"Peak Oil Demand" vs the Data

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A quick look at January 2014 in the "Peak Oil Demand" debate, both in the Financial Times. First, the optimistic side in an embedded video with Nick Butler and John Authers. Followed by Mark Lewis arguing that the fall in US oil demand over 2008-12 was cyclical not structural in "'Peak demand' oil theory fails scrutiny test." And a more recent piece from Ajay Makan and Gregory Meyer, "America returns to gas-guzzling oil demand."

Demand for oil could be approaching a peak, as companies grow more energy efficient and use cars less.

“...the reduction in US oil demand over 2008-12 was not so much structural as due mainly to the weakness of the US economy following the global financial crisis, and the tightness of the local oil market until recently. As the economy has started to recover and rising domestic supply has made local prices more affordable, US consumers – whose ranks have swollen by 14m since 2007 – have started coming back to market.

Against this backdrop, the peak-demand narrative looks deficient at best and a distraction at worst.”
— Mark Lewis

"I think you're forgetting the rest of the world in that analysis"

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"I think you're forgetting the rest of the world in that analysis"

A very common tactic in Peak Oil denial is discussing recent gains in US oil production as if that metric is the only thing that matters. But that tactic omits two things. 1) US shale production will peak and decline before 2020. 2) US production is only one part of world oil production. Production increases and declines from the rest of the world need to be considered as well...

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Top Energy Myths of 2013→

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Kurt Cobb writes on seven persistent energy myths of 2013 in a year-end review. Forbes contributor David Blackmon predictably responds not by examining or debating any of Cobb's points, but instead by calling him a "cultist." Because in Blackmon's world, simply uttering the phrase "Peak Oil" is enough for him to print you a "cult" card.

“Oil is a finite resource and so, the real debate is over the timing of peak oil production for the world as a whole. Some say the peak is nearby. Others say it is two or three decades away. But no credible expert says that there will never be a peak.”
— Kurt Cobb

Three Years of Expensive

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Quietly and unnoticed, the US passed a milestone on December 23, 2013 - three straight years of gasoline over $3/gallon.

CNBC covered the story a few months ago when we passed the 1,000 day mark.

While shale promoters continually promise lower prices at the pump, it remains to be seen if gasoline will ever drop significantly under $3/gallon again. The days of cheap oil are over.

Toil for Oil Means Industry Sums Do Not Add Up→

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Mark Lewis and Daniel Davis team up for their piece "Toil for Oil Means Industry Sums Do Not Add Up" in the Financial Times.

Davis is a member of ASPO-USA's advisory board and a lieutenant colonel in the US Army.

Lewis is the former head of energy research in commodities at Deutsche Bank. You can review his presentation "Outlook for OPEC Demand & Implications for Global Exports" from the 2012 ASPO-USA Conference.

He's also new to Twitter and a must-follow.

“...behind the hubbub of market hype about a new age of oil abundance, the toil for oil is in fact now more arduous and back-breaking than ever.

This should worry everybody, because with the evidence suggesting that consumers are reluctant to pay much above $110 a barrel, it is an open question what happens next to the industry’s investment plans and hence, over time, to the supply of oil.”
— Mark Lewis & Daniel Davis

The "Stone Age" Analogy is the Dumbest Analogy Overused by Smart Energy People

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UPDATE (Sept. 6, 2015): "Two years later, I'm still amazed that this 'Stone Age analogy' post remains in the top 10 most popular on the blog. If you're here for the first time, I'd highly recommend one of my longer pieces such as "In Search of Oil Realism" or "Crucial Differences Between Peak Oil & the Peak Oil Debate." But while you are here, definitely check out the original post below. I continue to be pleased that in the emails I receive, readers continue to appreciate the basic point of this post and it's simply this: The "Stone Age" analogy irks me for two reasons. First, "Stone Age" refers to the materials used by ancient man for their tools, it doesn't refer to energy production. Yes, they moved on to the Bronze Age in time, but then did it ONLY because bronze was better, they faced no impending supply issues of stone. Which leads to the second problem, people that use this analogy are taking an example of something that had nothing to do with supply scarcity and using it to describe something that does (oil depletion) in a way to pretend that supply scarcity doesn't matter, or is something that will inevitably be dealt with easily. We'll get past real issues of scarcity by acknowledging that the issues are real, that they are serious, and that we have to plan accordingly for the future with those issues squarely in mind. We won't get to the future we desire by shrugging our shoulders, saying that "The Stone Age didn't end for lack of stones..." and claiming that things always work out in the end because it makes us feel good to pretend that they always have and always will. If you think Peak Oil has anything to do with "running out" then I'd suggest that you don't properly understand Peak Oil. Likewise, if you're using the Stone Age analogy, I'd suggest that you don't properly understand energy."

Yes, it remains one of my pet peeves. Right up there with people pretending the phrase "running out of oil" has anything to do with Peak Oil (it doesn't), and smart people repeatedly saying "Energy Independence" when they really mean "Energy Security."

And you know you've heard the pithy quote before:

"The Stone Age didn't end for lack of stone, and the oil age will end long before the world runs out of oil."

The quote is usually attributed to Saudi oil minister Sheik Ahmed Zaki Yamani in the 2005 New York Times article "The Breaking Point." And the quote is usually used by those looking to ridicule the concept of Peak Oil - suggesting that oil supply constraints are not and never will be a problem - that we can just sit back, relax, and let everything work itself out. But in recent years, it's also been used by renewable energy proponents to suggest a transition away from oil as Steven Chu did in his farewell letter to the Department of Energy.

But the quote is really really stupid for two reasons. One obvious and one not so obvious.

First, the obvious point that should embarrass anyone even attempting to shoe-horn this quote into their speech: PEOPLE DIDN'T BURN STONES FOR FUEL!!!

Directly comparing stones to oil just because someone added the word "age" to both, is moronic.

Second, each transition to a new energy source in human history was done from a lower energy dense fuel to a higher energy dense fuel. Wood gave way to Coal which gave way to Gas & Oil, and these transitions were made because the new fuel was BETTER.

Of all the fuels known to man, oil represents the best combination of price, storage, transportability, safety, and energy density ever known.

Transitioning from one fuel to another isn't easy, it takes time and effort. It's not like flipping a light switch. And it's made even harder when the transition is likely a step backwards from oil - a new concept to humans.

When they say the oil age won't end for lack of oil, they're exactly right. But our policy choices will determine if the oil age ends smoothly or ends only through great challenge and hardship.

Must Watch: Reflections on a Decade of US Shale

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If you haven't seen it yet, the new lecture from Art Berman is a "must watch." A few months ago, I highlighted Art's videos on shale gas profitability, but this new lecture is filled with much more data and analysis. Here Art argues that the public is mislead by energy company statements that gas reserves are large and that companies are making a profit from shale gas.

“After 10 years of production, shale gas in the United States is a commercial failure”
“Unconventional oil is marginally commercial but will disappoint expectations for energy independence and long-term supply”
“Shale plays are not a revolution - they are a retirement party”
“The hope and hype around shale plays creates a dangerous illusion that the energy future is secure and that we do not have to change our consuming behavior”

Last Month Was Quietly the Most Expensive September for Oil in History

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When most people think of high oil prices, they think of the spike in 2008 where West Texas Intermediate (WTI) went to $145/barrel before retreating. But most forget just how fast the retreat was, by September 2008 WTI was in a price rout. Luckily, the EIA is still at work until at least October 11, so we can check on the historical prices for Sept 2008.
That month showed WTI all over the map, as low as $91 on Sept 16, and as high as $122 on a one day spike just a week later on Sept 22. Averaged, the volatility led to a Sept 2008 WTI price of $104.

WTI was much lower in the next four Septembers, but grew each year: 2009 ($69), 2010 ($75), 2011 ($85.5), 2012 ($94.5). That growth continued in Sept 2013 with an average price of $106. The highest price for a September, ever.

Look for the trend to continue in October if WTI stays anywhere north of $95 for an extended period. This is the new normal, and the new normal is expensive.

It's Like They're Not Even Trying Anymore

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Yes, friends, Rob Wile is now arguing that Peak Oil is dead because... wait for it... oil production will no longer rise.

Yes, really. You can't make this stuff up.

I'll only jump into the piece to point out that, as I frequently mention, the "12 million barrels a day" value Wile quotes is total liquids instead of crude oil & condensate. The actual crude oil projections from the EIA report Wile cites are 7.47 million barrels per day in 2013 and 8.428 in 2014.

But do examine the article for yourself, and marvel with awe at the rhetorical pretzels people twist themselves into just to be able to claim that "the Peak Oil people were wrong."

"Peak Oil is dead because oil prices are going to return to $30. Oh wait, we mean it's dead because oil is super-abundant and production is going to increase indefinitely. Oh wait, that's not happening either, what we really mean is that Peak Oil is…

"Peak Oil is dead because oil prices are going to return to $30. Oh wait, we mean it's dead because oil is super-abundant and production is going to increase indefinitely. Oh wait, that's not happening either, what we really mean is that Peak Oil is dead because production will reach a plateau and not a pointy "peak" - yup, that's the ticket!"

Life in the Accelerating Extraction Treadmill→

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A panel discussion at the Marcellus Shale Coalition's annual industry conference in Philadelphia. (KATIE COLANERI/STATEIMPACT PENNSYLVANIA)

A panel discussion at the Marcellus Shale Coalition's annual industry conference in Philadelphia. (KATIE COLANERI/STATEIMPACT PENNSYLVANIA)

"With the Barnett now in decline, it joins the Haynesville and Fayetteville formations also experiencing rapid production declines. Considering these formations began to see widespread drilling operations less than 10 years ago, their overall rate of field declines are happening much more quickly than expected or represented. It also appears to validate the 2009 work of such petroleum geologists as Arthur Berman who has been documenting rapid and aggressive shale gas production decline rates on a per well basis since the U.S. shale gas boom took off."

Why 1970 Matters in Oil Production

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Why 1970 Matters in Oil Production

I admit that I sometimes have a little TOO much fun reminding the oil optimists about 1970 - it is sort of a low blow. But you have to admit, it works - few things will shut down a nonsense argument about how "Peak Oil is dead" better than simply reminding people that the peak of US oil production was in 1970.

But there are two quick reasons 1970 matters, one obvious, and one not so obvious...

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"Peak Oil Demand" = Peak Oil

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"Peak Oil Demand" = Peak Oil

If you've never heard of the "Peak Oil Demand" concept, simply stated it's the idea that global demand for oil will peak and decline before supply peaks. CERA and Citigroup began promoting the idea in 2012, but the idea really took off in the media when the Economist produced their article "Yesterday's Fuel " in August.

But think about WHY demand is falling. And remember from Econ 101 that demand, supply, and price are all connected. You can't just pull out one, examine it in isolation, and pretend the other two don't exist...

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The State of Things

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Gas prices remain high while family incomes fall. Combined it means that American families now spend the largest share of their income on gasoline since the early 1980s. This downward drag on the economy is profound.

 

David Roberts' #micdrop

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David Roberts' #micdrop

It's been an interesting couple weeks for David Roberts of Grist. He's one of the more well-known and respected environmental writers, and he shocked everyone with his announcement that, after 10 years, he's taking a year off - no email, no Twitter, no computer, etc. And in his last days, he's written a few must-read final articles. The first explains why he's leaving for a year. Roberts is also one of the most prolific environmental Twitter users around, and in another post he explains his Twitter tips for the rest of us. And in his final post he explains if he has any hope that humanity will tackle climate change:

He also finished his Twitter-time with a list of 20 things he's learned during these years of writing about climate and politics. I've embedded the tweets here because they can easily relate to Peak Oil as well...

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Misinformation: Repeat Until Talking Points are Accepted As Fact

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On two separate days this week, CNBC guests were allowed to claim that the US is a net exporter of crude oil. The guests were never corrected, nor the public later informed of the errors.

"US Oil Consumption In 2012 Was The Same As In 1979"

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Oil consumption in the US has been decreasing and last year it dropped to levels unseen since 1979 - 34 years ago.

Wait - STOP - is that what you thought when you read that headline? Because it's 100% wrong. 

And I thought this was an interesting case study in how headlines can speak the truth, but suggest things to a reader that aren't true.

It's not my intention to pick on Ed Crooks here, there's only so much context you can include in a 140 character tweet after all. But it's important to remember what actually happened.

US consumption in 2012 was near the 1979 level. But after 1979, US oil consumption dropped dramatically, eventually reaching a bottom in 1983. Consumption picked up again, but didn't reach the 1979 levels again until 1997 - 18 years later. In fact, in the entire decade of the 1980s the US used less oil than the 1970s.

This is just a reminder to make sure you have the proper context with energy stats. In an earlier post, I said "Under skillful hands - data can say whatever they want it to say." And in another post I wrote, "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."

I wonder if US oil consumption drops to around 15 mbpd, the the same rate as 1983 - will the reports say that demand is at the "lowest point since 1983" or the "same as 1971" - because both are 100% accurate statements.

Here's hoping that whenever an energy professional throws one of those quotes around - that journalists will automatically glance at the BP Data or the EIA data to verify. 

Or when someone discusses oil production increases - hopefully someone is there to discuss production declines, a topic that rarely makes the news.

Or when someone discusses US oil demand declines - hopefully someone else explains that the US consumption is a decreasing part of total world oil consumption and that world consumption has increased every year for 30-years straight.

Without context, we risk losing sight of the larger picture and proper understanding. Or at the least, we lose sight of the fact that US consumption in 1997 was the same as 1979.

 

Here Comes the Wolfcamp Hype - As Kurt Cobb Predicted

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“Prepare yourself for another hype cycle in the U.S. oil and gas industry. The industry says it has found a deposit of oil that may turn out to be the largest in the world. The deep tight oil deposit goes by the name Spraberry/Wolfcamp and is located in West Texas. It’s no surprise then that the industry is trotting out the America-as-the-new-Saudi-Arabia theme once again, a theme that many including me have shown to be pure bunkum.”
— Kurt Cobb

From Kurt Cobb's latest, "The hype cycle: How the oil and gas industry manipulates investors and the public"

Kurt continues: "Though there are plenty of other reasons to doubt the claims about Spraberry/Wolfcamp, no one will know for certain what's true until the area is drilled and produced. But, in order to drill it, oil and gas companies must raise billions in capital to pay for drilling and production costs. And, in order to do that, they have to get investors interested in plowing money into the drilling of actual individual wells through what are called private placements."

"...Here's where the industry hype machine comes in. To raise the necessary capital, it is essential to get investors excited about particular oil and gas plays. The best way to do that is to create buzz in the media about the estimated size of the resources in the play. And, an easy way to do that is to invoke comparisons with Saudi Arabia and its giant oil fields as is being done in the case of Spraberry/Wolfcamp."

Let the hype begin.

Too Clever in the Headline Game

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“At some point on this thread I need to make the point that I never declared “Peak Oil is Dead” but there is a view in “the media” that it is and the 4 nails I give explains why this view exists. The points I make are the counter arguments which I hope influence the thinking of other media commentators. Peak Oil is lying in a coffin, the lid hammered half shut, either buried alive or about to explode back to the surface with a vengeance...”
— Euan Mearns

Over in the Oil Drum, Euan Mearns uses a bit of a bait and switch to great effect, His title suggests one thing, and in doing so he gets a lot of Peak Oil critics (like Mark Perry) to link to it - but in fact the content of the article discusses the opposite - showing how Peak Oil is still relevant and critical. And the quote above from the comments explains his thinking.

But on the other hand, it may be too cute by half. Part of understanding the "headline game" in media is to know that most people don't read stuff anyway. People are busy, they skim, they summarize, and draw conclusions sometimes from the title alone. So while the article does discuss these matters properly, most people won't read the article - and their only exposure to it will be the title "Three Nails in the Coffin of Peak Oil" beamed around the world without context. And that's a net loss. Better to use a straight-forward title that communicates directly even to the speed readers.