The annual EIA conference is this week and unfortunately I can't make it this year, but I'll definitely be following along using the #EIAconf hashtag. I'm looking forward to many of the sessions, including ARPA-E's Dr. Chris Atkinson speaking on the future of the automotive and transportation sectors.
But the super-star session of Day 1 is the Oil Supply session. Historically, these are pretty optimistic affairs, with the notable exception of Matt Simmons in 2008 (and the GAO almost had to twist arms to get him as a speaker) it's rare for the EIA to book speakers that really stray from the "everything is fine, and getting better everyday" path.
To that end, some of the narratives/themes I expect to hear about in the Oil Supply session:
- Saudi Arabia tried and failed to slay US shale, which proved resilient
- Innovation in technology marches ever forward, leading to lower breakeven costs for US shale
- Innovation in technology is quickly improving shale's Achilles heel - the severe production decline rates
- Prices have risen and shale is on the verge of springing back to life
- US oil reserves are growing, ensuring production prosperity for the foreseeable future
- Peak demand is on the near horizon thanks to electric vehicles, natural gas, and other factors. You need not worry about Peak Supply anymore.
And some narratives/themes I'm hoping to hear about, but we probably won't:
- Low price environment has led to an unprecedented two straight years of declining upstream investments, a serious hole in production sustainability that might cost upwards of $3 trillion to fix
- The under-investment situation is an oil volatility & price spike time bomb, it's not a question of if, it's a question of when
- Prices still aren't high enough for shale, the resurgence is still a ways off
- Shale's debt and financial problems are still a thing, they didn't just vanish with recent oil price increases
- Meanwhile, outside of US shale in little discussed conventional oil, the situation is still terrible like it's been for years. Last year the oil industry discovered only 2.8 billion barrels, the smallest amount in 64 years
- Speaking of other "not shale" stuff, a reminder that US shale is a significant, but small part of total global oil production - at some point, asking US shale to hold everything up on its own becomes too big of an ask
- Not so fast on Peak demand, you might want to still worry about Peak Supply
On to the session speakers:
I had very high praise for Jamie Webster's EIA conference talk in 2014 and it was precisely because of its boldness. The energy prediction business is hard and unforgiving work. You look at the data at hand, acknowledge your biases, then do your best to say which way the wind is blowing. Then when the dust settles you look at what you got right, what was wrong, re-evaluate the data, and do it again. Doing that honestly takes courage. I didn't agree with everything Webster said in 2014, but I'm definitely looking forward to his new talk on the supply situation. Notably, look for him to continue his recent push to get people to stop calling the US a "swing producer."
Now you know that all of us over here on the "oil depletion" side of the room are definitely looking forward to Michael Lynch's talk. It's safe to say that Lynch has earned the banner of the preeminent Peak Oil critic, earning the title away from David Blackmon, who sometimes seemed to exist only to repeatedly call any peakist he met a religious cultist. Like Blackmon before him, Lynch now runs a weekly energy series at Forbes that alternates between telling us how much the Peak Oil people were wrong because they were misinformed, misguided, or both. To be fair, Lynch is enjoying a well-earned victory lap during these times of low prices. Did the low price environment come about exactly the way he predicted, not exactly, but nuance is sometimes lost in energy discussions. And in broad terms, when prices are low, long-time oil optimists like Lynch look really good. And when prices are high, people pay more attention to the peakists. Unlike many of his contemporaries, Lynch does a decent job of being a Peak Oil critic the correct way. There are legitimate arguments to make against Peak Oil, unfortunately most pundits avoid those tough arguments and focus instead on misinformation and strawmen to carry their positions. Lynch does a better job than most of keeping the discussion focused correctly on the rate of oil production. His conveniently timed new book, "The "Peak Oil" Scare and the Coming Oil Flood" is available for pre-order on Amazon and I expect it to stand taller and on a better foundation than other similar works.
Lars Eirik Nicolaisen:
Rystad Energy has made some bold statements this year, none more so than their recent report suggesting that the US has larger oil reserves than Saudi Arabia. Anytime reserves are mentioned in any context, it's worth it to first pause to revisit key supporting information like this explainer from the EIA and a great piece on why and how reserves change by Robert Rapier.
On the US side, Rystad estimates that US reserves are now higher than Saudi Arabia, when you include the strong disclaimer that "undiscovered fields" are included in the value. Whenever higher reserves are mentioned, it's impossible for some to resist that oldest piece of Peak Oil misinformation, pretending the issue about about total oil when it's not. It's the old issue of reserves vs rates, and the surest tell of its appearance is the use of the phrase "running out." Anyone that ever uses the phrase "running out of oil" is someone that either a) doesn't properly understand Peak Oil or b) is someone trying to mislead an audience about Peak Oil.
The definition of Peak Oil is simply "the maximum rate of oil production." Peaking in production and running out of oil are not even remotely the same thing. And reserves, by themselves, don't actual tell you anything about the rate of production, the metric we use to determine Peak Oil. To use the old water faucet analogy, it's not the size of the tank that matters, it's the size of the tap that's important. Or to think about it another way, what if someone told you that new lottery winnings were just deposited for you in a special bank account, but what they forget to mention is that you can only withdraw a few hundred dollars per day from a single ATM located a day's hike up a mountain. If the question is how wealthy you are, you'd think more about the lottery winnings. If the question is about day-to-day cash flow, you're going to think more about the ATM. That's reserves vs. rates.
But if you can trick an audience into believing that Peak Oil is about "running out of oil" then you've set yourself up for a very easy debate victory. So it's no surprise that the moment the Rystad news dropped, some of the usual folks were were pushing the same tired talking points.
Ronald Bailey was at the front of the line to proclaim "Peak oil still nowhere in sight" in his latest blog. Investor's Business Daily IBD provided an even worse piece that began with the title "Death of Peak Oil is Not Exaggerated" (a nod both to Mark Twain and the sub-title of Ron Patteron's Peak Oil Barrel blog), and the piece ends with this send-off: "As for "peak oil" proponents and their political pals who scared Americans and influenced U.S. energy policy for years with tales of vanishing supplies and soaring energy prices, it's time to buy a new fright mask. This one doesn't work anymore." At no point between the title and that final line, did IBD actually explain Peak Oil to the reader, or outline how rising reserves eliminates Peak Oil as a issue of concern.
Oil industry group Energy in Depth (EID) tries an even more challenging balance. In their piece "After Pushing Peak Oil Theory, Activists Want to Stop Fracking Because We Have “Too Much” Oil and Gas," EID continues to try to lump three different groups, climate hawks concerned that we have too much oil to burn for climate reasons, the Peak Demand school (who believe that oil demand will soon peak), and the Peak Supply school (traditional peakists that focus on limitations of supply). These are not all the same people and they don't all hold the same positions. Much like EID likes to label anyone that even questions the debt and financial problems of shale as "anti-fracking," this is more of them trying to pretend that their opponents are one giant block that laughably flip-flops from one position to the other to suit their needs. It's a false narrative.
Looking at the issue from the Saudi Arabia side is interesting as well, because effectively what Rystad is saying is that the Saudi reserves aren't nearly as large as the Kingdom claims. But it's a troublesome position, because if you believe that (and a lot of people do) then it puts you right in line with agreeing with Matt Simmons. As Saudi Arabia reassesses after their failed attempt to defeat US shale, and with their new aggressive goals to wean their own economy off of oil, it's safe to wonder if energy analysts will begin to revisit their opinion of Simmons.
What Rystad is saying here isn't exactly radical thinking, as John Kemp notes "If the [Saudi] government data is accurate, the kingdom has managed the remarkable feat of exactly replacing each produced barrel with new discoveries or increased estimates of the amount recoverable from existing fields."
Joseph Kechichian adds, "Clearly, the insinuation here is that Saudi Arabia is doctoring numbers to maintain proven reserves more or less at the same levels since the mid-1980s, when the 260 billion barrels figure first appeared."
Outside of the collective cheering by most on the US news, Rystad themselves strike a more restrained note in their own release saying: "This data confirms that there is a relatively limited amount of recoverable oil left on the planet. With the global car-park possibly doubling from 1 billion to 2 billion cars over the next 30 years, it becomes very clear that oil alone cannot satisfy the growing need for individual transport."
It'll be interesting to see how Nicolaisen sums all of this up in his much anticipated talk.