Peak Oilers Back in the Sun After All These Years

The Peak Oil theory is undergoing a renaissance of late, as is usually the case when oil prices are high. Bloomberg adds some oomph to the resurgence of this declinist doctrine by showing that the investment world is buying in. Bloomberg Markets magazine has a long article in the October '06 issue (short version here) that, among other things, dusts off Colin Campbell, a high priest of the Peak Oil sect. Despite Campbell's spotty track record, he now has big money disciples like T. Boone Pickens and Eric Sprott. Also to point, the current rock star of the Peak Oil movement is not a geologist at all, but an investment banker, Matthew Simmons, whose "Twilight in the Desert" is the "Silent Spring" of modern Peak Oildom.

Peak Oil is a second cousin of global warming. It shares a declinist perspective and it exists to heap scorn on the endeavors of humankind. What it also shares is the belligerent insistence that it is the consensus view and that dissenting views are ridiculous, heretical and/or sinister machinations. It simply is not accepted amongst right thinking people that Peak Oil could be wrong. It would be so terribly gauche to wax skeptical of Peak Oil at a Manhattan dinner party (and a good way not to get invited back).

There are good (science-based) reasons to be skeptical of Peak Oil, but if you ask me one of the most compelling reasons is the precise development that the Bloomberg piece highlights - money men signing on. When a scarce commodity theory takes such a hold on the investment community and becomes such entrenched conventional wisdom, hold onto your money and/or run the other way. Provided with the polish and gloss of a respectable theory, commodity bull markets turn into manias, but the end result is fairly predictable - the theory breaks down and the mania comes crashing down. High oil prices will correct high oil prices. Ignore Peak Oil as an investment strategy and a policy guidepost.

More Dispatches From Peak Oildom

Over at The Oil Drum there are some fancy graphs within this post that commenters are desperate to get the world to look at, ostensibly because they represent stunning proof of the Saudi Arabian strain of Peak Oil. Longtime readers know that I am skeptical of the Peak Oil theory, or at least skeptical of the false logical link from declining to production to the popular talking point that "we are running out of oil." (Notice all the graphs in the post have only a few recent years data. Do they want us to take this seriously? Trends from 2004 to now? C'mon, this is laughable.)

Anyway, as a counterpoint to the extreme pessimism over Saudi production, I had lunch recently with a leading oil and gas industry investor who had just returned from Saudi. His view was that Saudi had gotten off easy for decades, doing very easy pumping without having to employ the most advanced technologies to get their crude out of the ground, but that this was changing. Saudi is going to have to suck it up and begin to employ the oil service sector to a healthy degree as they move from the decades-long 'low hanging fruit' era to the modern era. That application of new technology should have enormous consequences on Saudi's probable reserves calculation and future production.

Peak Oilers love to demand that we think through the consequences of declining oil production without even offering the option of actively encouraging more production and arresting the decline in production that is well within our capability to do so. We can't produce oil of we don't drill for oil. We are not limited by 'what is out there', we are limited only by our desire/ability to find, extract and refine sources of energy. The policy response should be more drilling (in addition to energy diversity initiatives, let unfettered hydrocarbon technology compete freely with non-hydrocarbons).

Gateway to my previous Peak Oil posts here.

UPDATE: Check this out, too. TigerHawk's conclusion sounds alot like this: "Peak Oil is a second cousin of global warming. It shares a declinist perspective and it exists to heap scorn on the endeavors of humankind."

Yergin's Peak

Bloomberg reports on a new report out by Cambridge Energy Research Associates, the firm run by respected energy expert and Pulitzer Prize-winning author Daniel Yergin. Basically, CERA says that peak oil is 30 years in the future (for those who believe in Hubbert Peak). The report also claims that production declines will be slow and gradual and bolsters what we already know to be true in the energy business, that advancing technology and evolving political situations mean we can find and extract ever increasing amounts of energy.

Yergin is disliked by the Peak Oil crowd and they are always out to discredit him. The Bloomberg article cites a guy at ASPO who takes a putative swipe at Yergin by claiming that Yergin's research is a scheme to make money and that he won't reveal his data. Well, YEAH! Yergin runs a business and presumably he is endeavoring to have it be profitable. How does one run a profitable research business? By producing research that is insightful and accurate to an extent that clients are willing to pay for it. And Yergin does. So why would Yergin give his data and analytical methodolgy away for free when he can make a very nice living by selling it?

More thoughts on Peak Oil here and here.

Julian Simon's Ghost Haunting Peak Oil

Peak Oilers love to say that "there just aren't any big finds left out there." The logical conclusion then is that oil production will decline. Well, you can't produce oil if you don't look for oil. Exploration has been declining for decades, so why should we not expect declining production? If we actually looked for oil and did so aggressively on a sustained basis, we wouldn't be facing declining production. Technology plays a huge role. The state of the art allows us to look only so many places and only so deep into the earth. Peak Oilers may have a point about our steady state existence, akin to saying we are pedaling as fast as we can on the bicycle. But what if somebody invents a motorcycle? The critical flaw in the Peak Oil theory is that it doesn't account for getting off the bicycle and mounting the motorcycle. As the state of the art in exploration and extraction technology advances, we can drill in more places and look deeper into the earth. If we've previously been constrained at, say, 8000 feet, who's to say what moving that constraint to 20,000 feet will yield us? Maybe nothing or maybe previously unimaginable availability of resource. Very likely it will be somewhere in between.

Well, today comes news about that motorcycle and what it may mean for us. Chevron, Statoil, and Devon have tapped what looks like a monster reservoir at an astounding depth. The implications are enormous, and I'll leave it at that, but suffice to say that the Peak Oil theory has two strikes and human ingenuity seems to still be throwing 95 mph heaters.

If Peak Oil Is Real, This Is Why

Check out the stunning graph included in this Forbes editorial (must scroll down). It is a fine editorial but one thing it doesn't touch on that this graph helps illustrate is that Peak Oil is not inevitable. The blue bars essentially represent state-owned entities that milk their resources for lavish social spending in order to stay in power and dampen resentment over despotic rule rather than invest prudently for long term viability. The red bars represent publicly owned entities who are answerable to investors who care about protecting long term value. The blue bars don't reinvest and apply the latest technology, the red bars do. The blue bars are why the Peak Oil theory even exists. Less blue bars, more red bars, no Peak Oil.















1GOCs— A: Saudi Aramco B: NIOC (Iran) C: Qatar Petroleum D: ADNOC (UAE) E: Iraq NOC F: Gazprom (Russia) G: KPC (Kuwait) H: PDVSA (Venezuela) I: NNPC (Nigeria) J: NOC (Libya) K: Sonatrach (Algeria) L: Rosneft (Russia) M: Petronas (Malaysia) O: Lukoil (Russia) P: Pemex (Mexico) Q: Petrochina (China) T: Petrobras (Brazil) Y: ONGC (India) Z: Sinopec (China). 2IOCs— N: ExxonMobil R: BP S: Chevron U: Royal Dutch Shell V: Total W: ConocoPhillips X: ENI. Source: Credit Suisse First Boston.

Q: Who Killed Peak Oil? A: Oklahoma.

I've told you that Peak Oil is dead, but who killed it?  Here is a supposed list of five companies.  One can quibble with the list, but taking this list at face value, you can basically say that the death of Peak Oil was cooked up in Oklahoma.  Three of the five companies listed are Oklahoma-based companies.  Add in Harold Hamm's Continental Resources and it's pretty much a lock...the scrappy oilmen (and oilwomen) of Oklahoma have killed off Peak Oil.  Given that the energy renaissance in the US could turn out to be a potentially world-historical development that rearranges the global geo-political order, that is quite a feat for a small state in the middle of America!

Peak Oil? No. Peak National Debt? If Only.

Yesterday brought news of finding some surprises in the sofa cushions. On the bad side, Barack Obama found an extra $2 trillion in crippling national debt. On the good side, some oil companies found a couple billion and a couple hundred million new barrels of recoverable oil. I have taken the Peak Oil concept to task here at NBfPB many times. Refreshingly, the NY Times gave Michael Lynch space to shoot down Peak Oil silliness yesterday.

Peak of Peak

Don Luskin makes a point well worth noting, and reminds me of a certain prescience. Honestly, I hope we've see Peak Barney Frank.

Peak Oil Officially Out of Vogue

Mark Perry notes the passing of the fad. Any time we can throw one more silly notion on the ash pile, it's a good thing.

UPDATE: And today comes a textbook story on why the Peak Oil skeptics have been right and the Peak Oilers have been wrong - a new technology will allow a 70-year old well that's pumped 800 million barrels to keep pumping another 40 million barrels for another 25 years. Lesson: let a million technologies bloom.

Peak Oil Fail

I've been dismissive if the Peak Oil Theory for some time and have blogged about it many times here at NBfPB.  Over at Carpe Diem, Mark Perry gives us some visual evidence of how bad the theory is faring these days.  Distilled to its essence, Peak Oil is just another declinist theory, among many, at whose heart is a lack of faith/hatred of mankind.

Peak Oil Is Garbage...but It Still Sells

I've gone after the Peak Oil silliness here at NBfPB many times. Duke economist Mike Munger upgrades the indictment from silliness to idiocy. A well deserved promotion (or is it a demotion?). Peak Oil always seems to get revived at the onset of commodity booms, mostly by money managers promoting their commodity investment strategies.

NPR Looks Into Peak Oil

Regular readers of NBfPB have been kept up to date on the issue of Peak Oil vs. ,well, Reality, and some of the players and arguments et cetera et cetera. Well, bigger and more prominent blogs are now looking into this issue...case in point here via Instapundit (I didn't read the article b/c it's late, but the graph that you see above the fold is interesting). Frankly though it should be a little insulting to Dan Yergin that NPR puts Matthew Simmons on a coequal plane.

Some of my previous Peak Oil posts are here and here and here.

Peak Official Idiocy

We've reached Peak Idiocy by our buffoonish masters - governments are buying negative yield bonds.

This is unfathomably dumb.  Governments should be issuing negative yield bonds...

Fortune 100 Co. Tripped Up In China

Back in 2013 I wrote about what I saw as 5 Pillars of the New Financial Reality.  One of them was don't get too sucked into China.

Alas, that post came too late to save Caterpillar CEO Doug Oberhelman.  He's out and a big bet on China is most of the reason.

“Everybody was convinced that this time would be different,” said Ken Banks, who retired in 2013 as manager for Caterpillar’s electric mining shovels. “They thought the Chinese market was so hot, that commodity prices would continue to be very strong and Caterpillar would increase sales substantially.”

The year 2012 would prove to be a peak for Caterpillar. Soon after, miners began shelving equipment-buying plans as commodity prices fell. China’s growth slowed. Then oil prices fell, along with demand for related equipment.

Caterpillar now faces its fourth straight year of falling sales, the longest decline in its history. Its stock is up 29% this year—the best-performing in the Dow Jones Industrial Average— but trades 25% below its 2012 peak.

“Everybody was surprised by the size of the downturn and the length of it,” Mr. Oberhelman, 63 years old, said at a September mining trade show in Las Vegas. “I firmly believe we couldn’t have forecast that at the time” of the Bucyrus deal. The company declined to make Mr. Oberhelman available for comment for this article.

 BTW, my 5 Pillars post from 2013 holds up very well.

If You Think Living With Oil Is Bad, Try Living Without It..."

Former Harvard President Derek Bok is known for his quip that "If you think education is expensive, try ignorance."  I have an interesting take on that, but that particular hobby horse is not one I wish to mount today.  Filmmaker Mark Mathis uses a variant on this theme as the central enticement for you to view his documentary about oil entitled spOILed: "If you think living with oil is bad, try living without it..."

I have long said on this blog that what most people in this country and around the world know about oil and the energy business is totally wrong (see here and here).  Now along comes a documentary film whose filmmaker was inspired by that very notion.  The reality is that hydrocarbon energy runs our lives and enables a standard of living that we simply will not relinquish despite all of our posturing and protestations to the contrary.

Furthermore, it is a standard of living that billions around the globe aspire to and will not tolerate being denied and their leaders will not risk their power by denying it to them.  What this boils down to is the persistence and increasing demand for hydrocarbon energy well into the future, and unless we make every effort to find and extract hydrocarbons there is going to be a severe shortage and prices will rise substantially, causing very severe economic dislocations, the likes of which will cause tremendous economic hardship and suffering.  Here's the main trailer.



Just judging from the trailers, the film appears to give credence to the Theory of Peak Oil. I don't and I've discussed that many times here and here.  It is not oil that is scarce, but human will and desire to find it and channel it to our own ends.  But Peak Oil or No Peal Oil, a demand/supply imbalance is possible, even likely, all the same if we make bad policy decisions, such as not aggressively developing our energy resources.  And no matter how we arrive there, a demand/supply imbalance gets us the same result - higher prices.  Mathis's film attempts to get this across and exposes our anti-hydrocarbon obsession with the economic suicide that it is.  Of course, it looks like this film might be relegated to oblivion while some Hollywood silliness starring Matt Damon will continue to fuel Americans' ignorance of the energy world.  I sincerely hope not though as spOILed looks like a small dose of sanity in a sea of anti-oil rubbish, misinformation and propaganda.

Reply to A Commenter

William said...
Wow. What an elitist counterbalance to Kosla. The President last night called for 35 billion gallons of fuel production from alternate sourcs mainly from ethanol (more likely from cellulosic ethanol). At the same time we're pumping an additional 100,000 barrels a day into the Strategic Petroleum Reserve. There is a worldwide effort afoot to replace oil with bio sources because of political instability in the Middle East. The Chinese for example are looking at their rapeseed capabilities today to expand biodiesel production. So are the Europeans. Time in NOT on our side. We need to act quickly regardless of how it benefits Khosla's companies.

First, William, thanks for reading and commenting. Let me respond. I don't begrudge Khosla making money in the least. This blog is ardently capitalist. What I do object to are 1) capitalists who angle for government bestowed advantages to compensate for their lack of success in the marketplace, and 2) the government picking winners in a particular sector. Like Khosla, I too have investments relating to alternative fuels but asking for favors from the government is not part of my investment model. These efforts have to stand on their economic merits. I believe that the ethanol industry could be successful ultimately, but that they are on the margin of economic viability and are cynically relying on government to tip the balance. This is what is called economic rent-seeking and I believe it is an abuse and detracts from the development of a healthy, resilient economic environment.

This blog has always advocated "energy diversity". I want to see many alternative fuels, including ethanol, in use, but only to the extent that they are economically viable. There are many folks who feel that some notion of "virtuousness" ought to be applied to alternative energy. On that score, ethanol doesn't really stacked up well either. I would argue that biodiesel from waste oils and tallow are more "virtuous". But such a subjective notion is problematic in that it is difficult to make rational decisions and you invite a cacophony of competing voices that policy makers cannot possibly sort out. This also invites abuse of the political process. The market is the single best mechanism for sorting out a cacophony of views. I applaud Khosla the capitalist, I do not applaud Khosla the lobbyist; and, make no bones, he is assuredly part lobbyist in his efforts on behalf of ethanol.

Additionally, alternatives must be alternatives, not necessarily replacements. A commitment to energy diversity must also allow for an improvement in the status quo, namely better hydrocarbon fuels. In a few decades we have gone from leaded gasoline to where we now have something called Ultra Low Sulphur Diesel and a host of cleaner fuels. Fuels are getting cleaner and better and we should not hinder this process.

This all gives a moderate nod to the theories of anthropogenic global warming and Peak Oil. It makes good sense to have multiple energy options given these theories, but I don't think we should make policy (other than a policy of non-intervention to promote energy diversity) based on either of them. They both are highly speculative theories that leave ample room for justified skepticism. So when you say, "we are running out of time" I can only assume you are referencing either the Peak Oil notion that we will run out of oil or the global warming notion that we will destroy the earth before long if we don't act. I think you are wrong on both counts if that is indeed what you mean. We do not need to develop alternative fuels because of an imminent shortage of hydrocarbon resources, nor do we need to do it to avoid known and quantifiable negative effects on the climate. We simply need to do it as a matter of prudence.

Gloat Time. (Light) Sweet Gloat Time.

Just want to remind people that I was firmly in the "Peak Oil is Idiotic" camp.  Gloat time.

We Should All Fear the Words "Bond Buyers' Strike"

I've commented to friends and readers alike that I think our political system cannot handle our fiscal problems, that the solution will be imposed on us by the bond market. (I now update that thesis in light of Chris Christie in NJ and Jerry Brown in California. I've softened a little bit. I now believe that, in the typical case, where the political system can't fix itself, the bond market will do it for them.) Fortunately, this will play out in Europe first so that we might have a nice sneak peak and the opportunity to draw an object lesson. Witness Ireland. As bond buyers balk, the options start to narrow and the situation looks more intractable. This will be a virus (not in the sense that it is bad, but in the sense that it can spread quickly). If it is happening in Ireland now, it can happen in California starting now.

More On Gas Prices

I recently highlighted the wrong way direction of gas prices. USA Today picks up the theme and makes a pessimistic prediction.

Prices could spike another 60 cents or more by May. "I think it's going to be a chaotic spring, with huge price increases in some places," says Tom Kloza of the Oil Price Information Service. Kloza expects average prices to peak at $4.05, although he and other industry trackers say prices could be sharply higher in some markets.

I have long predicted that we'd see $4 gas in the 2012 election cycle.

Most Telling Sign of Lefty Panic Yet?

The Left's NGO-Media Complex must be gearing up for a Romney administration!

The Ford Foundation awarded a $500,000 grant to the Washington Post to expand its government-accountability coverage, the foundation’s second major grant to a for-profit newspaper this year.

The foundation made its first for-profit newspaper grant to the Los Angeles Times this spring—an award of $1 million to enlarge coverage of local immigration and ethnic communities.

The grants come as newspapers continue to struggle with print revenues declining much faster than digital revenues are growing, forcing closures and job cuts throughout the industry. The Washington Post’s newsroom, for instance, has shrunk to around 600 people today from about 1,000 at its peak in 2000.

The one-year grant to the Post, which is owned by Washington Post Co., will fund four reporters to work on “special projects related to money, politics and government,” under the paper’s investigative unit, according to a memo from Post editors.

“The Foundation’s support enables us to build on one of our central missions, and the terms of the grant give us complete independence,” the editors said.

After all, why would they suddenly be interested in "government accountability" 98 days from another four years of Obama?