Tuesday, June 26, 2012

No Peak Oil in Sight: We've Got an Unprecedented Upsurge in Global Oil Production Underway

The global oil boom underway represents the most significant increase in any decade since the 1980s.

In the tradition of resource economist Julian Simon, here are some of the conclusions and predictions from new research just published by Harvard Research Fellow Leonardo Maugeri, titled "Oil: The Next Revolution; The Unprecedented Upsurge of Oil Production Capacity""

1. Contrary to what most people believe, oil is not in short supply and oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight. The full deployment of the world’s oil potential depends only on price, technology, and political factors. More than 80 percent of the additional production under development globally appears to be profitable with a price of oil higher than $70 per barrel.

2. The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades. It will probably trigger worldwide emulation, although the U.S. boom is difficult to be replicated given the unique features of the U.S. oil (and gas) arena. Whatever the timing, emulation over the next decades might bear surprising results, given the fact that most shale/tight oil resources in the world are still unknown and untapped. China appears to be the first country to follow the U.S. example. Moreover, the extension of horizontal drilling and hydraulic fracturing combined to conventional oil fields might dramatically increase world’s oil production and revive mature, declining oilfields.

3. In the aggregate, conventional oil production is also growing throughout the world, although some areas (e.g. the North Sea), face an apparently irreversible decline of the production capacity. In most traditional producing countries, old oilfields go through a production revival thanks to better techniques and knowledge, or advanced exploration and production technologies, so far used only in the U.S. and in the North Sea. Huge parts of the world are still relatively unexplored for conventional oil (for example, the Arctic Sea or most of sub-Saharan Africa).

4. Over the next decades, the growing role of unconventional oils will make the Western hemisphere the new center of gravity of oil exploration and production.

5. 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 of more than 49 million barrels per day (mbd) of oil is targeted for 2020, the equivalent of more than half the current world production capacity of 93 mbd.

6. After adjusting this substantial figure considering the risk factors affecting the actual accomplishment of the projects on a country-by-country basis, the additional production that could come by 2020 is about 29 mbd. Factoring in depletion rates of currently producing oilfields and their “reserve growth,” 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 – as shown in Figure 1 above. This would represent the most significant increase in any decade since the 1980s.

MP: Peak what?

65 Comments:

At 6/26/2012 9:39 AM, Blogger morganovich said...

just a semantic quibble here, but is it "the biggest increase since the 80's"? or is it "unprecedented"?

it seems like it cannot be both.

 
At 6/26/2012 10:03 AM, Blogger marmico said...

In the tradition of resource economist Julian Simon

It was just a flip of the coin that no longer contains copper.

 
At 6/26/2012 10:20 AM, Blogger JJ Butler said...

Mr. Perry,
Re: "More than 80 percent of the additional production under development globally appears to be profitable with a price of oil higher than $70 per barrel."

As an economist, I suggest taking a more stringent look at the pricing component. Oil production can grow, particularly in North America, only with robust prices. In fact, expect the growth the accelerate into the second half of this year.

But let's be clear, $70 oil (which is the mid-continent price right now) will not allow it to continue for long. The returns are to skinny. The companies doing the drilling will cut back on capex because the cash flows will not be there.

 
At 6/26/2012 10:20 AM, Blogger Mark J. Perry said...

See my response to Paul Kedrosky and the Simon-Ehrich bet.

 
At 6/26/2012 10:30 AM, Blogger Dr. Dre said...

I have followed the peak oil for a long time... I am finding two common themes:
* economists are the energy optimists -- that the almighty dollar will drive innovation and endless oil.

* Geologists are energy bears -- after years of toiling in harsh environments and in difficult geology they believe supply is finite and increasingly difficult to access (despite technology).

... I am somewhere in the middle -- peak oil is a valid problem. The timing is uncertain. We will keep "extending" the production of oil supply via innovation at an increasing cost. This marginal cost of production will push end user costs up (lots of oscillations but that will be the 5 year trend). Recessions and Recoveries will ebb and flow with oscillations in prices but the trend will be up. Eventually we will hit a "break point" (Tarzakian) where the commodities price will elevate to a point where substitution takes over.

 
At 6/26/2012 10:31 AM, Blogger rjs said...

Marginal oil production costs are heading towards $100/barrel:

Bernstein’s energy analysts have looked at the upstream costs for the 50 biggest listed oil producers and found that — surprise, surprise — “the era of cheap oil is over”:

http://ftalphaville.ft.com/blog/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

 
At 6/26/2012 10:36 AM, Blogger juandos said...

"As an economist, I suggest taking a more stringent look at the pricing component. Oil production can grow, particularly in North America, only with robust prices. In fact, expect the growth the accelerate into the second half of this year"...

Well jj butler in looking at your Oil Heavy posting (very informative I thought) it makes me wonder what the real cost of profitable drilling actually is now a days as say compared to 2002...

 
At 6/26/2012 10:47 AM, Blogger juandos said...

"Marginal oil production costs are heading towards $100/barrel"...

Interesting link rjs but I note that Kate Mackenzie made no mention of the declining value of the dollar...

I'm not even sure how much if anything that might have to do with 'the era of cheap oil is over'...

Any ideas?

 
At 6/26/2012 10:54 AM, Blogger Dr. Dre said...

I just read the harvard source document... there is one very important issue that goes beyond the headline. NGLS.... these are natural gas liquids; they are processed into these - ethane, butane, propane -- these products are not included in transportation fuels that crude oil is used for (Jet Fuel, Gasoline, Diesel).

It astonishes me why people use NGLS interchangeably with Crude Oil. (ie. You can't put butane in your car -- it evaporates.... )

Anyway -- see important disclaimer from the report on NGLS being used in Crude Production. This invalidates (or raises serious doubts) about a huge chunk of this papers conclusions !!!! wow...

2. METHODOLOGICAL PROBLEMS IN EVALUATING FUTURE SUPPLY
First, it is important to recall that in most statistical sources, the expressions “oil production”, “oil supply”, and “oil production capacity” usually include both crude oil and natural gas liquids (NGLs, i.e. ethane, propane, butane, pentane, etc.). In this paper, I use “oil production/capacity” and “liquid production/capacity” interchangeably, the latter being clearer for the general reader.
At the beginning of 2012, total liquid production capacity was about 93 million barrels per day (mbd). About 77 mbd of that was crude oil supply capacity.

 
At 6/26/2012 11:23 AM, Blogger Jet Beagle said...

Dr Dre: "Geologists are energy bears -- after years of toiling in harsh environments and in difficult geology they believe supply is finite and increasingly difficult to access"

That's surprising to me. Do you have any data to back that up? All I have are opinions from two oil company geologists. Privately, they tell me that global oil supplies are huge. They both believe that the problem facing petroleum suppliers will be to get it out of the ground before some cheaper energy substitute is developed.

 
At 6/26/2012 11:31 AM, Blogger marmico said...

This comment has been removed by the author.

 
At 6/26/2012 11:31 AM, Blogger marmico said...

See my response to Paul Kedrosky and the Simon-Ehrich bet.

The DJIA-UBS (formerly AIG) Index is not instructive. It is an index that suffers from a minor deficient contango roll that is compounded by major compositional weights changes ad hoc.

Let me get this right. When a component price is high and investors are chasing the asset, the index increases the weight, and conversely...

So chart all 19 components since the "bet" just like Kedrosky did with the 5 components.

 
At 6/26/2012 12:02 PM, Blogger Buddy R Pacifico said...

In July of 2011 the gov't sold 30 million barrels of oil from the Strategic Petroleum Reserve. This was to support consumers. The selling price ranged from ~$101 -> #105 a barrel.

Today the price is descending to ~ $70.

The 30 million barrels has not been replenished, so....

I wonder if the gov't will help producers out and start buying to support a floor of 70 bucks?

 
At 6/26/2012 12:10 PM, Blogger Buddy R Pacifico said...

"Peak Oil" has strongly trended down over the last several years....

at Google Trends.

 
At 6/26/2012 12:13 PM, Blogger morganovich said...

i think marmico has the right of that mark.

just the contango in that index will severely skew the results. the continuously evaporating futures premium will look like delflation.

the CI (continuous commodity index) began 2002 at 191. it has been down the last 2 years, but is still at 518 (and made all time highs last year).

that's a 171% increase in a decade, roughly a 10% per year compounded average price move.

http://www.ritholtz.com/blog/2012/04/crb-index-back-to-1749-present/

this chart makes it readily apparent that the crb is up a great deal from ww2.

prices were quite stable in the 200 years up to the 1940's with a strong mean reversion, but since then, have climbed very aggressively.

it pays to be very careful with how you look at commodity prices.

that said, i suspect that the dollar losing so much value is a big deal there. these commodity prices might look very different in swiss francs.

 
At 6/26/2012 12:17 PM, Blogger Moe said...

Dr. Dre:

NEVER read the fine print - it ruins the story.

 
At 6/26/2012 12:18 PM, Blogger Its GSATT said...

"I wonder if the gov't will help producers out and start buying to support a floor of 70 bucks?"

would't the gov buying 30 million barrels make demand for oil increase, therefore causing the price to rise slightly?

And I believe this reserve was sold from the military's oil stock, and since they're having their budget slashed, they probably wouldn't have any use for the 30 million barrels.

Oh, and don't forget, our current administration thinks prices need to necessarily rise so that cleaner and greener fuels can have a chance. F oil.

 
At 6/26/2012 12:20 PM, Blogger NormanB said...

I believe that the report underestimates our energy reserves. Why, because the 53% increasein production is too much to believe so I think the author had to dial back on his assumptions. After 12 years of bad news we seem to find it incomprehensible that a bonanza has hit. The world is a big, big place and this stuff is being found in the four corners of it. Much more to come, I think. More likely oil will come closer to the price of natural gas than vica versa.

But the big tsunami is going to be geopolitical. With Russian gas bulling vanishing and with it 50% of their budget. And the Middle East will now disintegrate as they have been stagnant for decades relying on their oil revenues to allow 100 story buildings and race horses. Huge upheavals in that area and with the Islamists on the rise not good for world peace.

This is a Swan event, black or white remains to be seen.

 
At 6/26/2012 12:26 PM, Blogger bart said...

MP: Peak what?


Peak cheap oil.

And peak *conventional* oil, per the amazingly accurate work of Hubbert.

 
At 6/26/2012 12:34 PM, Blogger Its GSATT said...

Morganovich.

"http://www.ritholtz.com/blog/2012/04/crb-index-back-to-1749-present/

this chart makes it readily apparent that the crb is up a great deal from ww2"

Im not positive on what is counted in this CRB index and I understand that you are suspicious about the dollars value playing a role, but would I be missing the ship completely if I were to think this graph does not factor in that a calculator made today for 5 dollars would cost a hell of a lot more in 1960 simply because of technical acheivments? Or is this graph strictly commodities like cotton, oild ect.?

My 50 inch flat screen cost me 1,600 a couple years ago, now i could buy an identical one for almost half that.

Am I comparing apples to oranges? Can technology be considered a commodity?

My degree is in Aviation flight science, I only had a couple prerequisite classes that dealt with economics, wish i would have taken more.

 
At 6/26/2012 12:38 PM, Blogger bart said...

“the era of cheap oil is over”


And the picture of breakeven prices is an inconvenient truth for peak cheap oil deniers.


http://www.nowandfutures.com/download/d4/breakeven_oil_prices_various_countries2011.png

Source: Deutsche Bank

 
At 6/26/2012 12:41 PM, Blogger bart said...

And the CRB was "rebalanced" by Reuters in August 2005.

The CCI has the same ratios of components as the old CRB, and is now almost *double* the CRB... Orwell is proud.


http://www.nowandfutures.com/images/cci_crb_ratio.png

 
At 6/26/2012 12:46 PM, Blogger rjs said...

juandos, my link was a counterpoint to mark's $70 brl oil, not on the value of the dollar (which is a fair question)

its just that i know firsthand (family member) that a major independent oil co had a zero budget for their exploration & exploitation dept in 2009, when prices were below $80, and that at $70 brl oil, that 'unprecendented surge' will slow to a trickle...

 
At 6/26/2012 12:57 PM, Blogger Rufus II said...

According to the EIA, Dec TOTAL LIQUIDS PRODUCTION (minus ethanol) in Dec. 2011 was 86,629,319 bbl/day. Nowhere near 93 million bbl/day.

If you can't even get something so simple as "Last Year's" Production correct, just how serious is your "analysis?"

 
At 6/26/2012 1:03 PM, Blogger Rufus II said...

Since 2005 you've had slightly less than 4 million bbl/day of liquids added, but 2.5 of that was NGLS.

The increase in actual Crude + Condensate (the stuff you actually make transportation fuels from) is about 1.5 million bbl/day.

 
At 6/26/2012 1:07 PM, Blogger Rufus II said...

Oops, forgot the link.

EIA

 
At 6/26/2012 1:37 PM, Blogger juandos said...

"its just that i know firsthand (family member) that a major independent oil co had a zero budget for their exploration & exploitation dept in 2009, when prices were below $80, and that at $70 brl oil, that 'unprecendented surge' will slow to a trickle"...

Interesting rjs, because I too some very similer numbers from a brother-in-law who works for Exxon...

Thanks...

 
At 6/26/2012 1:39 PM, Blogger morganovich said...

GSAAT-

"
Im not positive on what is counted in this CRB index and I understand that you are suspicious about the dollars value playing a role, but would I be missing the ship completely if I were to think this graph does not factor in that a calculator made today for 5 dollars would cost a hell of a lot more in 1960 simply because of technical acheivments? Or is this graph strictly commodities like cotton, oild ect.? "

in this case, yes, you would be missing the ship completely. the CRB is purely raw commodities.

Subgroup
Markets Subgroup
Weight
Energy Crude Oil, Heating Oil,
Natural Gas 17.6%
Grains Wheat, Corn, Soybeans 17.6%
Industrials Copper, Cotton 11.8%
Meats Live Cattle, Lean Hogs 11.8%
Softs Coffee, Cocoa, Sugar
Orange Juice 23.5%
Precious
Metals Gold, Silver, Platinum 17.6%

it has no manufactured goods in it.

also, as bart rightly points out, there was a crb rebalancing that i had not taken into account.

the crb would be nearly twice its current level absent this.

even so, that makes the gain since ww2 around 12X. the drop in the dollar's value since that period is around 90%, which is about 11X which would seem to imply that the unrebalanced CI has doubled in constant dollars since then.

that's not an insignificant gain and certainly does not support the "commodities are getting cheaper" narrative, though i have not worked the math out tightly enough here to draw a really good conclusion.

 
At 6/26/2012 1:57 PM, Blogger Buddy R Pacifico said...

Dr Dre states:

"
It astonishes me why people use NGLS interchangeably with Crude Oil. (ie. You can't put butane in your car -- it evaporates.... )"


What about the major NGL propane?

Propane is a major alternative to oil for heating.

The NGL Propane is used in millions of households as a source of cooking and heating. It is also a major provider of fuel for drying grains and other crops. Propane powers many thousands of industrial vehicles such as fork lifts.

This NGL is a major alternative to oil and is 90% supplied by U.S. sources.

 
At 6/26/2012 2:04 PM, Blogger Buddy R Pacifico said...

"...source of cooking and heating"

make that: ...source for cooking and heating. :>)

 
At 6/26/2012 2:07 PM, Blogger VangelV said...

Let us begin at the beginning.

Contrary to what most people believe, oil is not in short supply and oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption.

Nonsense. Supply capacity was much greater 20 years ago than it is today. Most OPEC nations had supply behind pipe that was not released to the market. Today some of those nations are net importers while Saudi Arabia and the rest have a fraction of the spare capacity that they had.

That said, supply may outpace demand if the global economy contracts. But that creates its own supply problems because many of the exporters need high prices to keep their populations docile and many American shale companies need high prices to stay in business.

From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight.

The oil to be developed and the 'peak oil' claims are not related. The fact that we can extract a lot of oil from the tar sands or ultra deep offshore fields does not mean that we can extract enough oil per year to offset depletion. The production of light sweet hit a peak in 2005. Hundreds of billions of dollars in investment later we have yet to exceed it.

And no, biofuels, NGLs, and refinery gains do not really count in the comparison unless you accounted for them properly along the way. And yes, you need to adjust those sources to ensure that you are looking at the production of end products so that you have a proper and valid comparison.

The full deployment of the world’s oil potential depends only on price, technology, and political factors. More than 80 percent of the additional production under development globally appears to be profitable with a price of oil higher than $70 per barrel.

There is no evidence to support this claim. New tar sands production needs more than $80 if the producers are to be believed.

The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades.

If this is true why are the producers adding debt at an alarming pace, cannot produce positive cash flows, or get $10 million wells that produce more than 100 bpd after the second year? We have lots of data on tight gas and oil. It tells us that when that is what you are relying on there are few viable options left.

It will probably trigger worldwide emulation, although the U.S. boom is difficult to be replicated given the unique features of the U.S. oil (and gas) arena.

You mean the ability of the Fed to use the reserve status of the USD to flood the system with money that can be used for speculation?

Whatever the timing, emulation over the next decades might bear surprising results, given the fact that most shale/tight oil resources in the world are still unknown and untapped. China appears to be the first country to follow the U.S. example.

China companies have said that they will have to wait a few years and that they are interested in conventional reserves that they understand. And I would not use the Chinese, who jumped on the money losing solar and wind scams, as the example.

Moreover, the extension of horizontal drilling and hydraulic fracturing combined to conventional oil fields might dramatically increase world’s oil production and revive mature, declining oilfields.

Reality check. We have been using horizontal drilling in these fields for decades. That means the back end of the production curve will fall faster. See Cantarell and Yibal for examples.

 
At 6/26/2012 2:12 PM, Blogger VangelV said...

In the AGGREGATE, conventional oil production is also growing throughout the world, although some areas (e.g. the North Sea), face an apparently irreversible decline of the production capacity.

Red flag alert. If we count low quality heavy oils, biofuels, NGLs, we could make a case of a plateau. But if you look at actual production of crude we don't see evidence for this claim.

In most traditional producing countries, old oilfields go through a production revival thanks to better techniques and knowledge, or advanced exploration and production technologies, so far used only in the U.S. and in the North Sea. Huge parts of the world are still relatively unexplored for conventional oil (for example, the Arctic Sea or most of sub-Saharan Africa).

But the old fields never recover their previous levels. And when you look at the EROEI some of the rehabilitation projects make no sense. The real killer for this type of naive argument comes from the 6% decline from existing fields. Each year we need to find more than 4 mbpd of new production just to stay even. If you look at all the projects you quickly realize taht will not happen.

 
At 6/26/2012 3:35 PM, Blogger gadfly said...

In 1956, Prof. Vladimir Porfir’yev announced [the Russian scientists]... conclusions: "Crude oil and natural petroleum gas have no intrinsic connection with biological matter originating near the surface of the earth. They are primordial [originating at the time of Earth’s formation] materials which have been erupted from great depths." The Soviet geologists had turned Western orthodox geology on its head. They called their theory of oil origin the "a-biotic" theory—non-biological—to distinguish from the Western biological theory of origins.

Our children are being taught about fossil fuels originating from dead plant and animals that lived 500 million years ago in the Palaeozoic Era. Truth be known, oil and gas are being extracted from depths that are far greater than any fossil has been detected - and these deep wells are renewing themselves.

 
At 6/26/2012 3:40 PM, OpenID Sprewell said...

Never actually looked at that Kedrosky post that marmico just linked to above, even though I had seen the post Mark did about it before, probably because Kedrosky is the kind of dumdum I stopped reading years ago. Look at the table he generates for who wins the Simon-Ehrlich bet and compare it to the inflation-adjusted data he charts above it. He claims to know that Ehrlich wins if the bet starts during the period from 1999-2007, but he cannot possibly know that since he doesn't have data for 2009-2017. Nobody can know that, since most of those years haven't happened yet. ;) He also lists Ehrlich as the winner for the years 1985-86, which the data doesn't seem to back up. If you look at the years from 1981 where there is data actually available, Simon wins 13 out of the 18 years, a pretty good bet. :)

Admittedly, if we take all the years on the chart for which data is available, ie the years from 1960 to 1981 also, it looks like Ehrlich would have won from 1960-1972, with Simon then winning for the next 20 years. That explains why Ehrlich was willing to take the bet, as he would have won for 13 of the 21 years prior to 1981. Take all the years together though and Simon wins 21 out of the 39 years, or 53.8% of the time, just better than a coin flip.

But it doesn't much matter who would have won more years, because Simone probably knew there would be timespans where he would lose, as I'm sure he knew commodity prices fluctuate. What he was saying is that over the long-term there is never a problem, because the price spikes always lead to new supplies or alternatives that bring prices back down. That has decidedly been proven right so far, through all of human history, though of course that's no guarantee that it will always be so, just very strong evidence that we'll always figure something out. :)

 
At 6/26/2012 4:10 PM, Blogger Rufus II said...

The oil fields are renewing themselves? Great!!!

I guess we can go back down there and redrill that good ol' East Texas Oil Field any day now, eh? eh? Bueller?!?!


sheesh

 
At 6/26/2012 4:13 PM, Blogger bart said...

also, as bart rightly points out, there was a crb rebalancing that i had not taken into account.


CRB revision in 2005 (the 10th in its history)

Balance Before After
Energy 17.6% 39.0%
Grains 17.6% 13.0%
Meats 11.8% 7.0%
Tropicals 29.4% 21.0%
Metals 23.6% 20.0%


CRB today - about 273.
CCI today - about 520.

 
At 6/26/2012 4:16 PM, Blogger bart said...

The oil fields are renewing themselves? Great!!!

I guess we can go back down there and redrill that good ol' East Texas Oil Field any day now, eh? eh? Bueller?!?!




"Any sufficiently advanced technology is indistinguishable from magic."
-- Arthur C. Clarke

-g-

 
At 6/26/2012 4:16 PM, Blogger Moe said...

This comment has been removed by the author.

 
At 6/26/2012 5:04 PM, Blogger Its GSATT said...

Ok I'm following you now Morganovich.
I also would be very interested in seeing this graph based on a currency that has been much more stable than our own here in the US.

With the adjustment that bart produced showing energy increased from 17% up to 39% it would back up my correlation of the oil embargos of the late 70's and this more recent oil $$$$$ increase to be a large portion of the graphs incline. I would like to see one that breaks down the individual to eliminate oils heavy weight on the graph.

this is very interesting

 
At 6/26/2012 6:27 PM, Blogger morganovich said...

GSAAT-

you can do that pretty easily.

use the swiss franc. USD/CHF cross.

but even that is not really a pure way to look at it as the swiss have inflation too.

price increases are driven both by product scarcity and by currency devaluation. the chf has held value better than the usd, but it has still lost value.

what you really need is an inflation gauge you trust and a set of commodity prices you trust as well unfortunately, both are very difficult to come by, especially over the long run as methodologies/weights have changed numerous times.

the CI is the same as the CRB was, but it's still set at the 9th revision.

http://www.zealllc.com/2007/ccicrb.htm

this chart shows how much just one revision can matter.

CPI has in many ways been worse in terms of its changes making the figures now incomparable to those pre 90's.

this makes comping up with a number i would describe as trustworthy here very difficult.

i guess we could set a fixed basket of actual commodities and track them, but there is still no really good and consistent long term inflation gauge (at least not published by the government).

 
At 6/26/2012 6:32 PM, Blogger morganovich said...

This comment has been removed by the author.

 
At 6/26/2012 6:36 PM, Blogger morganovich said...

gadfly-

i hope that was a joke.

abiogenic oil has never been found in commercially useful quantities.

 
At 6/26/2012 6:41 PM, Blogger morganovich said...

sorry, hit enter too soon.

it's not even clear abiogenic oil exists at all.

the whole argument for such oil is a negative one. eg "we can't think what else it was, so it must be X" which is hardly evidence.

 
At 6/26/2012 8:03 PM, Blogger aorod said...

EPA will put a stop to this.

 
At 6/26/2012 8:05 PM, Blogger VangelV said...

it's not even clear abiogenic oil exists at all.

Actually, it is clear that it is not important to our discussion. The weak theory has abiotic oil forming but not much higher than rates that come from our conventional theory. This makes it unimportant because the rate of production is so much higher than the rate of formation and we still have the same problem.

The strong version of the theory has large amounts of oil being formed over time. But this would overwhelm the ability of life to deal with the hydrocarbon formation and we would eventually be swimming in oil. If you look at the original paper by Thomas Gold you find that he goes by the weak theory and never claims that oil wells are replenishing themselves That leaves us with the weak abiotic theory, which is unimportant even if it were true.

Of course, the weak abiotic theory still has a major problem. It fails to explain why it is that geologists keep finding oil in areas that are tied to, "anoxic periods of high biological sedimentation rate." But even if true the weak theory is not material while the strong one is obviously false. It is time to move on because there is nothing here.

A few commentators have made very convincing argument against the abiotic theory. If you use google and search for the terms "strong and weak abiotic oil theory" you should find several commentaries on the subject.

 
At 6/26/2012 9:28 PM, Blogger Hydra said...

Heard a chevron executive talking about Arctic oil. He said it was the only play comparable to deep water gulf drilling in the Americas.

We wont run out of oil, but many will run out of the ability to pay for it.

 
At 6/26/2012 10:24 PM, Blogger Da Curly Wolf said...

Snort..I KNOW several geologists, and surveyors personally and they've ALWAYS called "bullshit" on the peak oil "oh my god oh my god we've gotta do something we're running out and raping mother earth!" set. By most For example just in the Bakken formation, according to several articles and studies I've read there's 2-300 YEARS worth of oil to be produced. Think about that 2-3 CENTURIES...just in that one field. Peak oil my fat hairy graying ass.

 
At 6/27/2012 12:01 AM, Blogger Benjamin said...

The Peak Oil Nuts, like the Inflation Nuts or Gold Nuts seem to operate in a parallel universe.

 
At 6/27/2012 5:53 AM, Blogger marmico said...

but he cannot possibly know that since he doesn't have data for 2009-2017. Nobody can know that, since most of those years haven't happened yet. ;)

Kedrosky states that Simon would bet over any period of 2 or more years. That's why his Table ends in 2007. 2009 data less 2 years.

Just to put the dagger in more deeply and twist it, Simon lost a timber bet.

Perry's response to the re-litigation of the bet is inadequate for reasons mentioned up thread.

 
At 6/27/2012 5:56 AM, Blogger VangelV said...

Heard a chevron executive talking about Arctic oil. He said it was the only play comparable to deep water gulf drilling in the Americas.

We wont run out of oil, but many will run out of the ability to pay for it.


Arctic oil and shale can only make sense in a post peak world. They are the bottom of the barrel. Of course, those people who bought the Arctic assets for pennies in the knowledge that 40-50 years later they will pay off big must now be smiling. Imagine paying $10 million in 1985 to acquire $15 billion in assets in 2020. Long wait but not a bad return.

 
At 6/27/2012 5:58 AM, Blogger VangelV said...


Snort..I KNOW several geologists, and surveyors personally and they've ALWAYS called "bullshit" on the peak oil "oh my god oh my god we've gotta do something we're running out and raping mother earth!" set. By most For example just in the Bakken formation, according to several articles and studies I've read there's 2-300 YEARS worth of oil to be produced. Think about that 2-3 CENTURIES...just in that one field. Peak oil my fat hairy graying ass.


I own shares in companies that have 50 years of reserves. But not running out does not mean that there won't be peak production. The two are totally different things and nobody in the peak oil camp has ever said that we would run out.

 
At 6/27/2012 5:58 AM, Blogger VangelV said...


Snort..I KNOW several geologists, and surveyors personally and they've ALWAYS called "bullshit" on the peak oil "oh my god oh my god we've gotta do something we're running out and raping mother earth!" set. By most For example just in the Bakken formation, according to several articles and studies I've read there's 2-300 YEARS worth of oil to be produced. Think about that 2-3 CENTURIES...just in that one field. Peak oil my fat hairy graying ass.


I own shares in companies that have 50 years of reserves. But not running out does not mean that there won't be peak production. The two are totally different things and nobody in the peak oil camp has ever said that we would run out.

 
At 6/27/2012 6:00 AM, Blogger VangelV said...

The Peak Oil Nuts, like the Inflation Nuts or Gold Nuts seem to operate in a parallel universe.

Quite right. Remember when those nuts said that the internet bubble would end badly? That there was a housing bubble that would destroy many families? How dumb can you get?

 
At 6/27/2012 6:22 AM, OpenID Sprewell said...

marmico, yes, you're right, I see now that Kedrosky does say above the table that he's changing the timespan of the bet for this decade, apparently just so he can stupidly declare Ehrlich the winner for all those years. He uses a completely different timespan than the rest of the table for this decade, with no asterisk on the table explaining that. That still doesn't explain why he has Ehrlich winning in '85-86 when the chart doesn't show that. I suppose he might be lapsing into a 1- or 2-year timespan for those years' bets, which makes no sense whatsoever. More likely he's fundamentally innumerate, like most who argue his point.

As for that timber bet, there's no dagger, unless you mean the one wielded by the moron environmentalists, as quoted from your link:

"After reading a note by Roger Sedjo, Julian Simon withdrew from the bet with David South in March of 1997. He sent South a check for $1,000. Simon believed the price of pine sawtimber (standing) in south Alabama in December of 2000, would be affected by actions by environmental groups and the USFS in the Pacific Northwest."

Winning your bet because of dumb govt regulation is neither here nor there: it's as though the refs were paid off and calling the game wrong.

 
At 6/27/2012 7:41 AM, Blogger marmico said...

As for that timber bet, there's no dagger, unless you mean the one wielded by the moron environmentalists

A bet is a bet. Simon was betting against the environmentalists and surely considered externalities like the spotted owl in the Pacific north-west logging country.

The point being that most of Simon's life was spent in an era of relative extractive resource abundance which colored his opinion and betting behaviour. You can't say the same thing since the 1973-74 oil supply shock.

 
At 6/27/2012 7:55 AM, Blogger bart said...

The Peak CHEAP Oil Deniers, like the Inflation Losers or Poor Goldl-ess Nuts seem to operate in a parallel universe.

 
At 6/27/2012 8:37 AM, Blogger Jet Beagle said...

rufus II: "The oil fields are renewing themselves? Great!!!"

I don't agree with any abiogenic oil theories. However, I think it is possible that a few depleted petroleum reservoirs will refill.

Also, new drilling techniques and seismological advances make it possible to "recover oil pockets that may not have been reached in the original production from these wells."

 
At 6/27/2012 1:15 PM, Blogger bart said...

Interview with Art Berman about the many "issues" with natural gas, etc.


http://www.itulip.com/audio/EJ_ArtBerman060611Edited.aiff

Art Berman is a geological consultant whose specialties are subsurface petroleum geology, seismic interpretation, and database design and management. He is currently consulting with a wide range of industry clients such as PetroChina, Total, and Schlumberger. Mr. Berman has an MS in geology from the Colorado School of Mines and is active with the American Association of Petroleum Geologists.

 
At 6/27/2012 4:30 PM, Blogger VangelV said...

I don't agree with any abiogenic oil theories. However, I think it is possible that a few depleted petroleum reservoirs will refill.

What we know is that oil comes from the source rock. In some areas the drillers may have produced oil that is far from the reservoir from which it is seeping. That is very different than having the oil come from abiotic sources. In fact, the analysis shows that there are biological markers in the hydrocarbons showing that they came from conventional sources.

Also, new drilling techniques and seismological advances make it possible to "recover oil pockets that may not have been reached in the original production from these wells."

Of course you can get to the small pockets missed by previous drilling or trapped behind a water flood. But this is no solution. It only squeezes out a few extra barrels from existing fields slowly enough to make the full depreciation economic.

This is not going to help the Peak OIl argument. It only shows that if prices rise enough we will find ways to get more of the oil we left behind. But that is not enough to get daily production past Hubbert's Peak.

 
At 7/25/2012 3:30 PM, Blogger VangelV said...

Here we go. I have been waiting for others to break down Maugeri’s claims and have been rewarded with a very comprehensive article in the FT. (linked by Tyler Cowen)

In the Conclusion we read:

Although Maugeri does not state explicitly what decline rates he is using, researchers Stephen Sorrell and Christophe McGlade derived an annual average decline rate from the data in his report of 1.6 percent, or about one-third the global decline rates estimated by IEA, CERA and others. After analyzing the IEA data, they found an aggregate global production-weighted decline rate of 4.1 percent per year. At that rate, they found that Maugeri’s forecast for 2020 would reach just 95.1 mbpd, not 110.6 mbpd—a gain of just 2 mbpd over today, not 17.6 mbpd.

We cannot independently evaluate Maugeri’s country-by-country forecasts without seeing the assumptions in his data model, but his summary expectations are optimistic in the extreme. For example, he sees production from Iraq expanding in the next eight years at rates that have never before been achieved, despite a great deal of uncertainty about the country’s stability, its ability to maintain security in the future, and its ability to attract Western oil partners with the knowledge and technology needed to exploit its resources. The failure of Iraq’s recent oil lease auctions do little to give one confidence that Maugeri’s extraordinary forecast can be realized.

More generally, his assertion that, of the countries with more than 1 mbpd of production capacity, only four will have reduced capacity by 2020 is impossible to square with the fact that production has been declining in more 50 of those countries since 2000.

Maugeri’s forecast does not mention a price ceiling at all, an obvious deficiency given the extreme volatility of oil prices over the past four years. We know that as prices approach $120 a barrel, demand shrinks, yet triple-digit prices are precisely what is required to bring much of the new supply Maugeri anticipates online.

To his credit, Maugeri acknowledges that his analysis “is subject to a significant margin of error, depending on several circumstances that extend beyond the risks in each project or country,” and he details numerous important caveats. And to the extent that he reveals the assumptions underpinning his forecast, his transparency is laudable. In the final analysis, however, it is insufficient. He fails to provide adequate justification that his assumptions, being widely divergent from most other industry estimates, are remotely realistic.

We must conclude that the key assumptions about reserve growth and its effect on decline rates in Maugeri’s report are muddled, speculative and unverifiable. And sprinkling those assertions with repeated declamations about how peak oil is a non-issue, insisting repeatedly that the only real constraints on his scenario have to do with political decisions and geopolitical risks, suggests that his report is more about grinding a political axe on behalf of the oil industry than offering a serious or transparent analysis. Finally we must note that Maugeri is well known for his hostility to peak oil, as is BP, which funded his report. After taking real-world risks, costs, and restrictions into account, the case for peak oil—which is about production rates, not production capacity or reserves—seems far more realistic.

 
At 7/25/2012 3:40 PM, Blogger bart said...

Great find Vangel, thanks.

 
At 7/25/2012 9:14 PM, Blogger VangelV said...

Great find Vangel, thanks.

A pal who follows these postings as comedic entertainment spotted it in the FT this morning and sent me the link. He got it from Tyler Cowen's blog, which I also frequent.

I suspect that as the economic situation worsens the hedge funds and guys who play the short side will blow the whistle on the scam and we will get another collapse of another bubble. Since I do not short I have to play the long side by purchasing assets that will do well once the bubble pops.

 
At 7/25/2012 10:26 PM, Blogger bart said...

A pal who follows these postings as comedic entertainment spotted it in the FT this morning and sent me the link. He got it from Tyler Cowen's blog, which I also frequent.

I suspect that as the economic situation worsens the hedge funds and guys who play the short side will blow the whistle on the scam and we will get another collapse of another bubble. Since I do not short I have to play the long side by purchasing assets that will do well once the bubble pops.


I assume you saw the long (continued) post from a friend about Marcellus and the "optimism"... and how that turned out. No response at all from the Bakken promoters on it.


Pretty much agreed on the 2 & 20 hedge fund brigade, most are too similar to the HFT & program trading desks (and other greed hoors) for my taste.



OT, but I was a bit confused today about Weill's (one of those "very best people" that I used to rant about) comment on splitting apart the investment banks, until it struck me that the new structure could easily operate similar to the IMF etc. in the 70s - a primary engine of inflation.

I know you're not a big fan of the non Austrian total money supply concept, but *net* derivatives per the BIS have added well over $10 Trillion to world money supply since the low in 2005.

 
At 7/25/2012 11:05 PM, Blogger VangelV said...

I assume you saw the long (continued) post from a friend about Marcellus and the "optimism"... and how that turned out. No response at all from the Bakken promoters on it.

It is a lot like arguing with lefties about the 'evils' or capitalism and free markets or with AGW fanatics about climate change. When you shoot down their arguments they just move on to the next point.

 
At 7/26/2012 6:49 AM, Blogger bart said...

It is a lot like arguing with lefties about the 'evils' or capitalism and free markets or with AGW fanatics about climate change. When you shoot down their arguments they just move on to the next point.


Precisely true, and frequently they just plain ignore that they've been shot down. Classic.

By the way, I see that foreclosures are way up in the most recent data as banks bring more of their shadow inventory back to the market. PT Barnum, is alive and well. *sigh*

 

Post a Comment

Links to this post:

Create a Link

<< Home