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Countdown to $100 oil (35) - peak oil: the last skeptics capitulate (CERA)

by Jerome a Paris Wed Nov 15th, 2006 at 06:23:19 PM EST

The energy world is busy discussing the most recent study provided by CERA, the energy consultancy headed by Daniel Yergin, the author of "the Prize", the acclaimed book (and TV series) on the history of oil. Titled Why the "Peak Oil" Theory Falls Down -- Myths, Legends, and the Future of Oil Resources, it claims to thoroughly debunk the theory of peak oil, that people like me and others have peddled in recent times.

Except that the press release for the report includes the following graph:

Kinda looks peaky, doesn't it?

CERA is one of the best known names and the industry, and they are well -respected. In the past few years, they have struck a perpetually defiant note against the growing chorus promoting the peak oil theory, and this new publication appears to be their definitive reply on the topic.

And their introduction does include fighting words:

CAMBRIDGE, Mass., November 14, 2006 - In contrast to a widely discussed theory that world oil production will soon reach a peak and go into sharp decline, a new analysis of the subject by Cambridge Energy Research Associates (CERA) finds that the remaining global oil resource base is actually 3.74 trillion barrels -- three times as large as the 1.2 trillion barrels estimated by the theory's proponents -- and that the "peak oil" argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future.


"The `peak oil' theory causes confusion and can lead to inappropriate actions and turn attention away from the real issues," Jackson observes.  "Oil is too critical to the global economy to allow fear to replace careful analysis about the very real challenges with delivering liquid fuels to meet the needs of growing economies.  This is a very important debate, and as such it deserves a rational and measured discourse."

"This is the fifth time that the world is said to be running out of oil," says CERA Chairman Daniel Yergin.  "Each time -- whether it was the `gasoline famine' at the end of WWI or the `permanent shortage' of the 1970s -- technology and the opening of new frontier areas has banished the specter of decline.  There's no reason to think that technology is finished this time."

Their arguments are not, on the face of it, unreasonable: we'll squeeze more oil from existing fields thanks to better technology, and we'll start exploiting new, "unconventional" reserves like ultra-deep offshore, extra heavy bitumens (in Venezuela), oil sands (more conveniently in Canada) and oil shales (even better, in the USA).

Additionally, there will not be a "peak", but rather a "plateau", as decline will be much slower, overall, than announced by peak oil theorists.

Their full report is not public (you can get it for $1,000 at the first link above), but their basic thinking is clear from the above press release.

There have been several high profile reactions to that report, including from the Oil Drum (here and here), from the Association for the Study of Peak oil (here, via the Energy Bulletin, the best place to find all related stories), and even from the US Congress, via a joint press release by  Roscoe G. Bartlett (R-MD) and Tom Udall (D-NM), cofounders and cochairmen of the Congressional Peak Oil Caucus (here).

They all have excellent arguments that I encourage you to read in full if you're interested in the topic (especially the ASPO one, with its quite explicit title: Peddling PetroProzac: CERA ignores 10 warning signposts of peak oil), but i'd like to focus on just one argument.

Do you seriously find that the above graph disproves the idea that oil production will peak and then decline? This is meant to be the optimistic version, and all it says is that (i) the peak will be in 2030, not 2010, and (ii) the decline after that will be slow, not fast.

But it does say pretty damn explicitly that in the best case, oil production will reach a maximum in less thna 25 years.

Now that sounds to me like a full fledged confirmation of peak oil, not a rebuttal of it.

In 25 years, many of us will (hopefully) still be alive. In 25 years, we'll be living, for the most part, with infrastructure built or planned today or in the next few years.

So the question of how to adapt to a decreasing oil production is, in the best scenario, something that we need to worry about right now (as pointed out in the links above, all serious studies on how to transition from our current oil-dominated economy, including the Hirsch report (pdf!) from the US Department of Energy) say t.hat it is likely to require 10-20 years if a sustained effort is put into it).

And yet, these optimistic scenarios, with their aggressive titles, point in the exact opposite direction, i.e. that no effort is necessary and that markets will provide all the oil that we (the wide 'we' which includes China and the rest of the emerging world alongside the West) demand.

How insane is that?

We know the problem is there. Even its official deniers put it barely 25 years away.


:: ::

Earlier "Countdown Diaries":
Countdown to $100 oil (34) - Oil major CEO calls for demand reduction
Countdown to $100 oil (33) - Below zero
Countdown to $100 oil (32) - peak oil is, like, so over. Not!
Countdown to $100 oil (31) - $15 oil? The cornucopians are fighting back
Countdown to $100 oil (30) - senior politico fears looming oil wars
Countdown to $100 oil (29) - Alaska joins axis of evil (unreliable oil suppliers)
Countdown to $100 oil (28) - New records suggest more to come
Countdown to $100 oil (27) - 'Mission Accomplished' - High oil prices are here to stay
Countdown to $100 oil (26) - Time to bet again (eurotrib)
Countdown to $100 oil (26) - Time to bet again (dKos)
Countdown to $100 oil (25) - Iran vows that oil prices will not go down
Countdown to $100 oil (24) - What markets are telling us about future energy prices
Countdown to $100 oil (23) - Running out of natural gas in North America
Countdown to 100$ oil (22) - gas shortages in the UK - 240$/boe
Countdown to $100 oil (21A) - The 4 biggest oil fields in the world are in decline *
Countdown to 100$ oil (21bis) - long term vs short term worries (dKos)
Countdown to 100$ oil (21) - 8-page extravaganza in the Independent: 'we're doomed'
Countdown to 100$ oil (20) - Meteor Blades is Da Man in 2005
Countdown to 100$ oil (19) - Your bets for 2006 (Eurotrib)
Countdown to 100$ oil (19) - Your bets for 2006 (DailyKos)
Countdown to 100$ oil (18) - OPEC happy with oil above 50$
Countdown to 100$ oil (17) - Does it matter politically? A naked appeal for your support
Countdown to 100$ oil (16) - We'll know on Monday
Countdown to 100$ oil (15) - the impact on your electricity bill
Countdown to 100$ oil (14) - Greenspan acknoweldges peak oil
Countdown to 100$ oil (13) - Katrina strikes / refinery crisis
Countdown to 100$ oil (12) - Al-Qaeda, oil and Asian financial centers
Countdown to 100$ oil (11) - it's Greenspan's fault!
Countdown to 100$ oil (10) - Simmons says 300$ soon - and more
Countdown to 100$ oil (9) - I am taking bets (eurotrib)
Countdown to 100$ oil (9) - I am taking bets (dKos)
Countdown to 100$ oil (8) - just raw data
Countdown to 100$ oil (7) - a smart solution: the bike
Countdown to 100$ oil (6) - and the loser is ... Africa
Countdown to 100$ oil (5) - OPEC inexorably raises floor price
Countdown to 100$ oil (4) - WSJ wingnuts vs China
Countdown to 100$ oil (3) - industry is beginning to suffer
Countdown to 100$ oil (2) - the views of the elites on peak oil
Countdown to 100$ oil (1) (eurotrib)
Countdown to 100$ oil (1) (dKos)


and check the Oil Drum links above.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Nov 15th, 2006 at 06:27:14 PM EST
I guess the ragged line after the peak is meant to cover over the fact that this is just guess-work?

Or do they have firm data for the production decreasing about 5 mbpd from 2045 to 2050 and then recovering?

by Trond Ove on Wed Nov 15th, 2006 at 06:44:09 PM EST
Well, I notice they have written "undulating plateau" up there. But still...
by Trond Ove on Wed Nov 15th, 2006 at 06:45:56 PM EST
[ Parent ]
It's an "artist's conception of volatility".

Those whom the Gods wish to destroy They first make mad. -- Euripides
by Migeru (migeru at eurotrib dot com) on Wed Nov 15th, 2006 at 06:52:38 PM EST
[ Parent ]
that ain't volatility!!!  more like a smoothed quarterly average.  I'm trying to imagine a set of candlesticks showing the price action in their "plateau".  That will be something to see.

note to self.  hurry up on the PV system.

by HiD on Wed Nov 15th, 2006 at 07:07:05 PM EST
[ Parent ]
bracketed the 95% confidence interval.

I agree with your conclusion 100%.  Even the most optimistic (non crazy) source is predicting trouble in the 2nd half of this century if not sooner.

However I remain a pessimist in that without serious price shocks, most people/voters will choose to ignore the problem.  We need the price spike to wake people up.  And the 80's spike did a great disservice in the form of crying wolf.

by HiD on Wed Nov 15th, 2006 at 07:04:05 PM EST
is the main argument of the anti-peak oil crowd. We found a way out then, we'll do the same now. It's just a normal market cycle...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Nov 15th, 2006 at 07:06:56 PM EST
[ Parent ]
or assume the market will provide other solutions to meet demand - ethanol, wind, solar, whatever.

you are the media you consume.

by MillMan (millguy at gmail) on Wed Nov 15th, 2006 at 07:08:43 PM EST
[ Parent ]
and it probably will. Just not a price that will allow us to maintain our current lifestyles.  that's the rub
by HiD on Wed Nov 15th, 2006 at 07:12:09 PM EST
[ Parent ]
most people have no technological knowledge. They slept through high school chemistry/physics if they even took it.

So they are trapped between talking heads and politicians making claims and promises on things they don't get.  Until they get real, tangible impacts, they'll opt to wait to take action.  

I really want your $100 to happen in a relentless way over the next 2-3 years.  I just think the behaviour of commodity markets is more likely to give us high volatility leaving most people as confused as ever.

by HiD on Wed Nov 15th, 2006 at 07:10:47 PM EST
[ Parent ]
it is also more common for technical people to have faith that technology will fill in the gaps ("necessity is the mother of all invention"). I agree with that principle, actually, but I've come to realize it doesn't generically apply to energy generation unless we find a way to break the laws of thermodynamics.

you are the media you consume.

by MillMan (millguy at gmail) on Wed Nov 15th, 2006 at 07:22:07 PM EST
[ Parent ]
ah, but technology only "fills in the gaps" by relocating resources (water, energy, materials etc), by means of energy consumption ... ain't no such thing as "generation" in the most accurate sense, since the whole known universe is a giant top slowly spinning down....

if it doesn't apply to energy generation then it doesn't apply at all, since all life activities (from rhizomes to rhinos to online rhodomontades) depend on "energy generation."

we "generate" energy by burning stuff.  burning stuff is consuming, not generating.  just as coal and oil extraction and combustion are falsely labelled "production" when they are really "extraction and destruction."  we transform low entropy materials into (a) large amounts of high-entropy dross and (b) small amounts of arbitrarily or pragmatically valuable "yield".  the yield-to-dross ratio gets worse and worse as we exhaust the lowest-entropy (richest) and most easily accessible caches of source material.

technology (industrial machinery and processes) has filled in the gaps by accelerating and dispersing these patterns of activity.  for every pothole paved (filling in literal gaps) in a N American road there is an open gravel pit and an oil wellhead somewhere, creating big ugly gaps in the biotic and water infrastructure:  ripping out threads from vast areas of the biotic tapestry worldwide in order to "fill in the gaps" at the industrial core.  is it filling in, or digging out?  repairing, or shredding?  if we go by weight or volume of impacted materials, or square mile ratios of "improved" space vs destroyed or damaged space, it appears to me far more like digging ever deeper holes than filling gaps.

I think we can only maintain that faith in "technology" to pave over the cracks as long as we lose sight of two things:  the vast gulfs dug out to provide the material for caulking the cracks, and the unfortunate irony that many of the cracks are themselves a side effect of the technology we believe will fix them.

investment trap...

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Wed Nov 15th, 2006 at 07:57:41 PM EST
[ Parent ]
indeed generating energy would be breaking the laws of thermodynamics.

you are the media you consume.

by MillMan (millguy at gmail) on Wed Nov 15th, 2006 at 09:14:11 PM EST
[ Parent ]
perhaps I am guilty of that particular crime.  But I do see a flurry of efforts to make alternatives possible.  Economic returns tend to concentrate the mind.

What gives me comfort is seeing those great big 2.5 MW windmills on 300 ft towers.  Our little island has the possibility to produce about 10X the amount of electricity we currently use via wind.  The cost is ugly and we may have to build some water reservoirs to act as storage batteries.

While the cost may make us radically change our lives, and kill a big chunk of our economy as airplanes don't fly on electricity, we can at least keep eating and won't have to ride to town on a mule.  I can live with a reduced standard of living and refuse to accept Kunstler's hyperbolic "we're all going to die".

by HiD on Thu Nov 16th, 2006 at 12:26:16 AM EST
[ Parent ]
Interesting, Yergin and co estimate the peak conventional oil supply at about 95 MMBD.  I've been pulling 90ish from my nether eye.  

This is actually a pretty lousy scenario as you say.  The non conventional supply has to spring up from nothing posthaste.

by HiD on Wed Nov 15th, 2006 at 07:15:53 PM EST

 The non conventional supply has to spring up from nothing posthaste.


In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Nov 15th, 2006 at 07:24:02 PM EST
[ Parent ]

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