"Oil Is a Binding Constraint On Economic Growth"

Steven Kopits is the Managing Director of Douglas Westwood and he's fairly well known in Peak Oil circles for his clear, data-driven presentations on oil trends. Here he's back again with a recent talk to faculty and alumni of Columbia University's School of International and Public Affairs (SIPA) titled "Global Oil Market Forecasting: Main Approaches & Key Drivers" (slides)

The talk is well worth watching all the way through, and highly recommended. But I'll touch on a few key points that should be highlighted:

  • Kopits sets up the beginning of his talk as a discussion of Demand-Driven versus Supply-Driven Forecasting. And this is important to understand because - on average - media discussions about these issues tend to have a demand-driven bias. Especially on the pages of the Wall Street Journal, The Economist, Financial Times, or CNBC screens.
  • The Peak Oil community generally has a Supply-Driven bias
  • But one has to take how they think the world works and verify it against the data, and Kopits concludes later in the talk: "Demand-constrained models dominate thinking about oil demand, supply, prices, and their effect on the economy. The data have not supported these models in recent years; the data do fit a supply-constrained model."
  • It follows that Kopits believes that Peak demand theories are largely unsupported by the data, the same conclusion reached by Mark Lewis and many others

  • "China is drilling for oil in mainstreet USA" - this great quote highlights a point often made by Jeffrey Brown and others: China's oil consumption growth is less about the world finding lots more oil, and more about demand reductions in other countries

  • Kopits shows the well-known, but under-appreciated fact that legacy, conventional oil production peaked in 2005. Oil supply growth after 2005 is entirely leveraged on unconventional oil production

    • What's funny (or sad) about this is that everyone who predicted a 2005 peak in worldwide conventional oil production - ridiculed at the time - has largely been proven correct. But they were never given the credit for this because unconventional production has increasingly taken a larger share of the pie. So the story of the past few years hasn't been about the decline of conventionals, it's been about the rise of fracking and shale

  • Kopits addresses the "flatness" of oil production since 2005, and why the decline has not been steeper. In short, this is because we threw a lot of money at it to the tune of $3.5 trillion spent maintaining the legacy oil and gas system since 2005. What did we get for all this invested money? Sadly what we got was a decline in legacy oil production of 1 million barrels per day (mbpd)

  • A lot of the reporting about the oil majors over the past few months suggests that this spending party is coming to an end. Investors are seeing the money thrown at this that's not necessarily translating into increased production or profits, and shareholders are calling for changes

  • If this spending party does start to wind down, it will be very interesting to see what happens to conventional crude production going forward - putting even MORE pressure on the need for unconventionals to continue their unsustainable growth