Senator Tom Udall on Peak Oil

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When most of us think of Peak Oil and the US Congress, our thoughts immediately turn to former Rep. Roscoe Bartlett who, starting in March 2005, stood on the floor of the House of Representatives to give the first of over 50 hour-long talks on Peak Oil. (I highlighted the story in my tribute to Bartlett in 2012, and you can read more about it in Neil King's 2008 Wall Street Journal article "Cries in the Dark").

But it's worth remembering that Bartlett was far from the only politician discussing the issue. Rep. Tom Udall of New Mexico joined with Bartlett to create the Congressional Peak Oil Caucus. Below is a link to an almost unknown video from then Rep. Udall giving a 5-minute speech on Peak Oil in December 2005. 

Today Tom Udall is the senior senator from New Mexico. And if the name sounds familiar, he is part of the famous Udall political family. Tom's cousin is Senator Mark Udall of Colorado, and Mark Udall's brother was Randy Udall, co-founder of the Association for the Study of Peak Oil & Gas - USA.

“Peak Oil is a fact, not a theory. Oil production has now peaked in 33 of the world’s largest 48 oil producing nations.”
— Rep. Tom Udall, December 8, 2005

The Oversupply Narrative→

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Securing America's Future Energy (SAFE) pushes back on the oversupply narrative in a new blog post today. Here's a key quote: "...the United States is one of the only sources of oil production growth in the global market right now. It has worked out well so far, but near-singlehandedly stabilizing the global market is a big job. It will take supply growth from far more participants in the longer term to actually meet long-term demand forecasts."

Remember, people can hype US growth all they want; however, US supply is and remains a small part of a much larger oil pie. You can't out-hype math.

About the Other 44 States

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It's definitely easier to make infographics on the optimistic side of the US oil argument. EID's latest highlights increasing production from shale development, but also makes it pretty easy to notice that they're talking about just six states.

You could almost imagine the exact opposite infographic titled "Oil and Gas Development Sinks Across the Nation" highlighting the other 44 states that go unmentioned in EID's graphic. 

Many would argue that these six states are simply more important for oil and gas production than the other 44, and I don't disagree with that. But it's important to remember that production is a combination of additions and subtractions. If all you do is discuss the additions and never mention declining conventional oil production, then you'll never have a full view of the current state and potential futures of oil production. The full story in US oil production is both the story of the recent tight oil boom, but it's also the story of domestic conventional production and its consistent decline over the past 40 years. That perspective will allow you to understand just how MUCH we're going to ask out of US tight oil production over the next decade, not only to make it for its own dramatic production declines, but - the bigger challenge - to continue to make up for conventional oil's declines.

Why I Loved Jamie Webster's EIA Presentation

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The annual EIA conference has increasingly become more optimistic in recent years since Adam Sieminski took over as administrator in 2012. Long gone are the days where 600 people showed up for a Peak Oil session at the 2008 EIA conference - a session the EIA felt complelled to hold as a response to the 2007 GAO report: "Uncertainty about Future Oil Supply Makes It Important to Develop a Strategy for Addressing a Peak and Decline in Oil Production"

And in an already optimistic conference, Jamie Webster of IHS had the single most optimistic presentation: "Going Global: Tight Oil Production"

I don't agree with Webster's talk, but I'm thrilled that he made it. Optimists in the Peak Oil Debate frequently employ misinformation and strawmen or other tricks to dance around and avoid discussing the only issue at hand: the future rate of oil production. 

Long-story short, if you're an optimist in the Peak Oil Debate then your position is that the rate of worldwide oil production will at worst continue on a plateau and at best continue to increase. 

So they are making one or more of the following three (or four) arguments:

  1. Conventional oil production will stop declining or increase. While growth in unconventional oil gets all the press, conventional oil has been a disaster worldwide. Making a call for conventional oil growth is a very tough argument to make and not many do. But if they refuse to hang their hat on this point, then they are asking unconventional oil to not only increase tremendously, but increase so much that it also covers the continued decline in conventional production.
     
  2. The U.S. tight oil boom will continue its remarkable pace. Many predict that - due to steep decline rates and financial challenges - the wheels will start to come off of the U.S. boom in a couple of years. Growth will slow, production will reach a peak and then decline. That's not exactly a radical position. But the true optimists have to believe that this inevitable peak is many years in the future as opposed to just a couple of years.
     
  3. Global tight oil production will follow the U.S. template. This is a big one, and the main point of Webster's talk. An optimist has to believe that the "U.S. oil miracle" can be easily and quickly cut-and-pasted to countries around the world. This is much easier said than done. And many doubt it will happen. Even Leonardo Maugeri doubts this possibility in his paper "The Shale Oil Boom: A U.S. Phenomenon," where Maugeri argues that drilling challenges, combined with geologic and legal challenges make it difficult to replicate the U.S. boom globally.
     
  4. A potential fourth argument might be "Peak Oil Demand." Where the optimist admits that the rate of oil production will peak and decline, but this won't matter as much for a variety of reasons.

An optimist in oil must boldly make one or more of those arguments. And if they are busy telling you that the Peak Oil pessimists are wrong, while NOT talking about the future rate of oil production - then this is a problem and you need to hold their feet to the fire until they do. 

But Webster absolutely sticks his neck out in his talk. And that takes courage and conviction. He might be right, he might be wrong, but at least he directly tells you where he stands, something of an unfortunate rarity in these discussions.

Of All the Pretend Arguments, "Google Trends" Remains the Dumbest

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Mark Perry sure does like riding this one. The "Google Trends" issue popped up around this time last year when the Oil Drum website shut down. And sadly we had to spend a lot of time (here, here, and here) reminding everyone of the obvious: the only true measure of Peak Oil is rate of oil production. We don't measure the importance of things in internet popularity.

This isn't fourth grade.

Judging by google trends, we should spend more time talking about fracking than climate change. Heck, judging by google trends, we should really just cease all talk of energy, ISIS, Ukraine and others - and just spend all our time talking about Justin Bieber and Beyoncé.

There are three concrete reasons why Peak Oil searches have fallen in recent years, but none of them suggest that Peak Oil has become less important of an issue (also see Ian Chapman's excellent article "The End of Peak Oil? Why this topic is still relevant despite recent denials."):

  1. Oil price volatility has calmed in recent years. History has shown that one thing that gets people talking about Peak Oil are large swings in the price of oil. However, volatility has decreased in recent years due to calmer foreign markets and the dramatic increase in U.S. production. This is great news overall. But lack of volatility doesn't mean the price is not still high and can cause economic damage.

    Recall the old "boil a frog" analogy from An Inconvenient Truth. Throw a frog into boiling water and he'll jump out immediately. But place him in room temperature water and slowly increase the temperature and he'll just cook there to his doom. The Peak Oil and resource depletion series "How to Boil a Frog" takes its name from this. And it means that low oil volatility is both great for the economy, but can also lull us into complacency as rising prices slowly "cook" us. One of the great fears in Peak Oil and Climate Change circles: what if we NEVER get that big spark, that giant motivating event that compels society into massive action. Large price spikes get people more interested in oil markets, and by extension Peak Oil, but the lack of price spikes does not mean the problems have vanished.
     
  2. Attacks by opponents. Quite simply, the Peak Oil misinformation campaign has been in full force ever since the price spike of 2008, and has been quite successful. At every turn, many voices seek to confuse and mislead the public about Peak Oil and those who discuss it.
     
  3. Decline in use by advocates. Partially because of #2, many voices that understand Peak Oil and what it means, have chosen to talk around it. I call it, "talking about Peak Oil without talking about Peak Oil." Steven Kopits and Robert Rapier come immediately to mind as two well-known writers in Peak Oil circles who have publicly said that they try to avoid the term. Others like Chris Nelder have expressed a growing reluctance to re-fight the same battles repeatedly (which also is one of the reasons the Oil Drum website shut down). Here in Washington DC, the organization Secure America's Future Energy discusses the implications of Peak Oil all the time, but they never actually use the term. 

    Personally, I disagree with this route, but I absolutely understand why they do it. Talking about Peak Oil means spending a lot of time dealing with pre-existing baggage, correcting misunderstandings, and providing proper background information, and you have to do it over and over and over again. Simply not mentioning the term saves an author a lot of time, and allows them to immediately get to the core of what they want to discuss: the future of oil & gas production.

    My view is that I don't believe everyone has to use the term "Peak Oil" but that SOMEONE must. Someone or some organization has to be the entity to hold the line, to steadfastly stand against misinformation and ensure that the public and policy makers have a correct understanding of our energy past and our energy future.

 

Full Funding for "The Frack Lab"

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“The U.S. “shale revolution” has taken off in recent years. But journalists are largely avoiding one crucial, tough question: How long will the boom last?”
— Mason Inman

Congratulations to Mason Inman for raising a huge $10,000 to fund his project "The Frack Lab." Anyone involved in energy should check out his new venture. Inman will now produce one article a week to dig deeply into the data of the shale revolution. This is critical work that many journalists simply aren't covering. For example, one of Mason's charts, on the right, shows that shale gas now makes up half of U.S. natural gas production. Both due to the explosion of shale production, but also due to the deep decline of conventional gas production since 2008.

When this is the world we're living in - and considering that the decline rates of shale wells are much more dramatic than conventional production - it's sort of important to understand the data of fracking so we can accurately predict what to expect going forward. 

Some of the questions Inman plans on examining:

  • "Some shale regions, including Texas’s Barnett and Louisiana’s Haynesville, have seen significant declines in production. The EIA forecasts these will both see significant revivals—but how likely is this?"
     
  • "In North Dakota’s Bakken shale, companies are trying to pack wells in much tighter, running pilot projects for 'downspacing.' How are those wells performing?"
     
  • "How does the U.S. Energy Information Administration generate its resource estimates and forecasts for shale gas and shale oil? Have they built in optimistic assumptions?"

Industry is Pushing Back on Shale "Unsustainability" Articles

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Industry is Pushing Back on Shale "Unsustainability" Articles

Pieces questioning the future oil production sustainability of shale development have been making the rounds lately in the media which is something industry-backed group Energy In Depth (EID) really dislikes. So when Ben Casselman of FiveThirtyEight wrote his latest "North Dakota's Oil Bonanza Is Unsustainable" they felt the need to respond:

Let's take a quick look at statements from the EID response...

Read More

Strawman: No, You Can't Just Pretend That People Hate Fossil Fuels

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In one of those "I can't believe I have to write this posts" - No, energy wonks, you can't just pretend that people hate fossil fuels. It's a strawman and a distortion of views.

What's happening here is a speaker trying to convince the public that the opponent's views are actually some more extreme caricature of their actual views. Sure, there are some small minority of people who want to end fossil fuel use tomorrow, but the vast majority of people have a balanced view and understand both the positive and negative effects fossil fuels have had on society. Acknowledging our societal and personal use of fossil fuels, while advocating a sensible transition away from fossil fuels, is not being a hypocrite - it's having an adult conversation about energy policy. 

Talking the Boom

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Wall Street Journal writer Russell Gold is out on tour for his new book "The Boom: How Fracking Ignited the American Energy Revolution and Changed the World." Here are two talks below, one from the New America Foundation and one of my favorite writers, Steve LeVine. The second from Columbia's Center on Global Energy Policy and Jason Bordoff.

In both cases, Gold is asked the "how long will it last question," with LeVine even bringing up "peaking" and decline rates around the 30 minute mark of the New America video. Gold dodges a bit here and brings up the always popular strawman of how people are still producing oil from the Kern River oil field. But again, the question here isn't WILL people still be producing oil, of course they will. We'll still be fracking 40-50-60 years from now. The bigger question is a question of production rates. How much per day? How long can the growth in production of US shale continue? And following, once US shale production begins to decline, will worldwide shale production be able to pick up the slack?

U.S. Energy Use in a Single Chart

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Chris Nelder highlighted the updated U.S, Energy Use Sankey Diagram from the Lawrence Livermore National Laboratory. 

It's a busy chart, but there's a few things you should notice:

  • Understand how little of our energy use actually goes to energy services. Of the 97.4 quads we use, over 60% is rejected energy. We can never use 100% of that energy, thermodynamics tells us that. But we can still do a LOT better in the efficiency department.
  • Renewables have been growing nicely, but big things don't happen overnight, and they're still a small part of electricity generation. Meanwhile, the growth of natural gas continues to eat into nuclear and coal's lunch.
  • Down in transportation, note that you can combine natural gas, biomass, and electricity and still have just a tiny sliver of transportation energy use, the rest is ALL petroleum.
    • This is what we mean by the "energy transition." The reason Peak Oil people take the future production of oil so seriously is because we aren't just going to switch a light switch tomorrow and run transportation energy use fully on non-petro. This is a many-decade project and we're better served by getting started in a serious way sooner rather than later.

Remembering Dr. James Schlesinger

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James Schlesinger, the first US Secretary of Energy, died recently. Some links:

I met Secretary Schlesinger only once, during his talk at the 2010 ASPO-USA conference where he gave his speech proclaiming that the Peakists have won the intellectual debate. Gail Tverberg produced a transcript of the talk for Business Insider. Video below.

“I was going to give Hubbert a medal, when I was back at the Energy Department, for his contributions…. It would have been a useful thing to publicize, what the long, long problem was for the country.”
— Dr. James Schlesinger

The Continued Relevance of Peak Oil→

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Taking a moment to highlight Ian Chapman's excellent article "The End of Peak Oil? Why this topic is still relevant despite recent denials." The article also appeared in the journal "Energy Policy" for January 2014, its 64th Volume.

And although I've mentioned it before, it's worth revisiting the January 2014 edition of Philosophical Transactions of The Royal Society - the theme issue on "The Future of Oil Supply"

One simple question I frequently have for Peak Oil critics: "Where are their peer-reviewed journal articles?" And the simple answer - they don't exist. Pieces by the critics blanket the pages of the Wall Street Journal and the Financial Times, but the land of true experts and peer-reviewed rigor belongs only to those with a proper unbiased understanding of our energy issues and the continued relevance of this discussion.

The abstract from Chapman: 

“Up until recently Peak Oil was a major discussion point crossing from academic research into mainstream journalism, yet it now attracts far less interest. This paper evaluates the reasons for this and on-going relevance of Peak Oil, considering variations in predictive dates for the phenomenon supported by technological, economic and political issues. Using data from agencies, the validity of each position is assessed looking at reserves, industrial developments and alternative fuels. The complicating issue of demand is also considered.

The conclusions are that, supported by commercial interests, an unsubstantiated belief in market and technical solutions, and a narrow paradigmatic focus, critics of Peak Oil theory have used unreliable reserve data, optimistic assumptions about utilisation of unconventional supplies and unrealistic predictions for alternative energy production to discredit the evidence that the resource-limited peak in the world’s production of conventional oil has arrived, diverting discussion from what should be a serious topic for energy policy: how we respond to decreasing supplies of one of our most important energy sources.”

The Rise of Explanatory Journalism

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The Rise of Explanatory Journalism

I've watched with increasing excitement the development of new ventures in explanatory journalism, such as Vox.com by Ezra Klein, Matthew Yglesias and their team; Fiverthirtyeight.com from Nate Silver and his team; and The Upshot from David Leonhardt.

The reason for these new ventures: the news does a poor job of explaining material to the public - an embarrassment in a connected world and something we hope will soon change...

Read More

Energy Independence is the Wrong Goal for the U.S.→

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forbes-logo.jpg
“To achieve energy independence, in other words, we would have to find more oil in the U.S. than we’ve ever found. And then, to stay ahead of the decline rates, we would have to keep finding it at a faster pace — and at an ever-increasing cost. The expense and the production rates make the notion of energy independence improbable.”
— Loren Steffy

The Difference Between Conventional & Unconventional Oil in One Chart

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Recall from the Steven Kopits talk at Columbia that oil supply growth after 2005 is entirely leveraged on unconventional oil production. But why is this a problem? In short, it's because unconventional production is simply harder and more expensive than conventional production, as displayed in the infographic below from the Post Carbon Institute, based on this week's Bloomberg article "Dream of U.S. Oil Independence Slams Against Shale Costs"

BhkygTFCIAAg4V7.png

Prosperity from their own sheer brilliance

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I've been reading Marcus Luttrell's Lone Survivor, a tale of Navy Seals and the tragic Operation Redwing in July 2005 on the Afghanistan-Pakistan border.

And I was struck by his account of his childhood in the late 1970s/early 1980s in Texas and the boom and bust of his own family as oil fortunes were made and lost.

It makes one consider the current shale boom in North Dakota and Texas and what will happen to those communities left holding the ball when the easy money vanishes in a flash.

“I have long since worked out that when the crash came in Texas, its effects were magnified a thousandfold, because the guys in the oil industry sincerely believed money had nothing to do with luck. They thought their prosperity came from their own sheer brilliance.”
— Marcus Luttrell, "Lone Survivor"

CERA's Record Has Been Abysmal

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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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"Oil Is a Binding Constraint On Economic Growth"

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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

Revisiting Available Net Exports

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It's always a good time to review Jeffrey Brown's work on Available Net Exports:

“At the 2005 to 2012 rate of decline... in only 17 years China and India alone would theoretically consume 100% of global net exports of oil”
— Jeffrey J. Brown
“My basic premise is that the net oil importing OECD countries are maintaining something resembling “Business As Usual” only because of huge and almost totally overlooked rates of depletion in post-2005 Global and Available Cumulative Net Exports of oil.”
— Jeffrey J. Brown