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Page added on May 14, 2013
The Illogic And Folly Of Peak Oil (Or Is It Peak Gas?) Alarmism
The “peak oil”, “peak gas”, or peak-whatever-you-want-to-call-it mini-movement continues on, despite all the overwhelming evidence to the contrary. Last week it even made its way onto the Forbes.com website in the form of this piece authored by economist Robert U. Ayres. This piece is so filled with illogic, factual errors and omissions of context that it requires a response.
Let’s start with the opening statement: “No one is questioning the fact that we have either reached or will soon reach ‘peak oil’;”. Really? No one? Literally everyone believes “we have either reached or will soon reach ‘peak oil’“???
You could have fooled noted energy expert and IHS IHS -0.61% Vice Chairman Daniel Yergin, who details his thoughts about the illogic and folly of “peak oil” alarmists throughout history, beginning as far back as the 1880s in this piece in the Wall Street Journal. Porter Stansberry, founder and publisher of Stansberry & Associates Investment Research, published this devastating piece debunking “peak oil” theory last September. We could go on and on and on listing noted energy experts who completely disagree with “peak oil” theory. A simple Google GOOG -0.28% search brings back hundreds of results.
The reality is that very few serious people who know anything about this subject truly believe “we have either reached or will soon reach ‘peak oil’.” Or maybe it all depends on what one’s definition of the word “soon” is. After all, if by “soon”, Mr. Ayres means by the year 2300, then he probably would find an army of serious people willing to sign on to that belief. Of course, if that’s what he means, then his thesis would have no connection or relevance at all to the current energy equation.
T. Boone Pickens (Image credit: Getty Images via @daylife)
Moving on into his piece, Mr. Ayres says “The shale gas enthusiasm has been inspired partly by an advertising campaign financed by T. Boone Pickens (“The Pickens Plan”)”. Forget for the moment that the author attempts to prop up “peak oil” theory with an allusion to an advocacy campaign related to a separate commodity that trades in an entirely separate market. Focus instead on the reality that Mr. Ayres would have you believe that some of the smartest corporate leaders at some of the largest and most successful corporations on the face of the earth – ExxonMobil, Shell, ConocoPhillips COP -0.37%, Anadarko Petroleum, Apache Corporation, Devon Energy, to name just a few – have made decisions to invest hundreds of billions of capital dollars in shale resources over the last several years based largely on an ad campaign. Mr. Pickens himself has become a multi-billionaire thanks to his wise investing of capital dollars. This isn’t a bunch of yayhoos making these decisions – these are very sophisticated, highly-intelligent men and women whose very jobs depend on investing their capital dollars wisely.
Indeed, in his very next paragraph, the author notes that “Investment in shale in 2010 and 2011 was apparently a trillion dollars”. The utter lack of logic, context, or knowledge about how decisions about capital allocation are made within these companies, as we detailed in this piece a few weeks ago, is almost breathtaking.
In his next paragraph, Mr. Ayres tells us the following:
- The Eagle Ford Shale and Bakken Shale are in North Dakota and Montana (This would come as a great surprise to all my friends and relatives in South Texas, where 267 rigs were actively drilling Eagle Ford wells last week); and
- The “current wisdom” of the USGS is that these two shale plays combined contain “3 to 4.3 billion barrels” of recoverable oil (In fact, these numbers are from a 2007 USGS assessment of the capacity of the Bakken Shale only, an assessment that was updated – and doubled – just a few weeks ago, before Mr. Ayres wrote his piece);
The author makes no mention of the fact that USGS estimates of ultimate recoveries are notoriously ultra-conservative, based on what is recoverable with current technology – and technology advances on a daily basis in the oil and gas industry – or the fact that corporate executives who make the decisions to invest billions in developing the Bakken Shale believe the potential resource recovery is many multiples of the USGS number. Continental Resources CEO Harold Hamm, who has been drilling wells in the Bakken Shale as long as anyone, told the Wall Street Journal that he believes the Bakken could ultimately produce up to 24 billion barrels, which would make it ultimately larger than Prudhoe Bay. Whose estimate should we rely on – the guy who has been risking billions of dollars drilling thousands of wells in the resource itself, or some guys sitting behind desks at the USGS, smart and qualified as they may be? Seems like a pretty easy choice.
The author also makes no mention of the many other massive US oil shale reservoirs like the Cline Shale in West Texas or the Monterey Shale in California, both of which are estimated to contain more recoverable oil than the Bakken or Eagle Ford. Nor is there any mention of the fact that the shale oil and gas industry is barely beginning to scratch the surface on producing potential, given that it is barely a decade old. He simply dismisses the Bakken as if it were an insignificant resource, and moves on.
No attack piece on shale oil and natural gas would be complete without resorting to hyperbole about supposed, but unquantified, threats to the environment, and Mr. Ayres’ piece is no exception: “The environmental effects of fracking are as yet unknown. The water requirements are very large, and the waste water may be a problem in itself. The shale-gas industry has been very reluctant to identify the chemicals in use on grounds of proprietary secrecy. There is an obvious threat to aquifers.”
First, in Texas, representatives from the state’s Water Development Board told multiple recent legislative hearings that fresh water usage by the oil and gas industry in Texas – home to 40% of the nation’s active drilling rigs, 30% of US natural gas production, and 32% of US oil production – is less than 1% of the state’s overall fresh water consumption. So while each hydraulic fracturing job uses a significant volume of water, that pales in significance when put into a real context. Also, Mr. Ayres naturally fails to mention all the myriad efforts within the industry to conserve and recycle water, nor does he point out that the percentage of brackish water used in frac jobs, as well as other substances like propane and carbon dioxide, is steadily on the increase. The reality is that, in just a few years, we may live in a world where fresh water is no longer widely used in hydraulic fracturing operations.
Second, the “shale-gas industry” has in fact worked diligently with policymakers to get workable requirements governing disclosure of chemical content in fracturing fluids put into place in well over a dozen states to this point, with several more states to come this year. In addition, the “shale-gas industry” funded and worked with the Groundwater Protection Council to establish FracFocus.org, the voluntary disclosure website where, as of this writing, the chemical content of 42,709 hydraulic frac jobs has been disclosed.
Third, the author talks about hydraulic fracturing as if it is something new, when in fact it has been in use by the oil and natural gas industry since 1949, encompassing well over 1.2 million frac jobs in the intervening 64 years. If we don’t know what, if any, “environmental effects” are present in hydraulic fracturing after all this time, and all of these applications, when, oh, when will we ever obtain such knowledge? If the “threat to aquifers” is so “obvious”, why hasn’t the EPA, even in the Obama Administration, been able to identify a single instance in which a hydraulic fracturing operation has contaminated one? Predictably, the author offers no answers to these obvious questions.
But then, this is “peak oil” theory (or is it “peak gas”?), where every day and everything is a crisis, the world is always about to run out of oil (or is it gas?) “soon” (whatever that word means), and such inconvenient questions never need be asked, much less answered. As it has been since the late 19th century, “peak oil” (or is it “peak gas”?) theory is based on highly selective use of data, lack of understanding of resource assessments, lack of understanding of how investment decisions are made within companies, and most importantly, lack of vision about the future.
And so, onward through the fog we go.
27 Comments on "The Illogic And Folly Of Peak Oil (Or Is It Peak Gas?) Alarmism"
J-Gav on Tue, 14th May 2013 11:12 am
Citing Daniel Yergin, a long-time well-known FF industry shill, as an expert in these matters definitively disqualifies this article.
Ham on Tue, 14th May 2013 11:40 am
Not only that, but shale gas is starting to resemble the magic of Kryptonite. These articles bandy figures around like confetti. If it was true that shale is so abundant, then why is US still importing vast amounts from Canada: is it because the projected Utopia is fake?
http://www.eia.gov/dnav/ng/NG_MOVE_IMPC_S1_M.htm
Ed on Tue, 14th May 2013 11:46 am
No mention of high decline rates or eroei of Shale oil and gas. Funny that! I doubt if he has the intelligence to ever understand eroei.
Peak oil is not about running out of oil! I’ll repeat that: Peak oil does not predict that we will run out of oil. It is about the rate of production. At peak production rate you still have roughly half of the resource to recover.
Peak oil occurred in the US in the 70’s. World oil production has plateaued since 2005 despite record energy expenditure trying to increase production. Is this the overwhelming evidence he was talking about?
Beery on Tue, 14th May 2013 1:50 pm
Yes, it’s terribly illogical that a production of a finite resource will grow, peak, then decline. Especially when your business depends on people believing it will never decline.
Arthur on Tue, 14th May 2013 2:21 pm
Generally people tend not to look further into the future than a few years. So, if the supply of oil is assured for a few more years, all problems are solved.
“Peak oil occurred in the US in the 70′s. World oil production has plateaued since 2005 despite record energy expenditure trying to increase production. Is this the overwhelming evidence he was talking about?”
Nah, you have to admit, that what is happening now with oil production in the US is impressive and unexpected.
shortonoil on Tue, 14th May 2013 2:35 pm
As long as people fail to understand that quantity of volume, and quantity of energy have different meanings, they will continue to fall into the complacency that articles like this are intended to produce. Bad science perpetuated on an ignorant society provides huge power to those who can wheedle it.
GregT on Tue, 14th May 2013 2:45 pm
The all time record high gasoline price in Vancouver BC, was on June 20th of 2008 at $1.4999/ litre. As of this morning, the average price at the pumps is $1.49425 and rising. On May 14th 2003, ten years ago to the day, the average price was $.71/ litre.
The easy to produce, higher energy content oil, is in decline, and is being replaced with increasingly costly and less energy dense ‘oil’, for now. When the decline rates of conventional oil really start to kick in, prices will dramatically climb. When unconventional oil production can no longer keep up with the decline rates of conventional oil, modern industrial society is in for a great deal of hurt. The global financial crisis that started in 2008, will pale in comparison.
Arthur on Tue, 14th May 2013 3:05 pm
Highest price in Holland ever was 1.96 euro/liter ($2.54)
http://www.elsevier.nl/Economie/nieuws/2012/10/Btw-stijging-stuwt-benzineprijs-naar-hoogste-niveau-ooit-ELSEVIER350864W/
Now it is down to 1.75 euro.
GregT on Tue, 14th May 2013 3:14 pm
I wonder if that has anything to do with the depression in Europe?
Newfie on Tue, 14th May 2013 3:14 pm
Even if global oil production has not technically peaked (yet), the price has risen so much that it is destroying economies everywhere – Iceland, Ireland, Greece, Spain, Portugal, Cyprus. And the USA. The US Fed is printing $1 trillion a year to prop up the economy. All of this economic damage is ultimately rooted in the inexorable rise in the price of oil as it gets ever more expensive to extract. So… Duh.
shortonoil on Tue, 14th May 2013 3:21 pm
“The easy to produce, higher energy content oil, is in decline, and is being replaced with increasingly costly and less energy dense ‘oil’, for now.”
It is conventional crude (API 30 – 45) that has driven the oil age. Conventional crude provides the “energy window” for the oil world. Heavier crude (API 45, most shale oil) have lower energy delivery capabilities. When conventional crude is gone, so will go the oil age.
Huge effort, and expense have been, and are being exerted to convince people that this is not the case! The promoters of the “all is well scenario” have $trillions at stake.
GregT on Tue, 14th May 2013 3:22 pm
If you think that European economies are in trouble now, just wait until unconventional oil plays start entering into the mix there as well.
BillT on Tue, 14th May 2013 3:27 pm
Soon as I saw Jerkin’s name, i stopped reading. Another big pile of bullshit from the dying hydrocarbon industry.
Does it matter if there is an ocean of oil if no-one can afford to buy it? Why don’t all these f—ing old men just die and get it over with?
shortonoil on Tue, 14th May 2013 3:27 pm
How the above happened is beyond me!!!
“The easy to produce, higher energy content oil, is in decline, and is being replaced with increasingly costly and less energy dense ‘oil’, for now.”
It is conventional crude (API 30 – 45) that has driven the oil age. Conventional crude provides the “energy window” for the oil world. Heavier crude (API 45, most shale oil) have lower energy delivery capabilities. When conventional crude is gone, so will go the oil age.
Huge effort, and expense have been, and are being exerted to convince people that this is not the case! The promoters of the “all is well scenario” have $trillions at stake.
shortonoil on Tue, 14th May 2013 3:30 pm
The two posts above were somehow modified by the server in route, twice. Ignore it!
Arthur on Tue, 14th May 2013 3:40 pm
“I wonder if that has anything to do with the depression in Europe?”
Depression is really too strong a description. Mild recession in Holland, yes, unemployment rising, but nothing extraordinary, historically speaking. Germany is still fine. Greece is really bad, but at the bottom, ready to sort of rebounce. Unemployment is bad in Spain, but always have been. It is absolutely untrue that things are at a breaking point in Europe. There is almost zero social unrest in Europe, nothing like the OWS movement of some time ago in the US.
GregT on Tue, 14th May 2013 4:04 pm
Well Arthur,
I guess our media is doing a fine job of keeping us all in the dark. OWS was reported as pretty much a non-event in North America. The riots in Greece, Spain, Portugal, Ireland, Cyprus, France, and the UK were all over the media here.
J-Gav on Tue, 14th May 2013 4:32 pm
The Netherlands are in deep do-do, Arthur – highest personal debt to GDP ratio in Europe. Something’s gotta give … and Germany is not “fine,” as the latest shipping (ie export)figures show. The situation in France is set to deteriorate rapidly. As for the rest of Europe, mostly already over-indebted semi-basket cases, if you’re not expecting a great deal of civil unrest just about everywhere within the next year or two you’re gonna be in for a little surprise. The banksters will not relinquish their stranglehold on savers/workers/taxpayers without a long, hard struggle. The deck is stacked against the little guys from the outset but street battles are bound to take place.
J-Gav on Tue, 14th May 2013 4:55 pm
The Netherlands are in deep do-do, Arthur – highest personal debt to GDP ratio in Europe. Something’s gotta give … and Germany is not “fine,” either as the latest shipping (ie export)figures show. The situation in France is set to deteriorate rapidly. As for the rest of Europe, mostly already over-indebted semi-basket cases, if you’re not expecting a great deal of civil unrest just about everywhere within the next year or two you’re gonna be in for a little surprise. The banksters will not relinquish their stranglehold on savers/workers/taxpayers without a long, hard struggle. The deck is stacked against the little guys from the outset but street battles are bound to take place and the There is No Alternative (to austerity) line from the IMF is going to be put to the test.
bobinget on Tue, 14th May 2013 5:17 pm
Peak Oil skeptics should take a look at Pakistan where the power is off 18 hours a day. Or Africa…
http://www.infrastructureafrica.org/key-msg/sector/africa’s-chronic-power-problems-have-escalated-crisis-affecting-30-countries-crisis–1
Industrial growth is impossible W/O reliable power.
http://en.wikipedia.org/wiki/Rolling_blackout
Political implications:
Most here understand why Japan is turning to remilitarization. Effects of unaffordable oil are everywhere to be seen.
Returning to Pakistan, How will that newly elected
PM manage to fix the economy in the next five years W/O oil? It’s that basic.
Ed on Tue, 14th May 2013 5:22 pm
The trouble is that the corporate media will orchestrate unrest towards immigrates and for greater Nationalism.
The rioters won’t make the link between unemployment and energy scarcity.
You are seeing it already in Britain with the rise of the Ukip party who are against immigration, want to isolate themselves from Europe and are against building wind turbines.
Ed on Tue, 14th May 2013 5:37 pm
In the age of energy scarcity that we are entering we will probably spend massively more money and resources on war than we will on renewable energy infrastructure. Humanity isn’t very bright, history shows us this.
Arthur on Tue, 14th May 2013 5:50 pm
“The Netherlands are in deep do-do, Arthur – highest personal debt to GDP ratio in Europe.”
True. But the other parameters are fine: public debt, largest per capita pension funds in the world. Very strong corporations and extremely export oriented (number 4 or 5 in absolute terms for a shitty little country like Holland). All in all the Netherlands is the richest country in Europe, I am proud to say. Don’t worry about Europe and certainly not about the Netherlands (graph at the bottom):
http://deepresource.wordpress.com/2013/04/16/who-are-the-richest-europeans/
Arthur on Tue, 14th May 2013 8:39 pm
“I wonder if that has anything to do with the depression in Europe?” (related to lower energy prices in Europe)
http://www.spiegel.de/wirtschaft/unternehmen/energieeffizienz-umsatz-steigt-2012-auf-146-milliarden-euro-a-899180.html
Staggering numbers… because the price of energy his risen during the past years, the energy saving branche is booming now: 146 billion euro in 2012 for Germany alone. 800,000 Germans have a career in energy saving. So lower energy prices it is not the result of a non-existing ‘depression’, but of serious demand destruction.
James A. Hellams on Wed, 15th May 2013 1:02 am
The assertion that the Bakken oilfield is insignificant is not too far from the truth.
The Bakken is rated at having a maximum reserve of 24 billion barrels. Again, as in many articles like this, there is no mention of the backside of the equation (the consumption).
The last time I looked, the following are the two consumption rates. The US annual consumption is 8 billion barrels annually. The worldwide (including the US consumption) consumption is 31 billion barrels annually. The US consumption would clean out (assuming all the oil could be produced) the Bakken in just 3 years. The worldwide consumption would clean out the Bakken in less than a year.
BillT on Wed, 15th May 2013 3:32 am
Arthur, keep telling yourself that Europe is going to survive without the events that are happening everywhere else. (Including Europe.) Denial is fine … until it isn’t. Europe has over half of it’s riot aged populace unemployed with little hope of employment. That is a bomb ready to be lighted.
Arthur on Wed, 15th May 2013 1:35 pm
Everybody is going to survive in the West. A financial crash is a major event, but not the end of the world. And the youth unemployment number you mention only applies to Spain and has always been high:
http://ec.europa.eu/social/main.jsp?catId=1036
“Youth unemployment rate is more than twice as high as the adult one – 23.3 % against 9.3 % in the fourth quarter of 2012.”
23.3% EU average. And that includes women, who should not work in the first place. Employment is still way too high in Europe which keeps the youngsters from forming a family.
You really think they are going to riot.lol? Maybe a few thousand blacks in the UK after the police is forced to shoot a thugg. But unemployed Europeans are comfortable sitting at home doing things they like, without having to worry about shelter and food. I know quit a few people living from benefits, but really NO ONE who is desperate or is about to ‘riot’. But you can’t wait for the final collapse, can you. I am sorry, not going to happen anytime soon. The only things of interest here is who is going to win the eurosongfestival contest next saturday, the eurocup and the release date of the next iPhone.