 10 percent per individual producing well (which in most cases has already been exceeded) and for the overall formation;

* An OOP calculated on the basis of less than half the mean figure of Price’s 1999 assessment (413 billion barrels of OOP, 100 billion of proven reserves, including Three Forks).

Consequently, I expect 300 billion barrels of OOP and 45 billion of proven oil reserves, including Three Forks;

* A combined average depletion rate for each producing well of 15 percent over the first five years, followed by a 7 percent depletion rate;

* A level of porosity and permeability of the Bakken/Three Forks formation derived from those experienced so far by oil companies engaged in the area.

Based on these assumptions, my simulation yields an additional unrestricted oil production from the Bakken and Three Forks plays of around 2.5 mbd by 2020, leading to a total unrestricted production of more than 3 mbd by 2020.

Enough, already! There are too many unrealistic assumptions to make this worth spending more time on. To illustrate but one of the critical points - this is the graph that I have shown in earlier posts of the decline rate of a typical well in the Bakken. You can clearly see that the decline rate is much steeper than 15% in the first five years.

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