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Page added on August 1, 2014
Michael Lynch: The Urban Legend Of Inadequate Discoveries
In my first piece on peak oil, I included a graph showing discoveries and production, and some commented that this seemed to invalidate my arguments since discoveries have not been replacing production for decades. This is another example of the ignorance of many who comment on the peak oil issue, and I will clarify.
The term “discoveries” refers to estimates, at the time reported, of the amount of oil discovered. These estimates are frequently revised, sometimes down but on average up, as the fields are better understood and recovery improves over time with better technology and more investment. This is what the industry (and geologists) refer to as “reserve growth”. The initial people in the current wave of neo-Malthusian arguments known as peak oil, especially Jean Laherrere, argued that reserve growth only occurred in the US and represented the use of the term “proved reserves” representing P90 or 90% probability estimates, instead of the more accurate “proved plus probable reserves” otherwise P50 or 50% probability estimates, which should on average be accurate.
No supporting data was ever presented to confirm this argument, and it has been refuted again and again by others in the industry, including the source of the data, a company now part of the IHS corporation, which Campbell and Laherrere relied on for their reserve data. Efforts to refute this, by arguing that there is no new technology or that production trends can provide accurate field reserve estimates, have ranged from incorrect to laughable.
This explains why, despite the fact that “discoveries” have been deficient in replacing production for so long without any decline in proved reserves for decades: reserve additions to existing fields typically outpaces new discoveries in any given year. The practice of postdating these additions to the year of the initial discovery in some data sets, so as used in the graph shown, misleads the novices into thinking that oil supplies are becoming more scarce, when in fact they are easily keeping pace.
Peak oil advocates try to undermine this argument by pointing to the late-1980s reserve revisions in some Middle East producers as being ‘spurious’ and intended to lead to higher production quotas within OPEC. (They mistakenly believe that OPEC adopted a formula using reserves and capacity, among other things, to set quotas. It was considered, but never adopted.) However, they tend to completely ignore the fact that excluding those revisions still leaves us with increasing reserves.
Thus, one of the major pillars of the peak oil movement, inadequate discoveries, is shown to be nothing more than a misinterpretation of a technical term used by the industry, plus gullibility by the supporters of peak oil advocates.
31 Comments on "Michael Lynch: The Urban Legend Of Inadequate Discoveries"
meld on Fri, 1st Aug 2014 8:55 am
Cool, I’ll stick my head back in the sand then. Oil to $20!!!
Michael Lynch on Fri, 1st Aug 2014 8:59 am
I spent nearly 30 years at MIT as a student and then researcher at the Energy Laboratory and Center for International Studies. I then spent several years at what is now IHS Global Insight and was chief energy economist. Currently, I am president of Strategic Energy and Economic Research, Inc., and I lecture MBA students at Vienna University. I’ve been president of the US Association for Energy Economics, I serve on the editorial boards of three publications, and I’ve had my writing translated into six languages. What have you all done?
westexas on Fri, 1st Aug 2014 9:04 am
Did Global Crude Oil Production Peak in 2005?
In my opinion it is very likely that actual global crude oil production (45 or lower API gravity crude oil) peaked in 2005, while global natural gas production and associated liquids (condensates & natural gas liquids) have so far continued to increase.
I’ve always thought it odd that when we ask for the price of oil, we get the price of 45 or lower API gravity crude oil, but when we ask for the volume of oil, we get some combination of crude oil + condensate + NGL (Natural Gas Liquids) + biofuels + refinery gains.
This is analogous to asking a butcher for the price of beef, and he gives you the price of steak, but if you ask him how much beef he has on hand, he gives you total pounds of steak + roast + ground beef. Shouldn’t the price of an item directly relate to the quantity of the item being priced, and not to the quantity of the item plus the quantity of (partial) substitutes?
In any case, the closest measure of global crude oil production that we have is the EIA data base that tracts global Crude + Condensate (C+C). In regard to this data base, a key question is the ratio of global condensate to C+C production. Unfortunately, we don’t appear to have any global data on the Condensate/(C+C) Ratio. Note that when the EIA discusses “crude oil” they are talking about C+C.
Insofar as I know, the only complete Condensate/(C+C) data base, from one agency, is the Texas RRC data base for Texas, which showed that the Texas Condensate/(C+C) ratio increased from 11.1% in 2005 to 15.4% in 2012. The 2013 ratio (more subject to revision than the 2012 data) shows that the 2013 ratio fell slightly, down to 15.0%, which probably reflects more focus on the crude oil prone areas in the Eagle Ford. The EIA shows that Texas marketed gas production increased at 5%/year from 2005 to 2012, versus a 13%/year rate of increase in Condensate production. So, Texas condensate production increased 2.6 times faster than Texas marketed gas production increased, from 2005 to 2012.
The EIA shows that global dry gas production increased at 2.8%/year from 2005 to 2012, a 22% increase in seven years. If the increase in global condensate production only matched the increase in global gas production, global condensate production would be up by 22% in seven years. If global condensate production matched the 2005 to 2012 Texas rates of change (relative to the global increase in gas production), global condensate production would be up by about 67% in seven years.
We don’t know by what percentage that global condensate production increased from 2005 to 2012. What we do know is that global C+C production increased at only 0.4%/year from 2005 to 2012. In my opinion, the only reasonable conclusion is that rising condensate production accounted for virtually all of the increase in global C+C production from 2005 to 2012, which implies that actual global crude oil production was flat to down from 2005 to 2012, as annual Brent crude oil prices doubled from $55 in 2005 to $112 in 2012.
The following chart shows normalized global gas, NGL and C+C production from 2002 to 2012 (2005 values = 100%).
http://i1095.photobucket.com/albums/i475/westexas/Slide1_zps45f11d98.jpg
The following chart shows estimated normalized global condensate and crude oil production from 2002 to 2012 (2005 values = 100%). I’m assuming that the global Condensate/(C+C) Ratio was about 10% for 2002 to 2005 (versus 11% for Texas in 2005), and then I (conservatively) assume that condensate increased at the same rate as global gas production from 2005 to 2012, which is a much lower rate of increase in condensate (relative to the increase in gas production) than what we saw in Texas from 2005 to 2012.
http://i1095.photobucket.com/albums/i475/westexas/Slide2_zpse294f080.jpg
Based on foregoing assumptions, I estimate that actual annual global crude oil production (45 or lower API gravity crude oil) increased from about 60 mbpd (million barrels per day) in 2002 to about 67 mbpd in 2005, as annual Brent crude oil prices doubled from $25 in 2002 to $55 in 2005.
At the (estimated) 2002 to 2005 rate of increase in global crude oil production, global crude oil production would have been up to about 90 mbpd in 2013.
As annual Brent crude oil prices doubled again, from $55 in 2005 to an average of about $110 for 2011 to 2013 inclusive, I estimate that annual global crude oil production did not materially exceed about 67 mbpd, and probably averaged about 66 mbpd for 2006 to 2013 inclusive.
louis wu on Fri, 1st Aug 2014 9:17 am
With all of this debunking of “peak oil” by this guy I would be curious to know exactly what his real world position actually is?Does he actually think, more likely believe, that extraction rates can be ramped up forever?Is that the opposing “theory” to peak oil?Never mind the Hubbert graph that gets put on display the man did real world science in that he developed a “theory” based upon actual observed events.So what exactly is this guys argument.
Plantagenet on Fri, 1st Aug 2014 10:12 am
The graph of oil discoveries needs to be updated to include the ca 15 billion barrels in the Bakken, the 20 billion barrels in the eagle ford and the 50 billion barrels in the Texas Permian.
Davy on Fri, 1st Aug 2014 10:27 am
The graph needs to be updated with some kind of economic factor for reasonable production potential based upon economic conditions. Not much being said lately about Venezuela and all that heavy oil. Is that reserve in those figures anyone?
shortonoil on Fri, 1st Aug 2014 10:57 am
The graph does not show that petroleum production costs are increasing faster than the price of petroleum. It also does not show that this convergence is a thermodynamic certainty that must continue until the profit on a barrel of oil for the producers becomes zero. I wonder were Lynch is planning on getting his abundant supply when no one can afford to produce it any longer. Of course all of the above is reality; he is selling illusions.
This guy reminds me of a horse trader who is trying to pawn off a 25 year old nag as Man Of War.
http://www.thehillsgroup.org/
Northwest Resident on Fri, 1st Aug 2014 11:01 am
The fundamental reality this article puts on display is that our investment and financial wizards will stoop to telling any lie, to denying any fact and to doing whatever the hell it takes to keep the money pouring into their cash-burning operations.
Norm on Fri, 1st Aug 2014 11:08 am
Kool. All of peak oil debunked in one short article. There is no slowdown in discovery either, they are finding it faster than we burn it. How silly I thought there was a lack of discovery.
I am going to buy a Greyhound bus, put in a nice floor plan with a movie room and a hot tub, and commute in it daily to work.
ghung on Fri, 1st Aug 2014 12:16 pm
Interesting comments thread over at the Forbes link (3 weeks out). Lynch offers this “clarification”:
“… Estimates are at the time of publication, so that the amount discovered in 1979 is the estimate in the year the graph was made, about 1996. Meaning the older estimates have been inflated, but not the recent ones. Kind of like saying 2-year old apple trees are smaller than 30 year old apple trees, so we won’t have enough apples in the future.”
Did someone mention apples and oils comparisons? Since oil grows on trees, all we need is more oil trees, eh?….
Oh,, wait!
Northwest Resident on Fri, 1st Aug 2014 12:26 pm
Norm — Don’t forget the maxed out stereo system with gargantuan subwoofers. A tricked out ride like that isn’t complete until it shakes the ground it rolls on. Friendly tip: Paint it camo green/tan so that just in case Forbes is wrong after all and we do actually end up with oil/gas shortages, you can park it in the forest and use it as a doomer hideaway.
JuanP on Fri, 1st Aug 2014 1:21 pm
I skipped the article thanks to the comments. This guy claims he worked for IHS, same conglomerate Yergin works for. Nuff said!
WhenTheEagleFlies on Fri, 1st Aug 2014 1:54 pm
I was a petroleum geophysicist for a major oil company. The day I reported to work I was told: “Young feller, keep in mind that a well is almost always, ALWAYS dry.” When one of the first wells I drilled came in dry, one in a sand that was producing just north, just east, just west, and just south of it, I realized how crazy the odds are of even accurately mapping a sand with lots of well control. That was in the 80’s. Never in any meeting I attended was anybody ever optimistic about any well. The most optimistic remark you could make was “Let’s poke it [the structure] and see.” Anyone who exhibited optimism about replacing reserves only showed their naivete about oil exploration. In fact, every well I drilled came in dry … and nobody got mad. It was just business as usual.
sunweb on Fri, 1st Aug 2014 2:03 pm
Michael Lynch, it is like deja moo, same old bull.
steam_cannon on Fri, 1st Aug 2014 2:12 pm
Norm – That’s a great idea! IF THIS REPORT IS RIGHT it means oil is going to be cheap again, so do you think I can get shiny rims for my single person commuter bus? I want’ my gas hog to have rims!!!
Norm on Fri, 1st Aug 2014 2:14 pm
Ya, commute to work in a tricked out Greyhound bus with camo paint and a year of food and gas on board. The natural outcome of all the disagreement over peak oil. Serious, its kinda sick to tell the sheeple there is lots of oil. In the article, the purported new oil, is just up-rating the old fields. That is not a new discovery. I am watching the energy doom for awhile. You can make oil with chemical process, but the energy input is gigantic. Thorium nuclear fuel cycle could deliver that much heat. Wont ever happen, nobody capable of Apollo style projects anymore. so people are gonna be car camping long term.
jv153 on Fri, 1st Aug 2014 3:31 pm
Yergin wrote two completely different papers, one cornucopian and the other pessimistic. Light tight shale oil wouldn’t be developing like it has if the oil companies felt conventional oil fields in the US were good enough – conventional oil production in the US had declined to half what is was before the light tight shale oil boom, and this one won’t last long. Now if only the boom in electric cars could get going.
Keith_McClary on Fri, 1st Aug 2014 4:00 pm
Mike- How about talking about higher prices and recent poor exploration results despite high spending?
The point of backdating the graph is to show how much we depend on squeezing the dregs out old declining fields, which you prefer to call “reserve growth”.
Davy on Fri, 1st Aug 2014 5:45 pm
Mike, it is precisely the folks like you that hide behind there so called “achievements” that have us in the position we are in today. Smart but dumb is what I see and what our world has become. Smart about technology but dumb to what matters in life. We see with you folks pride, hubris, and tunnel vision. It is a product of a system that is seeking lobbied results over the truth. I am asking myself about your achievements and I see you have been way too long in the caverns of academia and in the pseudo-science of economics. Just look at what the state of higher education is today and look where economics has taken our modern global world…to the brink that is where. What have I done? Well, nothing that would impress you. I have had a lifelong passion to get closer to the truth. I have avoided the route you have taken as IMO corrupting of this search for the truth. Sorry, friend, but ya rubbed me wrong with your “I am great and you are a piece of shit slogan” in the comments above.
Charles on Fri, 1st Aug 2014 5:54 pm
Six months ago Continental Oil raised their estimates to say there is 900 billion barrels of oil in the Baaken/Three Forks formation IN PLACE– meaning only that its there. Of that amount 32-45 billion barrels are addressable at current costs and technology.
In their last conference call Core Labs said that their recent advances mean that they can help companies increase their production by another 10% of oil in place. In the Baaken, that means that Core’s new techniques would allow driller to extract another 90 billion barrels from the Baaken/Three forks formation at current prices.
Brad on Fri, 1st Aug 2014 6:55 pm
“I spent nearly 30 years at MIT as a student and then researcher at the Energy Laboratory and Center for International Studies. I then spent several years at what is now IHS Global Insight and was chief energy economist. Currently, I am president of Strategic Energy and Economic Research, Inc., and I lecture MBA students at Vienna University. I’ve been president of the US Association for Energy Economics, I serve on the editorial boards of three publications, and I’ve had my writing translated into six languages. What have you all done?” I have been preparing for a very difficult future ushered in by self-assured hubris – the garden is looking great!
energyskeptic on Fri, 1st Aug 2014 9:02 pm
Lynch used to post his ideas at energyresources, perhaps to see how his arguments would be received and fine-tune his “Good News! We Will Never Run Out of Oil” messages meant to keep investors from panicking and bringing the stock market down. Capitalism and the 1% can’t justify their existence if there are limited pieces of pie, so economists tell everyone we’re all going to get larger and larger slices of pie, just like religious leaders tell us we’re going to die and go to heaven and live forever and ever. Lynch is just one of many anti-limits-to-growth economists.
Lynch used to post at sci.geo.petroleum and energyresources – here are a couple of random excerpts of replies to Lynch:
1) Steve Andrews in 2000: “you state that because pessimists have been wrong in the past they’re wrong now and will continue to be wrong in the future. Yes, on p. 56 of The Golden Century of Oil (1991), Colin Campbell projects world oil peaking in 1992, flat-lining for 5 years, then declining both steadily and precipitously. Yes, the most pessimistic commentators have already been proven wrong on their early calls. Yes, I’ve read your papers in which you nail some of these prognosticators to the wall.
But you cannot deny that, eventually, world oil production will peak. It will happen. We’re just arguing about the date. And if that date is sooner rather than later, we’re arguing about policy, possible consequences, the nature of fuel-switching thereafter, etc.
Not talking about world oil peaking is like not talking about a possible recession today in the hopes that it won’t happen next year. The timing of the peak will be a function of investment rates, geologic limits, world economic cycles, technology, fuel switching, wars, etc. etc. But it will land some day.
Given the world’s extreme dependence on oil, both today and in the foreseeable future, why your reluctance to even consider the possibility? It strikes me that the folks who do study it, despite the serious weaknesses in the data, are performing a service, at least from the present perspective. If they are depicted as nothing but wolf-cryers until the day they are right, that service is seriously undercut.”
And here’s the The Campbell-Lynch Square Dance by Hugh Johnson
Swing yer partner doh-see-doh,
skew yer figures to-and-fro.
Alaman leaf and alaman rye,
poke yer partner in the eye!
Colin says to back-date growth;
Michael says no, that’s a joke.
Every barrel stalls the peak —
old finds, new finds, equally!
Michael talks like that’s profound,
makes a mountain from a mound.
Colin sees it with un-ease,
milking old dis-coveries.
Them old milk cows’ udders sag;
no young heifers, just old nags.
Time will kill ’em, sure as hail,
but so far, Mike fills the pail.
Swing yer partner back and forth,
make him out to be a dork.
Rub yer elbows with big-wigs–
cocktails in their oil rigs.
Michael seems to count on things
no one but a warlord brings.
Global conquest, suck it dry–
all the Earth is our’s to “buy”!
If reserves grew like Mike said,
why do we behave so bad?
Makes you wonder what he knows…
cocktail parties don’t disclose.
Swing yer partner ’round and ’round
’till he’s puking on the ground.
Colin stumbled into this,
giving Arabs his own diss!
It’s the swing share that’s in doubt,
if the ‘Rabs can work it out.
That was Colin’s prophesy;
warn Big Brother, “Get ready!”
Mike can’t even comprehend
doubts that plague more honest men.
He’ll take credit every time
wars improve the bottom line.
Swing yer planet ’round and ’round–
crude keeps bubblin’ from the ground.
Swing share goes to those with guns;
lock and load — we’re havin’ fun!
Swing yer planet, swing like hell–
what’s that pertolif’rous smell?
Reserves growing, yes indeed —
pump it all; we’re in the need!
One last unexploited field
west of Zanzibar, we’ve heard.
Bribe some locals, start a fight–
we’ll take all; we’re in the right.
Swing yer planet, harder, harder! —
fill the Chevy, fill the larder.
Stuff yer face ’till you can’t walk,
drive to work and talk talk talk.
Talk a big game, swing big deals,
keep the world on mindless wheels.
Be like Mike, just so cock-sure;
talk reserve growth, plain and pure.
Make more bullets, build more bombs,
stomp yer global rivals down!
Seal the borders, jail the gooks,
hire lots more federal spooks.
Where’d that Campbell feller go,
that seditious so-and-so?
Can’t let doubters have their say;
doubts are what will ruin the day!
Swing the doubters, swing ’em high,
lift yer faith up to the sky!
Join the Lynch Mob, kiss the ring
of yer unelected king.
Faith will serve you well, you know,
long as there’s some oil flow.
Get yer dwindling share and smile,
drive yer S.U.V. a mile!
Swing yer planet, one last time,
pump until it’s only brine.
Faith will comfort you to know
them reserves just grow grow grow!
Swing yer neighbor, swing a dozen,
with the help of a close cousin.
Swing their bodies onto carts —
check them first for meaty parts.
Here comes Colin — where’s he been? —
back from hide-out in Dublin.
His old doubts don’t sound so bad,
but can we admit we’ve been had?
Swing yer partner doh-see-doh,
skew yer figures to-and-fro.
Alaman leaf and alaman rye,
poke yer partner in the eye!
Makati1 on Fri, 1st Aug 2014 9:02 pm
Michael Lynch, and yet, oil discoveries are getting smaller and fewer and there is less and less oil in our future. I don’t believe someone because he has a pile of degrees or years of telling others what they should think. You could be a shill of Big Oil, like the ‘doctors’ pushing tobacco smoking not too long ago. They professed to be ‘experts’ also. In some dictionaries, an ‘expert’ is a drip under pressure.
rockman on Fri, 1st Aug 2014 11:08 pm
“”What have you all done?” Personally for the last four decades I’ve developed many fields in the Gulf Coast Basin. With that experience I learned to distinguish between reserve growth and depletion. I also learned first hand that the timing of global PO is rather irrelevant. Very few of the inhabitants of this planet care if we have reached GPO or not. Nor do they care very much if we are increasing the proven global fossil reserves base or not. What they do care about more then any other aspect of the energy dynamic is the cost to supply the global economy with the energy required for, at best, prosperity or, at a minimum, survival.
In the last 10 years or so the cost of global oil consumption has risen from around $1 trillion/year to $3 trillion/year. That is the bottom line of Peak Oil for 98.6% of the world’s inhabitants. Not PO dates, frac’ng, Deep Water Brazil, biodiesel, etc. etc.
Mr. Lynch has an impressive resume. I’m curious why he did include the long list of fields he has personally discovered and how much of our current energy abundance he’s contributed. Perhaps modesty prevents him.
Dredd on Sat, 2nd Aug 2014 5:12 am
One can’t discover more than there is to discover.
Discovery proceeds from the obvious to the hidden.
There is enough dirty oil to destroy the global climate system and the air with pollution.
That is all any civilization on suicide watch needs (Civilization Is Now On Suicide Watch).
A lack of remorse is one indicator of a psychopath.
Dredd on Sat, 2nd Aug 2014 5:19 am
“The psychopath is callous, yet charming. He or she will con and manipulate others with charisma and intimidation and can effectively mimic feelings to present as “normal” to society. The psychopath is organized in their criminal thinking and behavior, and can maintain good emotional and physical control, displaying little to no emotional or autonomic arousal, even under situations that most would find threatening or horrifying. The psychopath is keenly aware that what he or she is doing is wrong, but does not care.” (When Governed By Psychopaths).
Arthur on Sat, 2nd Aug 2014 5:34 am
“I spent nearly 30 years at MIT as a student and then researcher at the Energy Laboratory and Center for International Studies. I then spent several years at what is now IHS Global Insight and was chief energy economist. Currently, I am president of Strategic Energy and Economic Research, Inc., and I lecture MBA students at Vienna University. I’ve been president of the US Association for Energy Economics, I serve on the editorial boards of three publications, and I’ve had my writing translated into six languages. What have you all done?”
Paying attention.
The reality of “inadequate discoveries” can be verified by a child after visiting a gas station and a short look at the price tag.
Yes, there is no shortage of oil. There are not going to be long lines before gas stations, desperately waiting for new supply. You can buy all the gas you need, for decades to come… provided you bring enough dough with you.
The car drivers are going to vote with their feet, literally. They enter the gas station, look at the price tag, say a four letter word and drive their clunker to the scrap heap. End of story.
Peak oil? What peak oil? Lol
Peak oil, that is an abandoned, rusty gas station.
Jimmy on Sat, 2nd Aug 2014 9:55 am
Lynch has a nice CV but he forgot to add ‘shill’.
MKohnen on Sat, 2nd Aug 2014 7:11 pm
Michael,
“The term “discoveries” refers to estimates, at the time reported, of the amount of oil discovered. These estimates are frequently revised, sometimes down but on average up, as the fields are better understood…” I assume you are talking about Monterey here?
When you guys are wrong, you literally paper it over, but when you’re right you assume the position of all-knowing “Look at my huge CV, I’ll bet it’s a lot bigger than yours!” I’m really glad that your article points out that stupid people are stupid. And only stupid people don’t know the difference between “discoveries” and “reserves.” I’ve learned the difference by lurking and learning on this site, among others. As has virtually everyone here. So you posting an article pointing out the obvious is like going to an astrophysics site and telling everyone the earth revolves around the sun. Unfortunately, you don’t know the difference between stupid people and informed people, because you left out so many facts that the argument you made can only be appreciated by stupid people.
But let’s cut the crap. I’ll speak bluntly here, Michael. I don’t give a shit if there’s enough oil around for Lynch or Yergin or whomever to keep on living the good ole Ivy League life. I care that there is enough oil to last until proven energy replacements can ensure a relatively secure life for the children, grandchildren, etc. of the population of our planet. I care that burning up all these glorious “reserves” you crow about doesn’t destroy the environment for the above mentioned people who are entirely dependent on us making proper choices now! Can any of the drivel you or Yergin spout guarantee – and I mean *guarantee* this? Because, if not, you’re arguments make you one of the stupid, irresponsible people, and you can take your fancy CV and cram it in your fireplace!
Newfie on Sat, 2nd Aug 2014 7:19 pm
If oil production is not going to peak, then it is either (1) going to keep rising forever, or (2) it is going to reach a maximum (plateau) and stay there forever. Either premise seems rather fantastic for a finite resource and an economy that grows (or purports to). Common sense tells me that oil is going to peak.
dashster on Sun, 3rd Aug 2014 1:00 am
“Common sense tells me that oil is going to peak.”
It is frustrating when the “Peak Oil Theory” is said to be proven false, and never qualify it by saying they are talking only of a near-term peak. I have to assume that most of the people saying it fully expect oil to peak someday, they just feel that it is so far off. At least I hope they don’t believe in the Infinite Oil Theory.