Crucial Differences Between "Peak Oil" & "Peak Oil Debate" - Part 1

Many thanks to Keith Kloor for including me in his piece "Is Peak Oil Dead or Just Postponed?" Although it may be a bit much to call me a Peak Oil "proponent" - I simply work at a nonprofit helping to keep the trains moving on-time, and anything I write stands gratefully on the shoulders of so many geologists, petroleum engineers, economists, and analysts who have and continue to soberly examine these energy issues critical to our society.

I want to respond to three areas from Kloor's article and show:

  • The problem of total liquids vs. crude oil, and the tendency of oil production graphs to omit the year of peak US production, 1970.
  • The true reasons for Oil Drum's closure are best heard from those who ran it.
  • A few numbers in the Peak Oil Debate: US oil production, World oil production, and price - and show that it's possible to take optimistic or pessimistic positions in each.

But I hope you also stick around for Part 2 because I want to transition into an overarching theme in the latest round of "Peak Oil is dead" mania: Why it's so important that the public does not confuse "Peak Oil" and the "Peak Oil Debate."

About That Graph

There are a few problems with this graph... 

The turnaround in US oil production "can be told in one graph," Kloor writes. And the graph he uses is from David Shukman's BBC article "The receding threat from 'peak oil'"

Chris Nelder (on twitter) and the Post Carbon Institute's Asher Miller (in the comments) were both quick to point out that this is a chart of total liquids, not oil. Total liquids include such things as ethane, propane, butane, pentane, and biofuels. There's a healthy debate in energy circles about how important the "non-oil" liquids in total liquids are to our overall energy mix - some claiming that they are very relevant, others that they aren't relevant at all. But they are not - by any chemistry definition - oil.

Now I don't put the blame for this on Keith Kloor or David Shukman, it's not like they maliciously photoshoped "Total oil production" into that graph. The blame goes to the US Energy Information Administration, because that's exactly how the graph comes from them.

The obvious reason that this is a problem is because the difference between crude oil production and total liquids production really isn't common knowledge, and it's easy for people to get confused. When I first saw the graph, my eye went to the first peak in 1985 and I thought "Wait, we didn't produce 11 million barrels per day in 1985!" - that's the first clue that I was looking at total liquids and not crude oil. But that's only because I've had the benefit of looking at a LOT of oil production data - most normal people haven't. And if they see a graph labeled "Total oil production" - how are they supposed to know otherwise.

But it gets worse. Late last year, when the IEA released their annual World Energy Outlook, the report claimed that the United States would overtake Saudi Arabia as the world's top oil producer in 2020. Mainstream media ran with the story in droves faster than the ink on their newsprint could dry. The problem - and you already know the punchline - it's not true. The US will NOT overtake Saudi Arabia in crude oil production by 2020 or possibly ever. Here again they're talking about "total liquids" and when you throw all those other products into the discussion with crude oil, the US starts to look competitive vs. Saudi Arabia. For more info, Chris Nelder and Kurt Cobb have both written extensively on the recent trend to "total liquids" and how it came about:

But there's a second, and I think larger problem with the graph - one that's far too common among those quick to pronounce Peak Oil dead, they tend to use graphs that only show what they want to show - without the full context of all of the available information.  

A master of this technique is the American Enterprise Institute's Mark Perry, who sometimes seems to have a full-time job keeping the public updated on the various states of Peak Oil's deadness on his blog: Carpe Diem. Every time a new uptick in US oil production is announced, Perry jumps into Excel and updates his graph - but is always careful to choose a start date that preserves a nice and pleasing "U" shape, without the context of oil production from earlier years. As US production has increased, Perry's graphs began to begin earlier and earlier.

Mark Perry's latest crude oil production graph - American Enterprise Institute.

US crude oil production graph from the EIA, showing data from all available years.

How one presents data to an audience can affect the value the audience assigns to that data. With the context of the full history of US oil production, an audience may come away with the opinion that we're currently doing pretty good in oil production, but nowhere near as good as earlier years. An audience might also have a hard time accepting claims of Peak Oil's death, when shown a graph that has a very obvious peak in 1970, one higher than our production today.

These are some of the reasons why you almost never see ALL of the US oil data in articles and commentary from those critical of Peak Oil. Can Mark Perry and others convincingly make the "peak oil is dead" case if they show the full graph, including the 1970 peak, and the Prudhoe Bay turnaround and second peak of the 1980s? Possibly. But we'll never know, because they never do.

Still the most misleading energy chart of the year. Can you tell why? 

Still the most misleading energy chart of the year. Can you tell why? 

Way back in March, I wrote a post on what's continued to be the most misleading energy chart of the year. And there I wrote that "The trick with misinformation isn't that people are lying to you. The trick is that they either tell accurate facts while withholding additional necessary information or they tell accurate facts while greatly implying things that aren't entirely accurate."

Under skillful hands - data can say whatever they want it to say.

The Oil Drum: Somehow Everyone 'Forgot' to Ask Them for Comment

I found myself the other day thinking about "JD". He was the author of the "Peak Oil Debunked" blog. For a few years he did rhetorical battle online with energy analysts near and far. Then around 2009, his posts slowed, and after just a couple of posts in the last few years, he just hasn't been heard from again. Through his own admission, he just grew tired of the blog. He probably felt he was repeating himself over and over, and didn't feel the need to continue.

And people took him at his word. Sometimes people choose to do different things with their time. The internet didn't rise up and say "See!! JD has given up. He has NOTHING else to write about. Peak Oil has won!!"

But that's exactly what people are doing - in the opposite direction - on the news of the Oil Drum closure. That's what is most maddening about the past few weeks. Article after article where no one, in true journalistic fashion, actually bothered to contact the editors of the Oil Drum for more context on WHY the site was closing. Most had no interest in contacting the Oil Drum, they already had their preexisting narrative and were running with it.


In "As Fracking Rises, Peak Oil Theory Slowly Dies," David Blackmon goes so far as to have a link to the Oil Drum website in the first sentence that's actually an intentionally broken link, giving the reader the false impression that the Oil Drum has suddenly disappeared from the internet. The link still stands broken, even as Blackmon and Forbes have been informed of the error repeatedly. On Ronald Bailey shows what he thought of the Oil Drum and its readers with his post "Peak Oil Peters Out: Neo-Malthusian Cult Website The Oil Drum Shuts Down." Even Jerome Corsi, promoter of the abiotic oil theory (aka the belief the oil is infinite), stopped by the Oil Drum comments section to dance on the grave: "Please be assured you won't be missed as you fall into the category of bad science you defended as if it were religion," he wrote.

But to the credit of Keith Kloor and many other writers, most view the closure of the Oil Drum with some sadness as they viewed the site as a very useful collection of data-driven energy essays and analysis. But they too fell into the popular narrative without checking with sources.

To be fair, the editors of the Oil Drum didn't do themselves any favors with this line in the closure announcement post: "...due to scarcity of new content caused by a dwindling number of contributors." Had they known that would be the line that would launch a thousand blog posts, they probably would have worded it differently.

What happened is that most don't have first-hand knowledge of the type of content the Oil Drum promoted. Last week, I wrote this on the topic: "The Oil Drum didn't just ‘talk about Peak Oil’, it focused on new, novel, detailed analysis. The type of analysis that takes a lot of time and care to develop. For good or ill, it's important to understand that the Oil Drum had certain standards for the type of pieces allowed on the site. And when the judgment was made that the high-quality unique content wasn't going to be produced at the rate they wanted, they decided to stop."

But don't take my word for it, Salon's Andrew Leonard went straight to the source and spoke to one of the Oil Drum editors for the real story. In another post, Dave Summers, Oil Drum co-founder, wrote a detailed history of the website and elaborated on the reasons for its closure. Both are required reading for those who want to understand the explanation from those that made the decision:  

The narrative that many have spun claiming the Oil Drum closing means Peak Oil people have nothing to talk about simply isn't true. Peak Oil discussions are discussions about energy economics. And anytime any news happens in those areas, there's a Peak Oil angle to discuss.

And as we're about to see, it's possible to take optimistic and pessimistic observations on data as well.

Numbers: In Whose Favor?

By its nature, Peak Oil is a data-driven study. Peak oil itself is the maximum rate of oil production - so it is measured in oil production rates. The greater Peak Oil Debate is a discussion of energy economics and here debaters use many different metrics in making their cases: oil production, oil price, economic growth, et cetera.

But the point is that numbers in some form do need to be present in the argument. And far too many "Peak Oil is dead" articles simply lack data in their arguments. There's usually a lot of "innovation has won the day" comments - without quantifying what that actually means.


 US Oil Production

It's usually the case that most of these articles focus on recent oil gains here in the United States. We looked at this earlier with Mark Perry's carefully cropped oil production charts. Every time someone says "look at US production, Peak Oil is dead", there's usually someone like me close behind to remind them that current US production hasn't yet reached the maximum rate we achieved in 1970. Some will then say "but that's not the point," but the maximum rate of oil production is the DEFINITION of Peak Oil. And one would think that to argue the end of Peak Oil, the starting point would be to get US production past the 1970 rate.

But when you ask the optimists when they believe US oil production will exceed the 1970 rate... they tend to become very quiet. No one knows if production will reach the 1970 rate, including me. Few people are willing to make that call one way or the other at least for the next few years.

But many analysts do predict that the tight oil boom in the US will continue to increase production over the next 1-2 years. Doing that time, production will face a few challenges. One of them being the decline of conventional crude - conventional crude production has peaked in the US and will continue to decline. This means that the unconventional resources will have to work even harder to maintain and grow US production.

In terms of unconventional production, decline rates are the constant specter industry rushes to stay ahead of. Keep in mind, this isn't David Hughes and Deborah Rogers saying this - this is Ed Morse of Citibank. During the Bipartisan Policy Center's Geopolitical Impacts of the Tight Oil Boom event last month, Morse outlined his three big dangers to the tight oil revolution, one of them being steep production declines (the other two were environmental disasters, and price risks [aka price dropping too low for profitability]).

As Kurt Cobb explains on tight oil decline rates: "Average annual oil production decline rates for two of the most well-developed tight oil plays, Bakken in North Dakota and Eagle-Ford in Texas, are 38 percent and 42 percent, respectively. That means that drillers in those plays must replace 38 to 42 percent of their current production EACH YEAR before they can increase production. It’s a ferociously high decline rate, some 10 times the rate worldwide."

Oil production sometimes feels like the man on the treadmill - running faster and faster just to stay in the same spot.


World Oil Production 

Let's take a quick look at global oil production, because it's important to remember that there's much more to this story than just the US.

World Oil Production: 2002 - July 2013. Stuart Staniford.  

Stuart Staniford has always done a great job tracking the monthly oil supply graphs, and his latest is on the right. The black line is the average of numbers from the EIA, IEA, and OPEC. The black line again is total liquids, and the green is simple crude & condensate (aka oil), so you can see the difference between the two. Here you see that despite high prices, oil production worldwide started to trend flat in 2005 until 2009, then it picked up again but has returned flat in recent months - right during the time when the US is in its tight oil boom.

So what's going on here? A quick look at the BP data can help clear up some of the confusion.

Oil production in 2012 soared in the United States, growing +13.9% over the 2011 rate. But that only accounts for 9.6% of the total worldwide supply. At the same time the US was growing +13.9%, oil production in the UK was declining -13.4%. Denmark, -8.0%. Norway, -7.0%. In fact, the Europe & Eurasia category would be in a decline rout if it wasn't for the presence of Russia. Russia makes up nearly 62% of Europe production and it grew in 2012 by +1.2%. Together this leaves Europe in total ONLY declining by -1.4%.

In the Middle East we see a mix of above-ground factors holding back production. Syria through civil war declined -49.9% in 2012. Iran through sanctions, declined -16.2%. Iraq increased production by +11.2% - and Iraq is the true wild card in the Middle East, the world desperately needs Iraq to overcome its political, logistical, and security challenges so it can continue to realize strong growth. Last fall the IEA released an outlook specifically on the Iraq situation.

In Africa, production increased +7.7% only because Libya production grew an eye-popping +215.1% as the country's oil industry spent the year returning to normal.

Adding all of this up, we see that world oil production in 2012 increased just +2.2% over 2011 levels.

On the demand side, worldwide oil consumption grew +0.9%. People frequently talk about the -2.3% decline in US oil consumption, but they also have to consider consumption increases in other parts of the world (Russia, +2.5%; China, +5.0%; India, +5.0%; Japan, +6.3%).

When journalists and politicians wonder out loud why gasoline prices are so high despite news of US demand decreases and hype on the US oil boom, this is the reason - we all pay the world price for oil and the United States is only one part of that formula.

But wait! The oil optimists might say that the US is the pioneer, and we're just going to export the tight oil boom around the world so that everyone can experience the same production increases we have. Well, not so fast. Leonardo Maugeri who was hailed by oil optimists this time last year, is now being thrown under the bus by some for his newest report that dares to suggest that the shale revolution will be slow to replicate outside the United States.

"The drilling-intense nature of the shale business is a factor that will make the expansion of the shale phenomenon in other parts of the world improbable - at least in this decade... No other country can likely match even a fraction of the U.S. drilling and fracking power," Maugeri writes.

Here again we find ourselves on that production treadmill. And while an optimist might look at the worldwide data and see hope from US production, a pessimist might look at the same data and conclude that right now the United States is the ONLY force keeping worldwide oil production from slipping into decline.


Price Matters, and It Should Be Discussed 


Finally, a brief statement on price. Josiah Neeley, in an article responding to Noah Smith and Matt Yglesias' recent Peak Oil posts said this: "Even in real terms the price of oil is still a lot higher today than it was in the 1990s. But so what? Fundamentally, Peak Oil was about what would happen to oil production, not to oil prices."

This leads into what I'm going to discuss in Part 2, the difference between Peak Oil & the Peak Oil Debate. On the surface, Neeley is exactly right, Peak Oil is only about production rates and nothing else.

But the Peak Oil Debate is the larger discussion of what peak oil means, and price is absolutely part of that discussion. As former ASPO-USA Board Member Dick Lawrence said in a comment to Andy Revkin's recent article, "A little more than a decade ago, oil was at $10 per barrel. Now it's hovering stubbornly around $100 per barrel, and shows no signs of retreating. This is a fact - a huge increase - that should figure prominently in any discussion of energy supply and demand..."

On the production side, prices must stay in an ever-shrinking Goldilocks Zone - this is the zone where prices must remain high enough to spur production, but not too high to kill demand - which would lower prices again.

On the demand side, it's absolutely relevant to examine how high oil prices affect the various sectors of the economy. Here in the US, we live in time of record gasoline prices - a time where American families are spending a bigger share of their income on gasoline than at any time since the early 1980s - this despite cars and trucks becoming more fuel-efficient. Every $10 increase in the price per barrel of oil costs the Pentagon and the US military $1.3 billion. This matters.
And far too many write price off with comments such as "the market will adjust" but what does that mean in real terms? Will the adjustment be easy, difficult, chaotic? They don't say. They just stick to their position that "it'll all workout somehow."

A commenter in David Blackmon’s article summed up price this way:

At $80/barrel they told us that we had a shale oil boom.
At $90/barrel they told us that the USA would be energy independent
At $100/barrel they told us that the USA would soon be exporting oil
Now at $108/barrel they tell us that Peak Oil is dead.

I wonder what they’ll tell us when oil hits $120/barrel…

Increasing oil production will require an ever increasing price of oil and we already know that 10 of the last 11 recessions were preceded by oil price hikes, but much more study needs to be done to understand the stresses high prices place on the economy.

Those very important studies will never happen if we don't become crystal clear on the difference between "Peak Oil" and the "Peak Oil Debate" which is why I will focus directly on that topic in Part 2.