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Page added on May 5, 2016
Michael Lynch: Saudi Oil Confounds The Skeptics
Friend and colleague Rob Bradley came across a 5-year old article denouncing me for my foolishness is not believing in peak oil theory and especially “refuting” a New York Times piece I had written. My piece was in response to revelations from Wikileaks that mentioned a former Saudi Aramco official who raised questions about that country’s petroleum resources. The author responding to me, Charles Armentrout, queried “Do you expect to be dead and gone in the next 4 to 8 years?” This reflected his point that the Saudi reserves in contention would only meet 4-8 years of world oil consumption, assuming flat or increasing production to explain the range. From this he concluded, “…the world is on the cusp of a massive transition from the one paradigm for living into another based on some unpredictable political and social order.”
This provides a good case study of how many debates go astray when the uninitiated enter the fray. Aside from his apparent misreading of my piece, he makes technical errors and seems to have a poor grasp of mathematics. My points were that the worries that Saudi Arabia’s oil sector was in trouble were nothing new, but had become newsworthy solely by being mentioned in Wikileaks the same way a toilet was converted to a work of art when it was placed in a museum by Marcel Duchamps in 1917. Armentrout notes that the issues had actually been raised before (which I mentioned explicitly) and cites both a 2007 Atlantic Monthlypiece by James Hamilton which notes that Saudi production had been declining for 2 years as well as the book Twilight in the Desert by Matthew R. Simmons, which began the recent debate.
It doesn’t take much to make it clear that this controversy is dangerously close to pseudoscience. The figure below shows Saudi production of total liquids and crude plus condensate since January 2000, using the Department of Energy’s data. The three red arrows represent the points where first, Matthew Simmons, then James Hamilton, and finally, Charles Armentrout, expressed expectations of problems. The blue line shows Stuart Staniford’s projection that Saudi production would drop by 50% in five years.
Saudi production has shown no signs of the imminent decline, impending crash, or looming kerfluffle expected from all four gentlemen. Indeed, the Saudis have outperformed the rest of the industry, ramping up quickly in response to supply disruptions such as the 2003 Gulf War. Oil fields Simmons thought would never produce oil again have started up. He said the previous peak of 144 thousand barrels per day in 1981 for the Khurais field was “likely Khurais’ all-time peak output.” It restarted five years later at 1.2 million barrels a day.
The origin of the controversy began when the fathers of modern peak oil theory Colin Campbell and Jean Laherrere “discovered” that the Middle Eastern OPEC members had announced suspicious increases in their published reserve data, which they interpreted as being an attempt to cheat on OPEC production quotas that were based in part of each members’ reserves. Of course, industry old-timers including myself had long been aware of it, and ignored the issue because those countries were both resource rich and under-producing relative to their earlier reserve estimates. Oh, and OPEC had considered a ‘scientific’ approach to quota-setting, using reserves, production capacity, population and other factors to determine each members’ quotas, but had never actually implemented such.
Novices like Armentrout tend to be surprised to discover that world oil reserves are not known precisely, and few are aware how the data is collected. Long ago, company geologists were often responsible for reporting the data, but after the 1970s oil crises, many governments not only nationalized foreign companies’ operations, but insisted that only they could release the data. Since that time, the data have become less reliable, with many governments sometimes failing to report data on an annual basis, and revisions sometimes occurring without explanation or seemingly any cause.
But frankly, even before then, reserve data was often less than reliable: when trying to model Egyptian oil production in the 1980s, I found that their historical reserves fluctuated sharply, sometimes dropping more than the amount produced, for example. Others have long noted that some countries, notably the Soviet Union, had different classifications for reserves than employed by the professionals in the industry. The scandal so often trumpeted represents ignorance of the trumpeters.
A number of industry analysts, including myself, have debunked the claims of trouble in the Saudi oil fields and especially a looming production collapse, noting the technical errors and blind curve-fitting that dominates the discussion. Yet none of the peak oil advocates seem to notice either the counter-arguments or the failure of reality to conform to their expectations. (Denialism, anyone?) And as a result, there are many who are only vaguely aware that there were “concerns” about Saudi oil potential, not realizing that this controversy should have gone the way of the autism-vaccine scare. Unfortunately, there are huge numbers of people who are concerned about world oil supply and price, but have only a superficial understanding of the issues involved.
This is typical of the neo-Malthusian movement, where non-experts publish widely and make a variety of claims that are unsupported, incorrect, and taken out of context. Matthew Simmons provided the perfect example when he said that his suspicions about the health of Saudi oil production were raised when he heard that they used “fuzzy logic,” which he had never heard of, to model the oil reservoirs. This was repeated by others, such as Peter Maass in the New York Times NYT -0.41% Sunday magazine and a later book. None bothered to simply google the term and discover that it was simply a programming method.
In the corporate world, due diligence is presumed but often absent. Unfortunately, in policy debates, it all too often seems to be antithetical.
23 Comments on "Michael Lynch: Saudi Oil Confounds The Skeptics"
SugarSeam on Thu, 5th May 2016 7:29 pm
well, that’s gonna leave a mark…
Well, before you hammer out a tirade…
remember two things:
1) breathe
2) the author isn’t gonna see it here… Forbes allows reader comments.
mbnewtrain on Thu, 5th May 2016 10:56 pm
The author forgot one thing:
Decline never sleeps!
DMyers on Fri, 6th May 2016 12:01 am
I thought it was well settled that Campbell and Laherrere came up with the “deceptive Saudi reserve enhancement to aid OPEC quota cheating” theory while they were stoned. Good information wasn’t all that plentiful to confirm it, but it was really high on a scale of intuitive validity.
Lynch says he, personally, knew all along that the Saudis were exaggerating their reserves, but he chose to ignore it. He poo poos the notion that there ever really was an OPEC system that accounted for anything, but he gives no other explanation for why the Saudis would overstate their position.
The important thing to realize is that even a finite planet can provide an infinite supply of at least one resource, so long as the effort and investment to procure it never ceases.
Even if the oil we’re pumping goes directly into the pump that’s pumping more oil into the pump that’s pumping, Mr. Lynch assures us there will always be more where that came from.
tita on Fri, 6th May 2016 3:33 am
Saudi Oil struggle against depletion and use a lot of techniques (mainly water injection) to keep the oil flowing. The Khurais field, which couldn’t produce more than 144k in the 80’s, was revived with injection of 4mbpd of water in 2009. Another field (Manifa) was revived with the use of a special refinery to handel the toxic oil from it.
So, they counfounded skeptics by improving the recovery of oil thought not to be recoverable. A bit like oil shale. Without Khurwais and Manifa, they would be 2 mbpd under actual production. Do they have other options in their pockets? Probably, at least to counter depletion of old fields. But as time goes on, the more options you use, the less you got.
Davy on Fri, 6th May 2016 5:06 am
“This is typical of the neo-Malthusian movement, where non-experts publish widely and make a variety of claims that are unsupported, incorrect, and taken out of context.”
I love when agendist describe themselves by trying to describe the ones they are against. This happens all the time on this board. Forbes and its cornucopian status quo promoting army of lobbyists are just such an agendist group. We are seeing their agenda compress with time as growth comes under pressure. Soon this mouth piece of the establishment will be silenced because they will have been completely discredited by events.
marmico on Fri, 6th May 2016 7:07 am
I love when agendist describe themselves by trying to describe the ones they are against.
Read this very slowly, Davy Greenacres.
Artie Berman who pales in comparison to the banker clown Simmons or Hamilton’s $100 oil forever, is a former ASPO (Association for the Study of Peak Oil) bobble head president, yet he is not an agendist.
Artie is another peaker fuctard trying to make his agendist buck.
U.S. gasoline consumption in 2016 will exceed the prior 2007 record.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mgfupus2&f=a
I admire Lynch. He was smart or lucky or whatever but he outperformed all the peaker agendists.
tita on Fri, 6th May 2016 9:13 am
“U.S. gasoline consumption in 2016 will exceed the prior 2007 record.”
Production, not consumption. US exports a lot of gasoline.
Boat on Fri, 6th May 2016 9:28 am
The US refiners must perform miracles. They buy large amounts of heavy oil, mix it with short’s so called camel pee, still make a profit while exports of finished petroleum products continues to rise.
Sissyfuss on Fri, 6th May 2016 9:36 am
“In the corporate world, due diligence is presumed but is often absent.” Along with ethics, honesty, and altruism. Oh and kiuss off, Mammyscunt!
PracticalMaina on Fri, 6th May 2016 9:41 am
And they miraculously do it without huge environmental destruction, right Boat? Miracles!
GregT on Fri, 6th May 2016 10:34 am
“The US refiners must perform miracles.”
Yes, they are involved in the process of altering the planet Earth into a barren wasteland, and undoing millions of years of natural evolution, all in less than a couple of hundred years. Nothing short of a miracle, by any metric.
Boat on Fri, 6th May 2016 11:55 am
So are you. You buy stuff.
Boat on Fri, 6th May 2016 11:57 am
PracticalMaina,
You buy stuff. Your just as guilty.
PracticalMaina on Fri, 6th May 2016 12:02 pm
I don’t buy much really, my income is low, and once I get my own property to provide for some of my needs I will contribute to BAU even less. Also by the time I was born your generation had pretty well made a mess of things.
Boat on Fri, 6th May 2016 12:17 pm
But your goal is to buy land and prep. Everything you put on your land will be supplied by raw naked capitalism. Btw everything you have bought…..
PracticalMaina on Fri, 6th May 2016 12:23 pm
Yeah don’t worry, I already have plenty of antique hand tools, carpentry and farming. I also am big into recycling, craigslist, ect can be very good sources for free building materials that are otherwise landfill bound. I try to tread as lightly as I can. You have many more years of being a good little consumer under your belt than I do so how about you get off of my back. Go back to cheerleading fracking, you know, doing your part.
Boat on Fri, 6th May 2016 1:00 pm
“Go back to cheerleading fracking, you know, doing your part.”
I don’t cheer fracking. I just don’t make up shyt one way or the other.
PracticalMaina on Fri, 6th May 2016 1:02 pm
You talk out your ass on a daily basis, look at your statement you just made about Maine not having good solar or wind potential. Untrue.
Sissyfuss on Fri, 6th May 2016 10:26 pm
You’re a man after my own heart, Practical.Tread lightly for there are those who will follow after us, albeit for not an extended stay.
ennui2 on Sat, 7th May 2016 7:01 pm
I once mocked Lynch in an animated video. Now I have to agree with him, up to a point. Peak oil doom is not today.
Davy on Sat, 7th May 2016 8:06 pm
Ennui, what don’t you understand about systematic demand/supply destruction? Who cares about volumes now if the industry that is needed in the future is gutted? Peak oil may be later but peak doom is now. We are done for and acting like the future is bright in regards to oil because it is in excess supply.
Apneaman on Sat, 7th May 2016 8:11 pm
“supplied by raw naked capitalism”
Boat,is there anything in the universe that you brainwashed dip shit worshipers of capitalism won’t try and take credit for?
Air? invented by raw naked capitalism
Water? invented by raw naked capitalism
Sex? invented by raw naked capitalism
Food? invented by raw naked capitalism
Trees? invented by raw naked capitalism
The Moon? invented by raw naked capitalism
Fluffy bunnies? invented by raw naked capitalism
Vaginas? invented by raw naked capitalism
An army of shit for brains unthinking devotee’s?invented by raw naked capitalism
Yep capitalism was created in the first moments after the big bang. It was etched onto gold plates, similar to the ones John Smith found, and buried in the earth when it was formed. We just happen to dig it up 500 years ago and thus the one true faith – the meaning of existence was revealed to all of humanity. All part of the creators plan.
GregT on Sat, 7th May 2016 10:31 pm
@kevin,
“But your goal is to buy land and prep. Everything you put on your land will be supplied by raw naked capitalism.”
If not for ‘raw naked capitalism’ there would be no need to ‘buy’ land. Everything needed to be put on that land, never required modern industrialism, capitalism, or human greed.
The reality of the matter is, those human constructs are not only unnecessary, they are destructive, and are hurtling our species towards extinction.
Raw naked capitalism is the most evil force that the planet Earth has seen since the extinction of the dinosaurs.