Working Papers

Peak Oil as Doomsday Cult

Derek Brower, editor of the Petroleum Economist, on peak oil cultism:

Worries about a peak in oil production, however, are not moving the oil markets. I doubt Jeremy Leggett thinks they are, but his article yesterday implicitly linked the peak oil theory with high oil prices. It also claimed that a growing number of oil executives, like Total boss Christophe de Margerie, now support the theory.

Not really. What worries executives like de Margerie isn’t a geological peak. Industry studies show remaining reserves to be literally trillions of barrels greater than the figures offered by the peak oil theorists. They’re worried about getting access to the good stuff. Increasingly, it lies in countries that don’t much like western companies. De Margerie and other executives are simply doing what they always do: putting pressure on producer countries to open up.

posted on 09 March 2008 by skirchner in Economics

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Brower’s piece is a total mis-reading of “peak oil theory”, as Matthew Simmons explains here ...

You’re predicting $378 a barrel!?

“We don’t understood the value of oil (domestically), replies Simmons. In England they’re paying the equivalent of $9 a gallon for gasoline. That translates to $378 a barrel and it’s having little impact on England’s economy, right now.”

“The cost of oil is going up, he adds, it’s getting scarcer. We’re not going to run out but we are peaking.”

What about the Canadian oil sands? Won’t they save us?

“They are vast in quantity,” replies Simmons. “But they require an unbelievable amount of energy to create oil. And what you end up with is low quality oil that has to be upgraded and blended with high quality oil to get synthetic crude.”

Lets look at several points in both pieces:

1. Oil reserves are huge.  No disagreement here.  Peak oil is about the rate oil can be produced, not whether oil is about to “run out”.  Its not.  Everyone agrees on that.  Its whether we can produce it at a rate that meets demand that is at issue.

2. Oil is cheap.  No disagreement.  Simmons says at $100/bbl oil is 15c a cup.  Brower makes the same point: Oil might be pricey by historical measures, but it isn’t by others. Compare, for example, the cost of a barrel of crude with a barrel of coca-cola: $100 vs $204.

3. Brower says the majors are flocking to the one big oil player where they are still truly welcome: the Canadian oil sands, whose reserves are second only to Saudi Arabia’s.

Whenever peak oil is “debunked” with the oil sands argument you know the author hasn’t done their homework.  The most cursory investigation into oil sands shows the enviromental impacts are horrendous, the energy return is poor, and there are hard limits to rate at which oil can be produced because there simply isn’t enough water in the rivers.  The most optimistic estimates for Canadian oil sand production are around 5 mbpd by 2020.  We use 85mbpd today, production from mature wells is declining by ~5% p.a and the energy agencies say we’ll need 115mbpd by 2030.  How are the oil sands going to make up that shortfall and supply us with another 30mpbd?

Brower hasn’t done his research and it shows.  You haven’t done your research by quoting it.

How about you link to a story about some vast, new, easily produced source of oil—OR—some promising new transporation technology that doesn’t rely on oil?  Then I’ll start taking you seriously.

Again, the anti peak oil argument boils down to this: “We expect the price mechanism will work”.  In other words, faith.  Nothing more.

Posted by .(JavaScript must be enabled to view this email address)  on  03/10  at  11:26 AM

Oh BTW, if you follow the majors flocking to the oil sands link to the FT you’ll find a story about how BP has reversed a decision not to invest in the Alberta oil sands.

BP’s investment of $3 billion will begin production in 2012, and rise to 200,000 barrels per day by the end of the decade.

200,000 barrels by 2020!  Woo hoo!  We’re saved!

Who is this Brower idiot kidding?  Is he seriously putting forward this as evidence that the oil sands will meet the decline in conventional crude?

Come on Stephen, surely you can see this is a drop in the ocean.

Posted by .(JavaScript must be enabled to view this email address)  on  03/10  at  11:49 AM

Give it a rest, David.  You pounded your position during the last post.

Posted by cb  on  03/11  at  02:45 AM

Give it a rest, David.  You pounded your position during the last post

Why should I?  I’m not the one posting daily stories about “peakniks”, “doomsday cults” and
“it’s scary to think the peak oilers have this much money to throw around”.  Er ... tell that to Warren Buffett.

If Stephen wants to post inflammatory stuff like that, then I’ll keep “pounding” the peak oil position.  I make no apologies.

Oh BTW, Canada announced yesterday that all oil sands projects will have to implement carbon capture and storage by 2012.  That should assist in ramping up production ... not.  Perhaps even 5mbpd from oil sands by 2020 is optimistic?

Sorry to annoy you with these inconvenient, ummm, facts.  I should just accept that “the price mechanism will work”.

Posted by .(JavaScript must be enabled to view this email address)  on  03/12  at  10:31 AM

In the tradition of the Ehrlich-Simon bet is the Matt Simmons-John Tierney 2005 bet that oil would reach $200/bbl by 2010.

Now that its close to the half way point on this bet, Stuart Staniford has a look at how the bet is progressing.

In short, Staniford’s take is that Simmons will be quantitatively wrong, but Tierney will be qualitatively wrong.  i.e. If recent trends continue oil will be much more expensive in real terms than it was in 2005, but not as expensive as Simmons predicted.

Posted by .(JavaScript must be enabled to view this email address)  on  03/18  at  12:09 PM

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