In Search of Oil Realism

Russell Gold's Wall Street Journal article "Why Peak-Oil Predictions Haven't Come True" hit the web yesterday. And given Gold's position as senior energy reporter for the Journal, this is likely the highest profile Peak Oil article of the year. You may also remember Gold from the great video interviews filmed as part of his book tour for his latest work "The Boom: How Fracking Ignited the American Energy Revolution and Changed the World." 

Gold's article comes from a very optimistic side of the Peak Oil Debate, but the pessimistic position isn't as weak as Gold suggests.

Let's jump in to examine the truth about past oil predictions, why the rate of oil production is the only correct metric for these debates, why these discussions should be grounded on present-day events, and why realistic estimates of our energy future should be our ultimate goal.

Peak Oil vs the Peak Oil Debate

To quote Mason Inman, "If the boom in crude oil production is so amazing, why juice the numbers by lumping in natural gas liquids?"

Let's start at 10,000 feet. One of the key points of my blog is that people get into trouble because they confuse (or purposely confuse) Peak Oil and the Peak Oil Debate, or stated another way, they confuse what Peak Oil IS and what Peak Oil MEANS. 

The definition of Peak Oil is the "maximum rate of oil production" - it's a number, nothing more, nothing less. Production of all finite resources eventually reach a peak in production. That's not controversial, it's not scary, it's just a number.

The Peak Oil Debate on the other hand is all the discussion surrounding that number. What will the peak rate be (what's the number)? When will it happen? How do we properly define "oil" (many argue that if you limit the definition to conventional crude, we're already past global peak)? How does the decline look after the peak (steep decline, plateau, et cetera)? What happens to price and costs to the oil industry? What consequences does the peak have for society? And many other questions. 

With so many different questions to answer in the Peak Oil Debate, it should be obvious that many different positions exist in the debate. Peak Oil beliefs are not homogeneous - as Robert Rapier points out in his article Five Misconceptions about Peak Oil.

It's true that the people that talk about Peak Oil are usually considered part of the Peak Oil Community, or "Peakists" and that the group as a whole generally falls on the pessimistic side of the debate. But even that is too large of a net to cast due to the variety of opinions.

Another way to break the debate down might be into five categories: extreme pessimist, pessimist, moderate, optimist, and extreme optimist. 

On both sides of the spectrum exist the small extreme minority that no one should listen too. The extreme optimists might push the tale that cold fusion is right around the corner and will fly in to quickly and easily solve all our energy and climate problems - but no one really listens to them. Nor do the pessimists try to pretend that ALL the optimists believe that.

But it's different on the other side. Look how Gold tries to both redefine Peak Oil and paint the pessimistic position early in his piece

" has been a doomsday scenario looming large in the popular imagination: The world's oil production tops out and then starts an inexorable decline—sending costs soaring and forcing nations to lay down strict rationing programs and battle for shrinking reserves."

Gold is taking an extreme pessimistic position in the Peak Oil Debate and trying to suggest that this is what the entire pessimistic side believes. It's not true. By also trying to re-define Peak Oil, he's also setting up an argument that's very easy to win. If the battle is between "Doomsday" and "Doomsday isn't here yet" - that's a pretty easy debate to have.

The phrase "Running out of Oil" also falls into this category. Remember, peaking in production, by definition, means that you have plenty of oil left. It has nothing to do with running out. And in 2014, the only people who ever use the phrase "running out of oil" are people who either don't understand Peak Oil, or people trying to mislead an audience about Peak Oil. Because again, if you can successfully mislead an audience and frame the argument as "No more oil" vs "We still have oil" - you again set yourself up for an easy debate victory.

Returning again to Robert Rapier for this quote about the variety of opinions on the pessimistic side (emphasis mine):

"There are those who believe that a peak is imminent, followed by a catastrophic decline. Included in this group are people who have vocally and (to this point) wrongly predicted dates and catastrophic consequences as a result of peak oil. These are the real targets of those who claim that peak oil is nonsense. What they really mean – but perhaps don’t say due to misconceptions about peak oil beliefs – is that the idea of imminent, catastrophic decline is nonsense. But that isn’t the same thing as arguing that peak oil is nonsense. 

But there are also people who believe peak oil will inevitably lead to cleaner environments, closer communities, and healthier food. Then there are those who believe that peak oil will lead to a dirtier environment as we become more desperate for energy and turn to more oil sands and coal to replace declining oil supplies. There are people who believe peak oil will be a minor inconvenience because there are plenty of sources capable of replacing oil. And there are those who believe certain elements of all of the above."

The caricature of the Peak Oil community as doomsday artists, exists more in the minds of some optimists than it does in reality. But you can't blame them for the message discipline. Out of the hope that if they continue to scream words like doomsday and cult and religion over and over and over again - then maybe they can get that message to stick in the minds of the public. 

Highlights from the 2012 ASPO-USA conference at The University of Texas at Austin.

And to those that would argue that the Peak Oil community really is about that, my answer is simple: Name names. I challenge the optimists to show us prominent people in the Peak Oil community that have those views. And they can't. At best they can come up with fringe characters on the extremes of Peak Oil thought that no one ever considered serious analysts in the first place. And I even help them out by giving them a link to seven years of video from ASPO-USA conferences. You'll find lots of serious petroleum geologists, engineers, economists and others, soberly discussing our energy challenges - you won't find people screaming about an imminent doomsday. 

About Those Predictions

Like positions in the Peak Oil Debate, predictions about the timing of Peak Oil are varied as well. But Gold never really names the authors of the predictions he's talking about or examines them in detail.

To the left is a table of global oil peak projections taken from the Hirsch Report, written about ten years ago. Notice the great range of projected dates. No one ever seems to remember that Jean Laherrère's projections for peak fall right here in this decade. 

You also have to consider something that Gold didn't discuss: conventional production vs unconventional production. Considering conventional crude alone, as most analysts did at the time - the early peak projections don't look nearly as bad.

It's something a layman Wall Street Journal reader wouldn't pick-up from Gold's article, but in 2014, what we consider "oil production" is more accurately called total liquids because we now lump additional liquids into the total number. Some argue that this is appropriate, some argue that it is not. But this is a point that many optimists gloss over, and they benefit from the ignorance of the public that you can just place a chart in front of people that says "oil production" and everyone will generally take your word for it without examining the numbers.

Richard Heinberg examined past predictions this time last year in a reflection upon the ten year anniversary of his book "The Party's Over: Oil War and the Fate of Industrial Societies

Heinberg recalls this quote from page 118 of the 2003 edition of his book:

"Colin Campbell estimates that extraction of conventional oil will peak before 2010; however, because more unconventional oil—including oil sands, heavy oil, and oil shale—will be produced during the coming decade, the total production of fossil-fuel liquids (conventional plus unconventional) will peak several years later. According to Jean Laherrère, that may happen as late as 2015."

Back in 2003, no one, optimist or pessimist, was forecasting the shale boom and rise in unconventional production a decade later. But in terms of conventional production, the peakists did pretty well.

But how did that other side do?

One tactic you see in articles like Gold's is the laundry list of pessimistic things people said about oil that turned out to be false. Casually suggesting to the unsuspecting reader that the optimists were, once again, always on the right side of history. 

Well, no.

The optimists were just as wrong as the pessimists. 

A year after Campbell and Laherrère's 1998 Scientific American article "The End of Cheap Oil" launched the modern Peak Oil Debate, there was The Economist with its now infamous "Drowning in Oil" cover story promising a drop from $10/barrel oil to $5.

Prior to 2010, in opposition to the peakists, the optimists had two main arguments. First, you heard a lot of "super abundance" the notion that production was just going to shoot straight up for decades. As late as 2007, the EIA was talking about 100 million barrels per day (mbpd) by 2017. CERA was even worse, talking in 2008 about 112 mbpd in 2017, which even considering the shale boom, sounds ridiculous here in 2014. Or recall the Saudis in 2005 boldly claiming they could maintain 15 mbpd for the next 30-50 years... when in reality they never came close to that production level.

EIA Forecasts of World Petroleum Liquids Production to 2030. Source: EIA IEO 2007-2010. Chart by Steven Kopits

EIA Forecasts of World Petroleum Liquids Production to 2030. Source: EIA IEO 2007-2010. Chart by Steven Kopits

The second argument was that the great "price drop" was always just around the corner. This was going to come from the combination of the super abundance with the addition of new technology, and the technology would operate a lot like Moore's Law in the computer world - the better we get at something, the cheaper it will become. Daniel Yergin preached this constantly. Michael Lynch was still talking about $30 oil as late as 2009

When we started going after unconventional oil and the great realization came that *surprise* more difficult to get oil is actually more expensive to get - most oil optimists quickly forgot they ever made the case for lower oil prices and most in the media let them get away with it.

Prior to 2010, a great debate existed between those who said that the days of cheap oil were over and those that said that they weren't. A time when those who suggested a coming day of triple-digit oil prices were ridiculed. That world of triple-digit oil prices is where we now live. It's a debate the pessimists won. 

Being an optimist in these issues means never having to defend your terrible calls. But as I wrote about in a piece on Dr. Robert Hirsch, usually the only reward for being a pessimist is "scorn heaped with derision."

Such is the nature of energy journalism in a world with a continued optimism bias.

The Correct Data for the Debate

I've just used a lot of words on predictions and how both sides were right and wrong in various ways. But it leads up to one very important point:

The predictions do not matter.

Again. The predictions do not matter.

Former BP geochemist Dr. Richard Miller, has a great quote about this in an issue of Peak Oil Review from earlier this year:

"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."

Let's also highlight Chris Nelder's great piece from last year, "Peak Oil isn't Dead It Just Smells that Way." Here's Nelder talking about how most articles about Peak Oil completely miss the point and they "comment on the debate about peak oil -- the poor predictions and demagoguing and pollyannish posturing and name-calling, which have, truth be told, tainted both sides of the issue -- but none of them discussed peak oil."

Nelder continues: "I really didn't think I'd have to say this again, but peak oil is about data, and specifically data about the production rate of oil. If you want to claim that peak oil is dead (or alive), you have to talk about data on production rates. There is no other way to discuss it."

This is the place where Gold's article, and most optimistic articles, falls down. The correct metric for this discussion is rate of oil production, it's not "number of times people were wrong in the past."

Being an optimist in the Peak Oil Debate means that the person believes global oil production will at worst plateau and at best continue to increase steeply. 

So that means there are three arguments an optimist can choose from, but they MUST make at least one:

  1. Conventional oil production globally, which has been in strong decline for years, will stop declining, level off or begin to increase again.

  2. The US tight oil boom will continue to grow at a strong rate and will not peak in the near term (2-3 years).

  3. Globally the tight oil boom will follow the US template as other countries begin to mimic US oil growth.

This chart from Mason Inman challenges us to remember that the story of oil production is always the combination of unconventional oil gains and conventional oil declines.

Very few people are making the first argument, but it's important because the decline of conventional oil is a huge anchor that only asks unconventional production to work even harder. And the second and third arguments ask for evidence of a continued boom in tight oil.

It's important that readers of an article like Gold's actually hold his feet to the fire to force him to adequately make one or more of those three arguments.

Standing on a box, waving a flag, while repeatedly yelling "technology", "innovation", and "petropreneurship" - isn't serious data-driven evidence for those arguments. 

Everyone agrees that technology improves over time. However, there's plenty of disagreement on the speed of that improvement and that the innovations will always magically occur right when we need them too. Or as Gold writes, "the industry has a history of turning up new supplies just when prospects look bleak." It brings to mind the saying, "it works just fine... until it doesn't."

Others look at this differently. Here's David Roberts in an article last week: "...the reality is that genuine technological breakthroughs are extremely rare, especially in energy. And even when there are new technologies, they take a long, long time to substantially impact the global energy system, which is f’ing huge. Revolutions are rare in practice but frequently forecast."

We've also shown that the optimistic position from a few years ago about falling prices was misguided. Today they admit that new technology and greater oil production requires ever higher oil prices. No one disputes the fact that higher prices will lead to better tricks and innovation in production. But few of the optimists ever stop to soberly examine what high prices mean to the economy here in the US or globally. This at a time when analysis by SAFE shows that US consumer spending on gasoline is near an all-time high despite the US oil boom.

Many economists, like Phil Verleger in Gold's article, wave high prices off by simply saying "We adjust." But what does the adjustment look like? Will it be easy or hard, smooth or chaotic. They never say.

Some optimists in recent years have started side-stepping those three earlier arguments entirely. They've started admitting that peak oil - the maximum rate of oil production, is on the way, but they've painted it with a happier face and called it "Peak Oil Demand." Richard Heinberg again reminds us about Econ 101, and that we can't just pull out demand from supply & price and examine it in isolation. All three are always connected and "Peak Oil Demand" = "Peak Oil Supply." 

The peak of oil production is the peak of oil production, regardless of how people want to frame it.

The Peak Oil Debate in 2014

Finally, I do want to end, as Gold does, with Mason Inman, whose book on M. King Hubbert will be released next year. But instead of focusing on Hubbert, Gold would have been better served with a more data-driven discussion of the fantastic reporting Inman has done over on Beacon these past few months including articles like these:

Earlier I stated that the predictions do not matter. With respect to Inman's upcoming book, which should be great, I also want to add that M. King Hubbert does not matter.

You know what else. Malthus does not matter. Julian Simon and Paul Ehrlich don't matter. Matt Simmons does not matter. Colin Campbell does not matter. 

That's not to say that we shouldn't remember and celebrate their accomplishments and contributions. It is to say that the Peak Oil Debate in 2014 should take place in 2014. 

Far too often you'll find an article from an optimist that starts off examining some data or quotes said by Hubbert decades before I was born. As Gold states, Hubbert died in 1989. What relevance does his positions hold to us now, 25 years after his death, decades after his important work?

As the saying goes, predictions are hard, especially about the future. And things change very quickly. No one should spend much time focusing on policy analysis from years ago. New developments happen, we reevaluate our past thinking, and based on the new information we re-plot our projections of what we think will happen in the future.

This is one thing that the optimists simply do not do very well: developing data-driven arguments in response to the modern oil pessimists of today. 

If someone thinks that the US shale boom will continue to grow over the next 10 to 20 years, don't go back to Hubbert, stay in 2014 and debate the points of David Hughes or Arthur Berman or make the case that the enterprise can remain financially sustainable over the long term. 

If you want to promote the idea of international shale growth (as Jamie Webster did in his recent EIA conference talk), guide readers past the numerous challenges faced internationally discussed in a paper by Leonardo Maugeri, especially the issue of water scarcity covered in a new report by WRI

If you want to promote the notion of a healthy oil industry going forward then challenge the work of Steven Kopits on the continued decline of capital productivity in recent years. And also the very recent paper from Mark Lewis, "Toil for oil spells danger for majors"

In terms of academic or government papers, optimists don't have to go all the way back to the Hirsch Report or the GAO report, they can attack recent works like "The Future of Oil Supply" the theme issue of the January 2014 edition of Philosophical Transactions of The Royal Society. But here they face a large challenge because outside of the pages of the Wall Street Journal, The Financial Times, and The Economist - the optimistic voices rarely find traction in the academic world. Almost all peer-reviewed journal articles on these issues, side with the pessimists. All the optimists need to do to change this... is get their work past peer-review.

"Just believe in the power of innovation and human ingenuity... and gosh-darn it, everything is going to be just grand" works fine on editorial pages, but isn't really an argument that flies in an academic setting.

Neither Optimism nor Pessimism should be the goal

Lastly, I'll end with something Gail Tverberg said in the comments section to Gold's article. Tverberg correctly says that Gold presents the article in a way that suggest that there are only two sides: the optimists and the pessimists. And throughout this article, I do the exact same thing.

But we're both wrong. 

In her book, "Before the Lights Go Out: Conquering the Energy Crisis Before It Conquers Us," Maggie Koerth-Baker writes this:

“There’s not a good argument here for business as usual… We think of optimism as a virtue. It’s a trait of people who don’t give up, a better way of thinking. But optimistic means something else when you’re talking about science. When a scientist decides that an estimate is optimistic, she’s applying that label in relation to two other possibilities: pessimistic, and realistic. Optimism isn’t the ideal here.”

The goal isn't optimism nor pessimism, it's realism. When the public examines these debates, they should always remember that over the past 15 years, both the optimists and the pessimists got some things right and some things wrong. The realistic path going forward is always going to be somewhere in the middle.

The purpose of the Peak Oil Debate is to influence those moderates in the middle. And there are plenty of voices on the optimistic side that simply do not want the moderates to listen to the pessimists. They'll talk about past predictions, or of statements made by people long dead, or caricature them as doomsday cultists, all in an effort to avoid actually having a serious and sober discussion about the rate of oil production.

But not all oil optimists are like that, many do want to work together with the pessimists, to challenge their own thinking, test their assumptions, and have their data examined. Argumentation in its purest form isn't about defeating your opponent, it's about working collaboratively with them to develop the best solution to the questions at hand. 

That "best solution" is for everyone to work together to create an accurate view of the future of energy, and providing the best possible information to governments, business & industry, and individuals. 

Despite what you've heard, Peak Oil isn't dead. The Peak Oil community hasn't disappeared. They're still here, perhaps with different names and different forms, still working to produce data-driven arguments in pursuit of the best policy solutions to our collective energy challenges.