Analysis of current economic conditions and policy
Peak oil interview
Here’s a link to an interview on peak oil and other topics that I did with RT TV.
52 thoughts on “Peak oil interview”
PeakTrader
I suspect, if the U.S. had an actual economic recovery, rather than this on-going deep depression, oil would’ve risen to $200 a barrel. Moreover, the U.S. oil production boom would’ve been even bigger.
It seems likely, we can expect continued high prices, more conservation, and greater use of alternative energy, including ethanol and natural gas.
While the marginal cost of production will likely increase, as we shift from cheap to expensive oil, advances in technology, or increases in productivity, will, at least, somewhat offset the higher cost.
2slugbaits
JDH Nice points. But I have to take issue with one of your comments regarding opposition to transporting oil by pipeline. I think we need to separate a couple of related, but different issues. The first issue is the extent to which the northern leg of the Keystone pipeline will increase greenhouse gas emissions. A lot of it boils down to whether or not you believe the Canadian stuff will be left in the ground absent the pipeline or if it will find another route. There are arguments both ways on that and I don’t pretend to know. But if you conclude that the oil would come out of the ground regardless, then I would agree that there is a case for transporting it by pipeline rather than rail. But transporting it “by pipeline” is not the quite the same thing as transporting it “by the Keystone pipeline.” There is an entirely separate issue regarding the path of the pipeline. Even if someone were a climate change skeptic and was unconcerned about the greenhouse effects of the Canadian oil, that does not mean that person would have to support the specific path of the pipeline. The dangers to the aquifer are real and potentially significant. To my mind I am still waiting for TransCanada to explain to us why they could not reroute the pipeline around rather than through the most sensitive parts of the aquifer.
BTW, if you keep attending Russian ballets and make anymore appearances on Russian owned television, some of the far right wingnuts on this blog might become convinced that Menzie has talked you into joining the Comintern.
Duracomm
2slugbaits,
The biggest threats to the Ogallala are subsidized corn and mandated ethanol production.
Ending those two policies would be a great help for the aquifer.
2slugbaits
Duracomm
I agree that subsidized production and ethanol are bad news and should be stopped. The problem is that the same people who support the pipeline are the same folks in congress who support big ag and ethanol.
baffling
duracomm,
are you saying that without subsidized corn and mandated ethanol production, the farm fields will not be used? otherwise ending those two policies will not affect the aquifer. i would suspect the fields would continue to be used for farming irregardless of the policy in place.
Duracomm
1. Ethanol plants use water to produce the product.
2. Corn is a more water and input intensive than many alternative crops
3. Conversion of grassland to farmground is driven by higher commodity price caused by the ethanol subsidy and mandate.
DeDude
If we demanded that they had a $50 billion insurance policy to cover any potential damage to the environment for as long as the pipeline is there, then the economy of the whole project would be much more realistic. Why are we subsidizing these projects by allowing companies to harvest the profits and then just go bankrupt if the rare environmental catastrophe actually happens. We should demand huge insurance policies to cover the full cost x2 of the worst scenario events.
Steven Kopits
Often, oil companies find it either very expensive or virtually impossible to obtain third party insurance. Hence they self insure. This is what BP did, in effect, at Macondo. A more interesting question is what would happen if a smaller company like LLOG (rev: $1 billion) blew out a well in the Gulf of Mexico. The taxpayer would probably be on the hook for that one.
Hans
“BTW, if you keep attending Russian ballets and make anymore appearances on Russian owned television, some of the far right wingnuts on this blog might become convinced that Menzie has talked you into joining the Comintern.”
LOL, I just blew coffee out of my nose and mouth! Professor Menize’s application was rejected
despite residing in Madison, Wisc., due to the lack of censoring posts.
Steven Kopits
“I suspect, if the U.S. had an actual economic recovery, rather than this on-going deep depression, oil would’ve risen to $200 a barrel. Moreover, the U.S. oil production boom would’ve been even bigger.”
If you use a supply-constrained model, the causality is in the other direction. The oil supply is gating GDP, not vice versa. Hence there is no demand-side engine to get you to $200. By the way, the interviewer put the question of oil’s impact on GDP to Jim directly. Jim pondered it, decided to take the safe route out. But of course, if you’re arguing a supply-constrained approach, you’re pretty sure that oil is having an impact on the economy beyond “we’re paying more for gasoline”.
Also, in a supply-constrained model, the price is set by the consumer, not the producer. If it becomes cheaper to producer oil, all the profits flow to the producers. And it’s pedal-to-metal on US onshore exploration and production just now. For example, if you look at the latest round of company reports regarding the Permian, you’ll find almost all the companies are only now ramping up E&P activities there. It’s not for a lack of interest, but rather a lack of bandwidth due to earlier successes in the Bakken, Eagle Ford, and for some companies, the Marcellus.
On the other hand, offshore, particularly deepwater, is going to find itself in something of a crisis in the coming months.
Nick G
if you’re arguing a supply-constrained approach, you’re pretty sure that oil is having an impact on the economy beyond “we’re paying more for gasoline”.
Not at all. Consumers don’t want to pay more than very roughly $80-100/bbl mostly because they think it’s not worth it, not because they can’t afford it. Individuals start paying attention to fuel economy, governments reduce subsidies and increase efficiency standards, taxis switch 100% to hybrids, container ships start slowing down to increase efficiency, etc., etc. In the long run oil above $65 will cause a secular conversion away from oil.
As they world economy achieves economies of scale with alternatives, as engineering matures, as the costs of pollution and security become more recognized, we will kick the oil habit and be more prosperous, safer and healthier.
Steven Kopits
If you were right, Nick, airline departures and VMT would be on trend. They’re not.
Nick G
It helps, of course, if you use the right numbers. Airline departures isn’t the right number. The right number is revenue-passenger-miles: that measures real travel volumes. The number of departures can be skewed by larger planes and higher utilization rates per plane, which are things that airlines are pushing hard to increase efficiency.
And, we find that US pass-miles actually is on a trend. The trend is that of a logistic curve, where we see exponential growth then a plateau. That’s typical of a mature industry. see http://apps.bts.gov/xml/air_traffic/src/datadisp.xml
Now, VMT is on a different trend. If you look at year-over-year growth instead of the absolute numbers, you’ll see that growth rates started to fall before oil prices rose, and have continued to fall ever since. That’s a sign of an industry that’s not only mature, but facing increasing competition from cell phones (for socializing), bikes and mass transit, localization, etc. Young people especially are driving less, and the decline of youth-VMT is the same for the employed as it is for the unemployed.
Frankly, I’m surprised that rising oil prices don’t seem to have affected VMT significantly, but that’s what the data show.
“To be sure, airlines are in no way responsible for the polarization of income and wealth that defines our time. Increasingly, however, their seating plans reflect that polarization, with more and more space and amenities showered on their first-class passengers (whose fares rise accordingly), while less and less space and fewer — increasingly, no — amenities are provided to coach passengers.”
The rich are getting richer, no doubt, but I don’t know what that has to do with energy or overall prosperity.
Steven Kopits
As I recall, fuel is the largest single expense for airlines. If fuel is expensive, the airline will decrease departures, increase aircraft size, increase seat numbers and increase load factors. And that’s exactly what happened.
From the consumer’s side, you accept all these as a necessary price of being able to still fly.
But this is by no means the rosy future of which you speak.
Nick G
If load factors go up, that means it’s less likely that the seat next to you will be empty.
That’s hardly The End Of the World As We Know It.
Nick G
this is by no means the rosy future of which you speak.
Let me clarify: I agree that our dependence on oil is costly, and that it is causing many significant problems. My statement above was that “As they world economy achieves economies of scale with alternatives, as engineering matures, as the costs of pollution and security become more recognized, we will kick the oil habit and be more prosperous, safer and healthier.”
Again, *if* we kick the oil habit, we’ll be more prosperous. As long as we don’t, oil will continue to squeeze us.
Steven Kopits
Well, that was an articulate defense of a supply-constrained approach to oil markets analysis.
baffling
steven, should we follow an energy policy which supports a supply constrained energy source?
BC
Simply put, US real final sales per capita cannot grow with the 5- to 10-year constant US$ price of “oil” (pick your definition) above $40-$50.
The average price of “oil” at $80-$100 has created the incentive for US “oil” production to grow at a compounding doubling time of 5 years, a period during which the US has extracted 35%+ of proven reserves to date.
During the same period, the US has exported 50-60% of domestic refined product production since 2010-11, the largest share and fastest rate of growth going to China (US and Japanese supranational firms’ subsidiaries operating in China, that is).
Thus, since 2008-09, the US is extracting domestic reserves at a 5-year doubling time at prices that will not permit US real final sales per capita to grow, which in turn implies that we are drawing down domestic reserves at a rate that mean less domestic oil reserves per capita in the future and at prices we can’t afford that will permit economic growth.
At the levels and trend rates of oil reserves, production, exports, and consumption, the US is already at the limit of domestic production for production costs, and we will reach a critical log-limit bound of production costs to consumption and real final sales by NO LATER THAN 2015-17, and I’m betting as soon as this year for housing, autos, and overall consumer spending and real final sales.
Central bank printing of trillions of bank reserves to flood banks’ balance sheets with fiat digital debt-money cash assets and the resulting succession of larger financial bubbles to wages and GDP only exerts a larger current and future incremental constraint from net rentier claims to wages, production, profits, and gov’t receipts (social goods) in addition to the net exergetic constraint resulting from Peak Oil.
Add the surging US gov’t sponsored/mandated/protected and financialized costs of “health care”, which has become a net cost rather than value-added component, and growth of real final sales for the rest of the economy is impossible, if net contraction can be avoided, which appears not to be the case since summer-fall 2013.
The forgoing are effects reflecting the definition of Peak Oil and the Seneca effect. The larger inference is that the oil-, auto-, debt-, and suburban/exurban model for economic growth has hit a once-in-history log-limited, net exergetic constraint, and growth is over in terms of real final sales per capita.
Nick G
That’s not realistic. The alternatives to oil are better and cheaper, once we recognize all of the hidden costs of oil.
Gulag Survivor Wall Street Trader
you are one of the few economic bloggers i follow. but i am extremely disappointed that you lowered yourself to do interviews with a Russian propaganda TV. there is no problem with the interview itself but the problems is to who you provided it to (and subsequently helped to legitimize it by your high profile presence). maybe a little bit more of perspective would help…
Joe Clarkson
Perhaps it is only RT television that is interested in hearing the comments of an expert on oil issues, particularly the economic impact of peak oil. I think that any news service that produces a factual and balanced story, as this was, deserves to be commended for their efforts. So far, they are ahead of the Wall Street Journal and Fox News on this topic. I’m used to relying on the Daily Show for my hard news, but maybe now I’ll watch more RT.
Johnny
Take RT and take CNN, then mean score.
Keep FOX out, just too dumb.
Hulda
It’s difficult to find educated people on this subject, however, you
seem like you know what you’re talking about!
Thanks
Jeffrey J. Brown
As I have periodically noted, 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 + biofuels + refinery gains.
I’m not an economist, but shouldn’t the price of an item relate to the quantity of the item being priced, not the quantify of the item + (partial) substitutes?
In any case, a key question is the ratio of global condensate to Crude + Condensate (C+C) production. Unfortunately, we don’t appear to have any global data on the Condensate/(C+C) Ratio. Insofar as I know, the only complete Condensate/(C+C) data base, from one agency, is the Texas RRC data base for Texas, which is shown below for 2005 and 2012:
2005:
Condensate: 0.12 mbpd
C+C: 1.08 mbpd
Condensate/(C+C) Ratio: 11.1%
2012:
Condensate: 0.30 mbpd
C+C: 1.95 mbpd
Condensate/(C+C) Ratio: 15.4%
The 2013 Ratio (more subject to revision than the 2012 data) shows that the ratio fell slightly, down to 14.7%, which probably reflects more focus on the crude oil prone areas in the Eagle Ford. But rounded off, we are looking at about 15% for 2012 and 2013.
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. What we don’t know is 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.
In other words, I suspect that actual global crude oil production peaked in 2005, while natural gas and associated liquids–condensates & NGL’s–have so far continued to increase.
Normalized global gas, NGL and C+C production from 2002 to 2012 (2005 values = 100%):
Right, Jeffrey. But in per capita terms, total petroleum production (EIA int’l stats) per capita is down ~2% since 2005, flat during 2008-10, and down again slightly per capita since 2011.
S&P 500 sales growth since 2011 has tracked the trend of nominal GDP around ~2.5%, and ~1% for nominal final sales per capita.
China’s reported (?) GDP growth since 2008 and 2011 has contributed 45-75% of net growth of real GDP capita since 2008, which has been effectively 0%.
Despite a doubling of US “oil” production since 2008, global petroleum/”oil” production per capita worldwide is flat to slightly lower, and virtually all of the net incremental demand has come from China-Asia, with US and Japanese supranational firms’ subsidiaries’ demand in China-Asia making up the bulk of growth of demand.
Hans
Mr Brown, I wish you would have included in your photo bucket
presentation a chart showing USA product and or USA/Canadian
production, which would be more meaningful to domestic
consumers, unless, however, you are an exporter of goo.
I recently ask two waitresses the following question: If you have a
hundred bucks in the bank and it earned 2% for the entire year, what
would be the balance at the end of the year? 0-2
Perhaps they thought it was a trick question!
Jeffrey J. Brown
The global charts do of course incorporate currently rising US liquids production, and the frantic drilling efforts in tight/shale plays in the US have served to slow the estimated post-2005 decline in actual crude oil production (45 or lower API gravity crude oil). I estimate that actual global crude oil production averaged about 65 mbpd from 2006 to 2012 inclusive, versus about 67 mbpd in 2005.
Western Hemisphere net exports from the seven major net exporters* in 2004 fell from 5.9 mbpd in 2004 to 5.0 mbpd in 2012. Combined net exports from Canada + Mexico fell from 2.5 mbpd in 2004 to 2.2 mbpd in 2012.
Based on the most recent four week running average data, US net crude oil imports were 7.5 mbpd. Overall US total liquids net imports were 6.2 mbpd. Given the US reliance on imported oil, I would argue that the most important chart is the recent rate of decline in the ratio of Global Net Exports of oil (GNE**) to Chindia’s Net Imports (CNI), shown below. I define Available Net Exports as GNE less CNI.
ANE–the supply of GNE available to importers other than China & India–fell from 41 mbpd in 2005 to 35 mbpd in 2012. At a GNE/CNI Ratio of 1.0, China and India alone would theoretically consume 100% of Global Net Exports of oil.
*Canada, Mexico, Venezuela, Trinidad & Tobago, Colombia, Argentina, Ecuador, Total petroleum liquids + other liquids, EIA
**Combined net exports from Top 33 net exporters in 2005, Total petroleum liquids + other liquids
Regarding US oil & gas production, my usual comment:
It’s interesting to look at some regional declines in US oil and gas production, e.g., marketed Louisiana natural gas production (the EIA doesn’t have dry processed data by state).
According to the EIA, the observed simple percentage decline in Louisiana’s annual natural gas production from 2012 to 2013 was 20%. This would be the net change in production, after new wells were added. The gross decline rate (from existing wells in 2012) would be even higher. This puts a recent Citi Research estimate in perspective.
Citi estimates that the gross underlying decline rate for overall US natural gas production is about 24%/year. This would be the simple percentage change in annual production if no new sources of gas were put on line in the US. In round numbers, this requires the US to add about 16 BCF/day of new gas production every year, just to maintain about 66 BCF/day of dry processed natural gas production. To put 16 BCF/day in perspective, dry processed natural gas production from all of Texas was probably at about 18 BCF/day in 2013.
Based on the Citi report, the US would have to replace 100% of current natural gas production in about four years, just to maintain a dry processed gas production rate of 66 BCF/day (24 TCF/year) for four years.
Or, based on the Citi report, the US would have to put on line the productive equivalent of the 2013 natural gas production from the Marcellus Play–every six months–just to maintain current production.
Or, based on the Citi report, the US has to replace the productive equivalent of all of the 2012 dry natural gas production from the Middle East, in a little over three years (3.3 years), in order to maintain a dry production rate of 24 TCF/year. Over a 10 year period, we would need to put on line three times the 2012 production rate from the Middle East.
Or, based on the Citi report, the US has to replace the productive equivalent of all of the 2012 dry natural gas production from Russia, in about four years, in order to maintain a dry production rate of 24 TCF/year.
Or, based on the Citi report, in the next four years, the US has to replace the combined productive equivalent of the 2012 dry natural production from Canada, Norway, UK, Iran, Qatar and Indonesia, just to maintain a dry natural gas production rate of about 24 TCF/year.
On the oil side, according to the EIA, the observed 10 year exponential rate of decline in Alaska’s annual Crude + Condensate (C+C) production from 2003 to 2013 was 6.5%/year. This would be the net change in production per year, after new wells were added. The gross decline rate from existing wells would be even higher.
If we assume a probably conservative decline rate of 10%/year from existing US C+C production, in order to just maintain current production for 10 years, we would have to replace the productive equivalent of every oil field in the US over the next 10 years–the productive equivalent of every oil well from the Gulf of Mexico to the Eagle Ford to the Permian Basin to the Bakken to Alaska.
Nick G
shouldn’t the price of an item relate to the quantity of the item being priced, not the quantify of the item + (partial) substitutes?
Not really. The price of key benchmarks has never been representative of the overall oil market. Both West Texas Intermediate and Brent are lighter and sweeter than much of the oil on the market. What to include as “oil” has always been a judgement call and a moving target.
Jeffrey J. Brown
Of course, the critical difference between crude oils of various gravities and byproducts of natural gas production–condensates and NGL’s–is that the former can be used to produce petroleum based distillates like diesel and jet fuel, while the liquid byproducts of natural gas production are of almost no use for the production of petroleum based distillates. And of course, the BTU’s per barrel for condensates and NGL’s are significantly lower than for crude oil.
In any case, the key point is that it appears that actual global crude oil production may have peaked in 2005.
Nick G
Focusing on oil’s use for distillate is a bit misleading: condensate/NGL are pretty fungible with crude. Ethane is a good petrochemical feedstock, propane can substitute for fuel oil, butane is often added to gasoline, LPG is used in 13M vehicles world wide, etc. The fact that these items are all priced at the same very high premium per BTU as oil vs other things like methane and coal tells us that they’re pretty fungible.
“Crude and condensate” is a pretty traditional metric for oil production, right? Aren’t we torturing statistics here to make them say what we want?
In any case, the key point is that we agree that oil is supply-limited and expensive, and that consumers should switch away from it as quickly as possible.
Jeffrey J. Brown
I agree that condensate and NGL’s are partial substitutes, but that’s my point. We price oil in terms of dollars per barrel of crude oil, but supply is in terms of crude oil + partial substitutes.
And the Cornucopian argument is that a crude oil peak is nowhere in sight. I would argue that this assertion is categorically false (at least based on global data through 2013).
Nick G
Sadly, I don’t we can make things that simple.
I agree that we’re in Peak Oil “Lite”: that supply is constrained, and growing slower than “demand”. On the other hand, by any reasonable definition net liquid fuel production is still growing, albeit slowly. Trying to redefine “oil” to an ultraconsertive definition won’t really convince anyone – the definition of oil has always been fuzzy and subject to change along with the industry, and that will continue.
Seriously: the kinds of people who are spreading misinformation about oil supply (e.g., confusing “tight” oil with Green River “shale oil”) aren’t going to be stopped by this kind of argument. It will just confuse the uninitiated and cause a loss of credibility with people who are better informed.
Jeffrey J. Brown
As usual, we will have to agree to disagree. I think it’s very simple: It’s quite likely that global crude oil production has peaked, but global natural gas production–and associated liquids–has not yet peaked. I think that we are seeing a global con job, trying to persuade us that NGL = Condensate = Crude Oil.
Nick G
Again, ask any oil industry veteran, and they’ll tell you that “Crude and condensate” (C&C) is a pretty traditional metric for oil production.
It’s certainly useful to break down fuels into different groups for analysis: sweet vs sour, light vs heavy, conventional vs unconventional, condensate, etc., etc. But both industry and Peak Oil forecasting and analysis has traditionally included all of those, so I don’t know why we’d change now.
I certainly agree that we’re confronted with a media con job by those who’d like to persuade us that reliance on oil is still a viable strategy going forward.
Jeffrey J. Brown
As a 34 year oil industry veteran, I focus on actual crude oil production, and what I assume is the oldest regulatory agency in the country, the Texas RRC, defines oil as crude oil, as does OPEC.
And as we discussed, when you ask for the price of “oil,” what you get is the price of 45 or lower API gravity crude oil.
Nick G
Yeah, I should have phrased that better: “almost any oil industry veteran”.
Let’s look at OPEC’s monthly oil report: the first page refers to “global oil” that includes condensate:
“Global oil demand is expected to increase by 1.14 mb/d to reach 91.15 mb/d in 2014, unchanged from the previous report. Almost half of annual oil demand growth is seen coming from China and the Middle East. The estimate for world oil demand in 2013 was unchanged at 90.01 mb/d, representing growth of 1.05 mb/d over the previous year.”
“Global supplies rose 700 kb/d month-on-month to 92.1 mb/d in April, with roughly half of the increase stemming from OPEC producers. Global supplies were 820 kb/d higher than a year earlier, with non-OPEC annual output growth of 1.8 mb/d more than offsetting an OPEC crude oil decline of 960 kb/d.”
Regarding OPEC, I was referring to their own numbers for OPEC production, which is crude oil only.
In regard to reported “oil” production, I agree that most agencies report some combination of crude oil + condensate + NGL + biofuels + refinery gains, while the price of oil is the price of 45 or lower API gravity crude oil.
Which I guess puts us right back where we started at the start of the thread.
Nick G
referring to their own numbers for OPEC production, which is crude oil only.
When OPEC refers to overall oil supply, they include condensate. When they refer to crude, they call it “crude oil”. It’s pretty clear that they consider the normal, standard definition of “oil” to include condensate. the price of oil is the price of 45 or lower API gravity crude oil.
Heck, the price of oil is usually much narrower than that: it’s usually WTI or Brent. In fact, you agree with this! Look at your comment in 2005:
“The light, sweet versus heavy, sour problem goes beyond production. What about inventory? No one differentiates inventories on the basis of quality. Matt Simmons used the following analogy. It’s as if when you asked what a car costs, they gave you the price of a 2005 Rolls Royce. When you asked how many cars are in inventory, they counted rusted out 1960 Plymouths the same as a 2005 Rolls Royce. In other words, the commonly tracked crude oil inventory numbers are virtually useless. As you noted, the developing light, sweet crude oil shortage is showing up in the spread between light, sweet and heavy, sour.” written by….Jeffrey Brown Petroleum Geologist http://www.theoildrum.com/story/2005/8/23/233714/826
That was an article which showed OPEC data that light sweet crude was only 30-40% of the world oil market. So, clearly the definition of “oil” isn’t as simple as you’re suggesting, nor is the problem of “statistics for one thing, and price for another” as unusual as you’re suggesting.
Oil supply is still growing slowly – arguing against that is unrealistic. On the other hand, we agree oil is a bad to thing to rely upon for the long term, right?
Tom
I have to agree with Gulag, doing an interview for RT is the moral equivalent of doing an interview for Nazi radio, regardless of how normal the interview itself may be.
BC
Tom, are you trying to say with a straight face that a network owned by Vlad the Invader and his former KGB pals can’t be objective when examining the energy situation of the Anglo-American oil empire, Russia’s longtime antagonist/competitor? Surely, you jest! 😉
That said, Professor Hamilton did a rather good job of presenting many of the critical aspects of Peak Oil and its implications in the limited time he was given; and most of the time I was listening to what he had to say rather than fixating on the image of the porcelain veneer-toothed blonde asking the questions and sitting pretty. 🙂
Hans
BC, Professor Hamilton should call it “Peak Cheap Oil..”
Excellent interview, by the Professor and thank you for
your support of the Keystone PL!
You know how we could get it built – by calling it
The Pipeline for R Energy Efficiency & Maximum Income Equality. PREEMIE
BC
Right, or Peak Oil that we can afford to extract and burn today or in the future to grow real final sales per capita hereafter, i.e., peak (and decline of) net exergy per capita.
Nick G
That suggests that oil is the only thing that can produce GDP (or final sales, which is just GDP minus additions to inventory ).
That’s unrealistic, given that oil is only 40% of the “exergy” used in the US, and there are good alternatives to oil.
Luke The Debtor
Lots of oil in place (i.e. 2 trillion barrels in the WCSB), but it is very hard to make the calculation without producing. I wonder, why do peak oil discussions not involve the amount of oil in place but instead focus on reserve to production ratios?
Steven Kopits
Back to math problems, eh?
Peak oil discussions tend to focus on production rather than reserves because that’s what matters. It’s not what we could theoretically consume, it’s what we actually consume. And we see there is a meaningful distinction. Although most of the international oil companies have increased reserves, very few have been able to hold production levels.
Nick G
In the case of the WCSB, I don’t think reserve to production ratios get much attention. Instead, people focus on the difficulty of raising production by an amount large enough to have a material impact on the overall oil market.
Steven Kopits
A couple of news items this morning:
Energy agency predicts oil shortage unless supply boosted
Industrialised countries could be facing the prospect of an oil supply squeeze and higher prices later this year unless production is lifted, according to a report just released by the International Energy Agency.
This from ISI Group, describing their call as “out of consensus”:
WE ESTIMATE ONLY 500-600 Mb/d of US growth in 2014 which compares to most in the market in the 1.0 to 1.1 MMb/d in 2014 due to WEATHER DELAYS and ‘TIRED’ GEOLOGY following years of rapid drilling. Moreover, we think growth will slow further to 300-400 Mb/d in 2015/2016. The Eagle Ford and Bakken could peak in 2016 and 2017 respectively. The tapering of growth in the out years is all very out of consensus.
The shortage news from the IEA is primarily a function of unexpectedly strong demand from China, which, readers will recall, had been largely moribund as a driver of oil demand growth from Q3 2013 through Q1 2014. Now it’s coming roaring back. Not entirely clear why.
The Bakken / Eagle Ford news has been discussed for some time, with some uncertainty as to where the turning points would come. I myself have mooted a supply squeeze in the 2016/2017 time frame. Among the research shops, ISI has now put a stake in the ground.
BC
“Now it’s coming roaring back. Not entirely clear why.”
Steven, even as growth in the Middle Kingdom is decelerating, China is stockpiling in preparation for regional war(s) with her neighbors, which by extension means the US (West), knowing what happened to Japan in the 1930s and 1890s-1900s.
Nick G
The IEA news article is puzzling. It says “The IEA says reports out of China suggest that it has increased budget allocations to fill its recently completed strategic petroleum reserve facilities. However, China also has a rapidly growing and under-utilised refining industry, with two new giant plants adding to the surplus capacity. The IEA says rather than just going into strategic reserves, the oil could quickly find its way back onto global markets.”
Neither of those things is actually new, continuing demand: an SPR will be filled eventually (and maybe used at some time), and refineries won’t change net imports of oil & oil products (oil imports go up, product imports go down).
I suspect, if the U.S. had an actual economic recovery, rather than this on-going deep depression, oil would’ve risen to $200 a barrel. Moreover, the U.S. oil production boom would’ve been even bigger.
It seems likely, we can expect continued high prices, more conservation, and greater use of alternative energy, including ethanol and natural gas.
While the marginal cost of production will likely increase, as we shift from cheap to expensive oil, advances in technology, or increases in productivity, will, at least, somewhat offset the higher cost.
JDH Nice points. But I have to take issue with one of your comments regarding opposition to transporting oil by pipeline. I think we need to separate a couple of related, but different issues. The first issue is the extent to which the northern leg of the Keystone pipeline will increase greenhouse gas emissions. A lot of it boils down to whether or not you believe the Canadian stuff will be left in the ground absent the pipeline or if it will find another route. There are arguments both ways on that and I don’t pretend to know. But if you conclude that the oil would come out of the ground regardless, then I would agree that there is a case for transporting it by pipeline rather than rail. But transporting it “by pipeline” is not the quite the same thing as transporting it “by the Keystone pipeline.” There is an entirely separate issue regarding the path of the pipeline. Even if someone were a climate change skeptic and was unconcerned about the greenhouse effects of the Canadian oil, that does not mean that person would have to support the specific path of the pipeline. The dangers to the aquifer are real and potentially significant. To my mind I am still waiting for TransCanada to explain to us why they could not reroute the pipeline around rather than through the most sensitive parts of the aquifer.
BTW, if you keep attending Russian ballets and make anymore appearances on Russian owned television, some of the far right wingnuts on this blog might become convinced that Menzie has talked you into joining the Comintern.
2slugbaits,
The biggest threats to the Ogallala are subsidized corn and mandated ethanol production.
Ending those two policies would be a great help for the aquifer.
Duracomm
I agree that subsidized production and ethanol are bad news and should be stopped. The problem is that the same people who support the pipeline are the same folks in congress who support big ag and ethanol.
duracomm,
are you saying that without subsidized corn and mandated ethanol production, the farm fields will not be used? otherwise ending those two policies will not affect the aquifer. i would suspect the fields would continue to be used for farming irregardless of the policy in place.
1. Ethanol plants use water to produce the product.
2. Corn is a more water and input intensive than many alternative crops
3. Conversion of grassland to farmground is driven by higher commodity price caused by the ethanol subsidy and mandate.
If we demanded that they had a $50 billion insurance policy to cover any potential damage to the environment for as long as the pipeline is there, then the economy of the whole project would be much more realistic. Why are we subsidizing these projects by allowing companies to harvest the profits and then just go bankrupt if the rare environmental catastrophe actually happens. We should demand huge insurance policies to cover the full cost x2 of the worst scenario events.
Often, oil companies find it either very expensive or virtually impossible to obtain third party insurance. Hence they self insure. This is what BP did, in effect, at Macondo. A more interesting question is what would happen if a smaller company like LLOG (rev: $1 billion) blew out a well in the Gulf of Mexico. The taxpayer would probably be on the hook for that one.
“BTW, if you keep attending Russian ballets and make anymore appearances on Russian owned television, some of the far right wingnuts on this blog might become convinced that Menzie has talked you into joining the Comintern.”
LOL, I just blew coffee out of my nose and mouth! Professor Menize’s application was rejected
despite residing in Madison, Wisc., due to the lack of censoring posts.
“I suspect, if the U.S. had an actual economic recovery, rather than this on-going deep depression, oil would’ve risen to $200 a barrel. Moreover, the U.S. oil production boom would’ve been even bigger.”
If you use a supply-constrained model, the causality is in the other direction. The oil supply is gating GDP, not vice versa. Hence there is no demand-side engine to get you to $200. By the way, the interviewer put the question of oil’s impact on GDP to Jim directly. Jim pondered it, decided to take the safe route out. But of course, if you’re arguing a supply-constrained approach, you’re pretty sure that oil is having an impact on the economy beyond “we’re paying more for gasoline”.
Also, in a supply-constrained model, the price is set by the consumer, not the producer. If it becomes cheaper to producer oil, all the profits flow to the producers. And it’s pedal-to-metal on US onshore exploration and production just now. For example, if you look at the latest round of company reports regarding the Permian, you’ll find almost all the companies are only now ramping up E&P activities there. It’s not for a lack of interest, but rather a lack of bandwidth due to earlier successes in the Bakken, Eagle Ford, and for some companies, the Marcellus.
On the other hand, offshore, particularly deepwater, is going to find itself in something of a crisis in the coming months.
if you’re arguing a supply-constrained approach, you’re pretty sure that oil is having an impact on the economy beyond “we’re paying more for gasoline”.
Not at all. Consumers don’t want to pay more than very roughly $80-100/bbl mostly because they think it’s not worth it, not because they can’t afford it. Individuals start paying attention to fuel economy, governments reduce subsidies and increase efficiency standards, taxis switch 100% to hybrids, container ships start slowing down to increase efficiency, etc., etc. In the long run oil above $65 will cause a secular conversion away from oil.
As they world economy achieves economies of scale with alternatives, as engineering matures, as the costs of pollution and security become more recognized, we will kick the oil habit and be more prosperous, safer and healthier.
If you were right, Nick, airline departures and VMT would be on trend. They’re not.
It helps, of course, if you use the right numbers. Airline departures isn’t the right number. The right number is revenue-passenger-miles: that measures real travel volumes. The number of departures can be skewed by larger planes and higher utilization rates per plane, which are things that airlines are pushing hard to increase efficiency.
And, we find that US pass-miles actually is on a trend. The trend is that of a logistic curve, where we see exponential growth then a plateau. That’s typical of a mature industry. see http://apps.bts.gov/xml/air_traffic/src/datadisp.xml
Now, VMT is on a different trend. If you look at year-over-year growth instead of the absolute numbers, you’ll see that growth rates started to fall before oil prices rose, and have continued to fall ever since. That’s a sign of an industry that’s not only mature, but facing increasing competition from cell phones (for socializing), bikes and mass transit, localization, etc. Young people especially are driving less, and the decline of youth-VMT is the same for the employed as it is for the unemployed.
Frankly, I’m surprised that rising oil prices don’t seem to have affected VMT significantly, but that’s what the data show.
Here’s what your “prosperity” looks like, Nick:
http://www.bloombergview.com/articles/2014-05-14/even-less-to-like-about-flying-coach
“To be sure, airlines are in no way responsible for the polarization of income and wealth that defines our time. Increasingly, however, their seating plans reflect that polarization, with more and more space and amenities showered on their first-class passengers (whose fares rise accordingly), while less and less space and fewer — increasingly, no — amenities are provided to coach passengers.”
The rich are getting richer, no doubt, but I don’t know what that has to do with energy or overall prosperity.
As I recall, fuel is the largest single expense for airlines. If fuel is expensive, the airline will decrease departures, increase aircraft size, increase seat numbers and increase load factors. And that’s exactly what happened.
From the consumer’s side, you accept all these as a necessary price of being able to still fly.
But this is by no means the rosy future of which you speak.
If load factors go up, that means it’s less likely that the seat next to you will be empty.
That’s hardly The End Of the World As We Know It.
this is by no means the rosy future of which you speak.
Let me clarify: I agree that our dependence on oil is costly, and that it is causing many significant problems. My statement above was that “As they world economy achieves economies of scale with alternatives, as engineering matures, as the costs of pollution and security become more recognized, we will kick the oil habit and be more prosperous, safer and healthier.”
Again, *if* we kick the oil habit, we’ll be more prosperous. As long as we don’t, oil will continue to squeeze us.
Well, that was an articulate defense of a supply-constrained approach to oil markets analysis.
steven, should we follow an energy policy which supports a supply constrained energy source?
Simply put, US real final sales per capita cannot grow with the 5- to 10-year constant US$ price of “oil” (pick your definition) above $40-$50.
The average price of “oil” at $80-$100 has created the incentive for US “oil” production to grow at a compounding doubling time of 5 years, a period during which the US has extracted 35%+ of proven reserves to date.
During the same period, the US has exported 50-60% of domestic refined product production since 2010-11, the largest share and fastest rate of growth going to China (US and Japanese supranational firms’ subsidiaries operating in China, that is).
Thus, since 2008-09, the US is extracting domestic reserves at a 5-year doubling time at prices that will not permit US real final sales per capita to grow, which in turn implies that we are drawing down domestic reserves at a rate that mean less domestic oil reserves per capita in the future and at prices we can’t afford that will permit economic growth.
At the levels and trend rates of oil reserves, production, exports, and consumption, the US is already at the limit of domestic production for production costs, and we will reach a critical log-limit bound of production costs to consumption and real final sales by NO LATER THAN 2015-17, and I’m betting as soon as this year for housing, autos, and overall consumer spending and real final sales.
Central bank printing of trillions of bank reserves to flood banks’ balance sheets with fiat digital debt-money cash assets and the resulting succession of larger financial bubbles to wages and GDP only exerts a larger current and future incremental constraint from net rentier claims to wages, production, profits, and gov’t receipts (social goods) in addition to the net exergetic constraint resulting from Peak Oil.
Add the surging US gov’t sponsored/mandated/protected and financialized costs of “health care”, which has become a net cost rather than value-added component, and growth of real final sales for the rest of the economy is impossible, if net contraction can be avoided, which appears not to be the case since summer-fall 2013.
The forgoing are effects reflecting the definition of Peak Oil and the Seneca effect. The larger inference is that the oil-, auto-, debt-, and suburban/exurban model for economic growth has hit a once-in-history log-limited, net exergetic constraint, and growth is over in terms of real final sales per capita.
That’s not realistic. The alternatives to oil are better and cheaper, once we recognize all of the hidden costs of oil.
you are one of the few economic bloggers i follow. but i am extremely disappointed that you lowered yourself to do interviews with a Russian propaganda TV. there is no problem with the interview itself but the problems is to who you provided it to (and subsequently helped to legitimize it by your high profile presence). maybe a little bit more of perspective would help…
Perhaps it is only RT television that is interested in hearing the comments of an expert on oil issues, particularly the economic impact of peak oil. I think that any news service that produces a factual and balanced story, as this was, deserves to be commended for their efforts. So far, they are ahead of the Wall Street Journal and Fox News on this topic. I’m used to relying on the Daily Show for my hard news, but maybe now I’ll watch more RT.
Take RT and take CNN, then mean score.
Keep FOX out, just too dumb.
It’s difficult to find educated people on this subject, however, you
seem like you know what you’re talking about!
Thanks
As I have periodically noted, 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 + biofuels + refinery gains.
I’m not an economist, but shouldn’t the price of an item relate to the quantity of the item being priced, not the quantify of the item + (partial) substitutes?
In any case, a key question is the ratio of global condensate to Crude + Condensate (C+C) production. Unfortunately, we don’t appear to have any global data on the Condensate/(C+C) Ratio. Insofar as I know, the only complete Condensate/(C+C) data base, from one agency, is the Texas RRC data base for Texas, which is shown below for 2005 and 2012:
2005:
Condensate: 0.12 mbpd
C+C: 1.08 mbpd
Condensate/(C+C) Ratio: 11.1%
2012:
Condensate: 0.30 mbpd
C+C: 1.95 mbpd
Condensate/(C+C) Ratio: 15.4%
The 2013 Ratio (more subject to revision than the 2012 data) shows that the ratio fell slightly, down to 14.7%, which probably reflects more focus on the crude oil prone areas in the Eagle Ford. But rounded off, we are looking at about 15% for 2012 and 2013.
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. What we don’t know is 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.
In other words, I suspect that actual global crude oil production peaked in 2005, while natural gas and associated liquids–condensates & NGL’s–have so far continued to increase.
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
Estimated normalized global condensate and crude oil production from 2002 to 2012 (2005 values = 100%):
http://i1095.photobucket.com/albums/i475/westexas/Slide2_zpse294f080.jpg
Right, Jeffrey. But in per capita terms, total petroleum production (EIA int’l stats) per capita is down ~2% since 2005, flat during 2008-10, and down again slightly per capita since 2011.
S&P 500 sales growth since 2011 has tracked the trend of nominal GDP around ~2.5%, and ~1% for nominal final sales per capita.
China’s reported (?) GDP growth since 2008 and 2011 has contributed 45-75% of net growth of real GDP capita since 2008, which has been effectively 0%.
Despite a doubling of US “oil” production since 2008, global petroleum/”oil” production per capita worldwide is flat to slightly lower, and virtually all of the net incremental demand has come from China-Asia, with US and Japanese supranational firms’ subsidiaries’ demand in China-Asia making up the bulk of growth of demand.
Mr Brown, I wish you would have included in your photo bucket
presentation a chart showing USA product and or USA/Canadian
production, which would be more meaningful to domestic
consumers, unless, however, you are an exporter of goo.
I recently ask two waitresses the following question: If you have a
hundred bucks in the bank and it earned 2% for the entire year, what
would be the balance at the end of the year? 0-2
Perhaps they thought it was a trick question!
The global charts do of course incorporate currently rising US liquids production, and the frantic drilling efforts in tight/shale plays in the US have served to slow the estimated post-2005 decline in actual crude oil production (45 or lower API gravity crude oil). I estimate that actual global crude oil production averaged about 65 mbpd from 2006 to 2012 inclusive, versus about 67 mbpd in 2005.
Western Hemisphere net exports from the seven major net exporters* in 2004 fell from 5.9 mbpd in 2004 to 5.0 mbpd in 2012. Combined net exports from Canada + Mexico fell from 2.5 mbpd in 2004 to 2.2 mbpd in 2012.
Based on the most recent four week running average data, US net crude oil imports were 7.5 mbpd. Overall US total liquids net imports were 6.2 mbpd. Given the US reliance on imported oil, I would argue that the most important chart is the recent rate of decline in the ratio of Global Net Exports of oil (GNE**) to Chindia’s Net Imports (CNI), shown below. I define Available Net Exports as GNE less CNI.
ANE–the supply of GNE available to importers other than China & India–fell from 41 mbpd in 2005 to 35 mbpd in 2012. At a GNE/CNI Ratio of 1.0, China and India alone would theoretically consume 100% of Global Net Exports of oil.
GNE/CNI Chart:
http://i1095.photobucket.com/albums/i475/westexas/Slide1_zps9ff3e76d.jpg
*Canada, Mexico, Venezuela, Trinidad & Tobago, Colombia, Argentina, Ecuador, Total petroleum liquids + other liquids, EIA
**Combined net exports from Top 33 net exporters in 2005, Total petroleum liquids + other liquids
Regarding US oil & gas production, my usual comment:
shouldn’t the price of an item relate to the quantity of the item being priced, not the quantify of the item + (partial) substitutes?
Not really. The price of key benchmarks has never been representative of the overall oil market. Both West Texas Intermediate and Brent are lighter and sweeter than much of the oil on the market. What to include as “oil” has always been a judgement call and a moving target.
Of course, the critical difference between crude oils of various gravities and byproducts of natural gas production–condensates and NGL’s–is that the former can be used to produce petroleum based distillates like diesel and jet fuel, while the liquid byproducts of natural gas production are of almost no use for the production of petroleum based distillates. And of course, the BTU’s per barrel for condensates and NGL’s are significantly lower than for crude oil.
In any case, the key point is that it appears that actual global crude oil production may have peaked in 2005.
Focusing on oil’s use for distillate is a bit misleading: condensate/NGL are pretty fungible with crude. Ethane is a good petrochemical feedstock, propane can substitute for fuel oil, butane is often added to gasoline, LPG is used in 13M vehicles world wide, etc. The fact that these items are all priced at the same very high premium per BTU as oil vs other things like methane and coal tells us that they’re pretty fungible.
“Crude and condensate” is a pretty traditional metric for oil production, right? Aren’t we torturing statistics here to make them say what we want?
In any case, the key point is that we agree that oil is supply-limited and expensive, and that consumers should switch away from it as quickly as possible.
I agree that condensate and NGL’s are partial substitutes, but that’s my point. We price oil in terms of dollars per barrel of crude oil, but supply is in terms of crude oil + partial substitutes.
And the Cornucopian argument is that a crude oil peak is nowhere in sight. I would argue that this assertion is categorically false (at least based on global data through 2013).
Sadly, I don’t we can make things that simple.
I agree that we’re in Peak Oil “Lite”: that supply is constrained, and growing slower than “demand”. On the other hand, by any reasonable definition net liquid fuel production is still growing, albeit slowly. Trying to redefine “oil” to an ultraconsertive definition won’t really convince anyone – the definition of oil has always been fuzzy and subject to change along with the industry, and that will continue.
Seriously: the kinds of people who are spreading misinformation about oil supply (e.g., confusing “tight” oil with Green River “shale oil”) aren’t going to be stopped by this kind of argument. It will just confuse the uninitiated and cause a loss of credibility with people who are better informed.
As usual, we will have to agree to disagree. I think it’s very simple: It’s quite likely that global crude oil production has peaked, but global natural gas production–and associated liquids–has not yet peaked. I think that we are seeing a global con job, trying to persuade us that NGL = Condensate = Crude Oil.
Again, ask any oil industry veteran, and they’ll tell you that “Crude and condensate” (C&C) is a pretty traditional metric for oil production.
It’s certainly useful to break down fuels into different groups for analysis: sweet vs sour, light vs heavy, conventional vs unconventional, condensate, etc., etc. But both industry and Peak Oil forecasting and analysis has traditionally included all of those, so I don’t know why we’d change now.
I certainly agree that we’re confronted with a media con job by those who’d like to persuade us that reliance on oil is still a viable strategy going forward.
As a 34 year oil industry veteran, I focus on actual crude oil production, and what I assume is the oldest regulatory agency in the country, the Texas RRC, defines oil as crude oil, as does OPEC.
And as we discussed, when you ask for the price of “oil,” what you get is the price of 45 or lower API gravity crude oil.
Yeah, I should have phrased that better: “almost any oil industry veteran”.
Let’s look at OPEC’s monthly oil report: the first page refers to “global oil” that includes condensate:
“Global oil demand is expected to increase by 1.14 mb/d to reach 91.15 mb/d in 2014, unchanged from the previous report. Almost half of annual oil demand growth is seen coming from China and the Middle East. The estimate for world oil demand in 2013 was unchanged at 90.01 mb/d, representing growth of 1.05 mb/d over the previous year.”
http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MOMR_May_2014.pdf
Or, the International Energy Agency:
“Global supplies rose 700 kb/d month-on-month to 92.1 mb/d in April, with roughly half of the increase stemming from OPEC producers. Global supplies were 820 kb/d higher than a year earlier, with non-OPEC annual output growth of 1.8 mb/d more than offsetting an OPEC crude oil decline of 960 kb/d.”
http://omrpublic.iea.org/
Regarding OPEC, I was referring to their own numbers for OPEC production, which is crude oil only.
In regard to reported “oil” production, I agree that most agencies report some combination of crude oil + condensate + NGL + biofuels + refinery gains, while the price of oil is the price of 45 or lower API gravity crude oil.
Which I guess puts us right back where we started at the start of the thread.
referring to their own numbers for OPEC production, which is crude oil only.
When OPEC refers to overall oil supply, they include condensate. When they refer to crude, they call it “crude oil”. It’s pretty clear that they consider the normal, standard definition of “oil” to include condensate.
the price of oil is the price of 45 or lower API gravity crude oil.
Heck, the price of oil is usually much narrower than that: it’s usually WTI or Brent. In fact, you agree with this! Look at your comment in 2005:
“The light, sweet versus heavy, sour problem goes beyond production. What about inventory? No one differentiates inventories on the basis of quality. Matt Simmons used the following analogy. It’s as if when you asked what a car costs, they gave you the price of a 2005 Rolls Royce. When you asked how many cars are in inventory, they counted rusted out 1960 Plymouths the same as a 2005 Rolls Royce. In other words, the commonly tracked crude oil inventory numbers are virtually useless. As you noted, the developing light, sweet crude oil shortage is showing up in the spread between light, sweet and heavy, sour.” written by….Jeffrey Brown Petroleum Geologist
http://www.theoildrum.com/story/2005/8/23/233714/826
That was an article which showed OPEC data that light sweet crude was only 30-40% of the world oil market. So, clearly the definition of “oil” isn’t as simple as you’re suggesting, nor is the problem of “statistics for one thing, and price for another” as unusual as you’re suggesting.
Oil supply is still growing slowly – arguing against that is unrealistic. On the other hand, we agree oil is a bad to thing to rely upon for the long term, right?
I have to agree with Gulag, doing an interview for RT is the moral equivalent of doing an interview for Nazi radio, regardless of how normal the interview itself may be.
Tom, are you trying to say with a straight face that a network owned by Vlad the Invader and his former KGB pals can’t be objective when examining the energy situation of the Anglo-American oil empire, Russia’s longtime antagonist/competitor? Surely, you jest! 😉
That said, Professor Hamilton did a rather good job of presenting many of the critical aspects of Peak Oil and its implications in the limited time he was given; and most of the time I was listening to what he had to say rather than fixating on the image of the porcelain veneer-toothed blonde asking the questions and sitting pretty. 🙂
BC, Professor Hamilton should call it “Peak Cheap Oil..”
Excellent interview, by the Professor and thank you for
your support of the Keystone PL!
You know how we could get it built – by calling it
The Pipeline for R Energy Efficiency & Maximum Income Equality. PREEMIE
Right, or Peak Oil that we can afford to extract and burn today or in the future to grow real final sales per capita hereafter, i.e., peak (and decline of) net exergy per capita.
That suggests that oil is the only thing that can produce GDP (or final sales, which is just GDP minus additions to inventory ).
That’s unrealistic, given that oil is only 40% of the “exergy” used in the US, and there are good alternatives to oil.
Lots of oil in place (i.e. 2 trillion barrels in the WCSB), but it is very hard to make the calculation without producing. I wonder, why do peak oil discussions not involve the amount of oil in place but instead focus on reserve to production ratios?
Back to math problems, eh?
Peak oil discussions tend to focus on production rather than reserves because that’s what matters. It’s not what we could theoretically consume, it’s what we actually consume. And we see there is a meaningful distinction. Although most of the international oil companies have increased reserves, very few have been able to hold production levels.
In the case of the WCSB, I don’t think reserve to production ratios get much attention. Instead, people focus on the difficulty of raising production by an amount large enough to have a material impact on the overall oil market.
A couple of news items this morning:
Energy agency predicts oil shortage unless supply boosted
Industrialised countries could be facing the prospect of an oil supply squeeze and higher prices later this year unless production is lifted, according to a report just released by the International Energy Agency.
http://www.abc.net.au/news/2014-05-16/energy-agency-predicts-oil-shortage-unless-supply-boosted/5457302?section=business
This from ISI Group, describing their call as “out of consensus”:
WE ESTIMATE ONLY 500-600 Mb/d of US growth in 2014 which compares to most in the market in the 1.0 to 1.1 MMb/d in 2014 due to WEATHER DELAYS and ‘TIRED’ GEOLOGY following years of rapid drilling. Moreover, we think growth will slow further to 300-400 Mb/d in 2015/2016. The Eagle Ford and Bakken could peak in 2016 and 2017 respectively. The tapering of growth in the out years is all very out of consensus.
The shortage news from the IEA is primarily a function of unexpectedly strong demand from China, which, readers will recall, had been largely moribund as a driver of oil demand growth from Q3 2013 through Q1 2014. Now it’s coming roaring back. Not entirely clear why.
The Bakken / Eagle Ford news has been discussed for some time, with some uncertainty as to where the turning points would come. I myself have mooted a supply squeeze in the 2016/2017 time frame. Among the research shops, ISI has now put a stake in the ground.
“Now it’s coming roaring back. Not entirely clear why.”
http://business.financialpost.com/2014/05/21/why-china-is-stockpiling-huge-amounts-of-oil-at-a-record-pace/?__lsa=bd68-aef4
Steven, even as growth in the Middle Kingdom is decelerating, China is stockpiling in preparation for regional war(s) with her neighbors, which by extension means the US (West), knowing what happened to Japan in the 1930s and 1890s-1900s.
The IEA news article is puzzling. It says “The IEA says reports out of China suggest that it has increased budget allocations to fill its recently completed strategic petroleum reserve facilities. However, China also has a rapidly growing and under-utilised refining industry, with two new giant plants adding to the surplus capacity. The IEA says rather than just going into strategic reserves, the oil could quickly find its way back onto global markets.”
Neither of those things is actually new, continuing demand: an SPR will be filled eventually (and maybe used at some time), and refineries won’t change net imports of oil & oil products (oil imports go up, product imports go down).