CERA's Record Has Been Abysmal

ASPOUSA Is Clearly Winning the 2008 $100,000 Bet With CERA
Luckily for them, CERA Never Took the Bet

Both Chris Nelder and Mark Lewis had a little fun on Twitter highlighting Steve Andrews' recent piece "A 10-Year Oil Supply Retrospective Shows Unwarranted Optimism"

In it Andrews' looks back at the past decade in CERA, and for a little background on why, he explains:

"CERA arguably has maintained the highest profile of any oil industry analytical shop since at least the turn of the century, thanks in large part to founder Daniel Yergin’s reputation. Every time there is a surprise in world oil supply, he’s the media’s go-to guru. When the National Petroleum Council convenes a world oil study, you can bet the ranch that CERA will play a lead role. When the US Senate or House convenes a committee hearing on oil, CERA often sits on the panel; they also deliver some of their key research papers free of charge to all US lawmakers. Their policy-oriented footprint is large and their strategic media outreach effective."

Back in 2008, an article on the Oil Drum, "Holding Daniel Yergin and CERA Accountable" painted the sad blow-by-blow of bad calls by CERA and Yergin. But it's also worth remembering that in 2008 ASPO-USA had enough of the lack of accountability, so they very publicly challenged CERA to a $100,000 bet. The challenge was simple: CERA in 2007 made a call that world oil production capacity would reach 112 million barrels per day in 2017, up from about 87 million barrels in 2007. Once again there was Steve Andrews who wrote at the time in 2007: "CERA is forecasting an addition of 20 million barrels within a decade... That's a vision in search of reality. Anything is possible on paper, but we are betting you can't do that with the drill bit."

The late Randy Udall added "CERA's claims of 'plentiful energy resources' are misguided, overly optimistic and out of touch with recent warnings from oil industry CEOs."

As well as this from Bob Kanner, CEO of Cleveland-based PubCo Corporation: "CERA projections have been wrong so often that policy makers should think twice about embracing their data."

So the stage was set, if CERA believed their projections with the confidence they always appear to have - it was time to prove it. Accept the bet and they show everyone that they themselves have full confidence in the projections they offer the public - projections cited by many critical investment decisions. 

But you already know the punchline, CERA never accepted the ASPO-USA bet.

And in hindsight that's looking like a great choice on their part. Here in 2014, CERA's 2007 projection for 2017 is nowhere close to being a reality. And unless CERA is somehow going to pull 15+ million barrels/day out of a magic hat in the next three years - it's probably safe to call this thing early as an easy win for ASPO-USA.

As a final point, I want to be very careful to point out that discussing an organization's record of being wrong, is not the same as discussing their positions. This is a strawman, and it's more accurately a discussion about the fact that forecasting is hard. And most people are more wrong than right.

It happens on the other side too, as critics bring forth lists of pessimistic statements people made about oil production and incorrectly try to say "People were wrong about oil before... so they will ALWAYS be wrong about Peak Oil."

The phrase "We were supposed to run out of oil five times already in history" is a common trope in Daniel Yergin speeches over the past decade. This is a double strawman, on one hand trying to fool people into thinking Peak Oil is about oil running out (it's not) and second using sleight of hand to get people thinking about failed past projections instead of present day oil production data.

Dr. Richard Miller touched on this today in an interview for Peak Oil Review:

"I don’t think that anyone’s past forecast has got anything to do with current forecasts.  The fact that someone else made a call, based on the best information that was available at the time, and that call has subsequently turned out to be wrong, is an interesting fact.  But what has it got to do with any new estimate?... The charge that—because all previous estimates have been wrong, therefore all future estimates are going to be wrong as well—is just ludicrous and completely unscientific."

These are data-driven discussions, yet "numbers of times being wrong" isn't the proper metric - the proper metric is data about oil production.

That's where these discussions should always remain grounded. And this is where we should nail CERA - as the lecture by Steven Kopits I highlighted yesterday explained - CERA's position today isn't well grounded in the data we're seeing.

And while a look into CERA's past does not necessarily inform us of the correctness of their current positions, it does tell us a bit about CERA's inherent biases and that they have a long and storied history of believing what they want to believe, telling people what they want to hear, and consistently misinterpreting the data in front of their eyes.

In the ideal world, investors and the public would listen to overoptimistic positions, then the overpessimistic positions, understand that they're both incorrect, and stake their flag somewhere safely informed by the data - in between those two extremes.

Sadly, this isn't how things work because the world and the media continues to have an optimism bias. In reality, when pessimistic voices are proven correct, they are rarely rewarded with the appropriate credit or influence. And when the optimistic voices are continuously proven wrong, they rarely suffer the consequences and continue to achieve even more influence. Daniel Yergin is still the go-to guy whenever the oil press needs a talking head. And in two weeks, CERAWeek - the oil optimism Super Bowl - is still the biggest show in town. And for the low low registration price of $7500 - CERA is more than happy to take your money.

False optimism leads to very poor investment decisions.
— Jeremy Grantham, GMO

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