A Debate on the Substance and Timing of the Peak of Oil Production and Consumption, Part II
Posted by Robert Rapier on December 11, 2006 - 11:26am
Topic: Supply/Production
Tags: exports, imports, peak oil, saudi arabia [list all tags]
Jeffrey and I agree on many things. We agree that some sort of revenue-neutral fossil fuel tax is needed to reign in our energy usage and encourage alternatives with low fossil-fuel inputs. We agree that transportation electrification should be a priority. We agree that once Peak Oil does occur, there will be an export crisis. We agree that regardless of whether the date of Peak Oil is today, or 5 years from now, we should have already gotten started on a major effort at moving away from fossil fuels. (Incidentally, even though a peak in the near-term is still a minority view, Global Warming has an overwhelming scientific consensus. So, if we can't make the case to move away from fossil fuels as a result of Peak Oil, there is still the need to do so due to Global Warming.)
That's an end to my digression, and now I will address the issue on which we disagree. First, I want to make it clear that I respect Jeffrey a great deal. I have learned much from his work, and I consider his contributions to be valuable. But I disagree with his interpretation of the export data. Jeffrey did make a prediction that we would see declining exports this year, and he predicted that this was because of a production peak in some of the major exporting countries.
This gets to the heart of my objection. I want the mainstream media, the politicians, and the public to listen to us and to understand the gravity of the situation we face. In order to gain credibility, we have to make very sound scientific arguments. Peer review amongst ourselves should be taken very seriously. If we don't police ourselves, then the media will do it for us. If we haven't done our homework we will lose credibility, the very thing we are trying to gain. When we formulate our arguments we need to put ourselves in the critics' seats, ask what the counterarguments will be, and then make sure we can address them. If we can't, we need to improve our argument.
So, when claims like "the net export crisis is upon us" are made, we need to ask some tough questions. We need to do some peer review. If we don't, and the argument turns out to be wrong, we will lose some credibility as a group. We will have cried wolf. We can't afford to cry wolf, because then we will have more trouble convincing people that the wolf is really coming.
Why Were Imports Down? Or Were Imports Down?
Jeffrey's prediction, made here on January 27th, was that "these factors [one of which was Saudi Arabia on the verge of a permanent and irreversible decline] could interact this year to produce an unprecedented--and probably permanent--net oil export crisis."
As stated here, he is making his case against a "12/30/05 index number of 12.8 mbpd." Imports into the U.S. did indeed start to fall in the first quarter. By March imports had dropped to just under 12 million bpd.
After the first quarter, much was said about this being evidence of the beginning of the permanent export crisis. However, as I pointed out at the time, refinery utilization during this time period was falling. I reiterated this point a week later. In December, refinery utilization averaged 89.4%. In March, refinery utilization was down to 85.7%. Refineries that are down for turnarounds will not be purchasing crude oil. The demand for imports drops. Turnarounds are planned months in advance, so it was well known by the refineries that they would not need oil during this time period. I think in this case a picture is worth well more than a thousand words.
Monthly Average Refinery Utilization vs. U.S. Imports
Note what happened when the refineries came back up from their turnarounds. Utilization started picking back up in April, and reached a peak of 93.2% in June. Throughout the summer, imports were back up - well higher than the December 2005 benchmark - and exceeded 13 million bpd. As you can see, there is a strong correlation between the refinery utilization numbers and imports. In fact, I did a statistical analysis with Excel, and the correlation coefficient for imports and refinery utilization over the past year was 0.72. Therefore, the definitive answer as to why exports were falling in the spring is simply that refiners were in full turnaround mode. The first quarter wasn't about a permanent export crisis, even though at that time falling exports were used as evidence supporting the predictions.
But of course the U.S. is not the world. So, what was happening in other countries as imports started climbing in the U.S.? Were we outbidding other countries for dwindling available exports?
To my knowledge, there are no data on total exports. But we can account for a significant fraction by looking at total OECD net imports. Total OECD net imports in December 2005 averaged 27.52 million bpd. In January, imports did climb to 28.89 million bpd, and then started to fall as refinery turnaround season began. During the high driving season months in the U.S. (May-Aug.), when U.S. imports had climbed back up, total OECD net imports averaged 28.0 million bpd.
Crude Plus Condensate Production vs. OECD Imports
Note that C+C has a decent correlation (although with a time-offset) to OECD imports. That total imports were down slightly from January is not surprising given the high prices over the summer. But summer OECD imports were actually higher than the December baseline for making the import case. I would also add that total OECD stocks went up by almost 100,000 barrels during the same time period, implying that demand was softening and therefore the imports weren't needed.
I would note in addition that Saudi oil production started dropping in January just as OECD imports started to fall. We all know the story that Saudi Arabia's oil minister commented that they were having trouble finding buyers at the higher production volumes: "It's not just heavy oil. Even light oil is having problems." This prompted much speculation that he was lying to cover up the fact that oil production in Saudi had peaked.
Note the graph of crude stocks during this time:
Past 12 Months of U.S. Crude Stocks
As you see, their story is consistent with inventory numbers. From January to April stocks were rising, as exports were falling. Doesn't this mean that the exports weren't needed, if inventories were climbing despite falling exports? This was one of the reasons given for Saudi cutting production: Inventories were full. Well, in the U.S., we can certainly conclude that this is fully consistent with their claims.
Also, as I have noted several times, if they say they have product for sale, and someone needs it, they are going to get phone calls. Just imagine if you claimed to have something for sale that was in demand. Don't you think people who need the item are going to call you? What are you going to tell them when they do if you don't really have the item?
What about Prices?
Again, the OECD is not the world, although it is most of the developed world. So, what of the theory that prices were being bid up, and therefore imports were being taken from 3rd world countries? Without question there has been demand destruction due to high prices. The EIA's World Oil Balance spreadsheet shows that demand in the second quarter dropped off as prices spiked up (again consistent with the Saudi claim). Demand was down by 2 million bpd - at 83.15 million bpd - over the previous 2 quarters in which demand had averaged over 85 million bpd. Of course oil prices had spiked over $10/barrel over this period of time. So, did prices spike because product was scarce? Did prices spike because demand was high? Was it fear and speculation? Or was it a combination of factors?
Those questions are difficult to answer definitively. Hurricane Katrina really shook up the oil markets by exposing just how little excess capacity presently exists in both oil production and refining capacity. A few short years ago, several million barrels of spare capacity were available. But by the time demand reached 85 million bpd, there was little excess capacity. This makes the markets nervous, and so geopolitical events have a disproportionate impact on oil prices.
So, what happened in the first quarter that might have caused oil prices to rise? In January, militants in Nigeria blew up some pipelines taking 220,000 barrels off the import market. At the same time, the Iranian president was making lot of threats which in my opinion were designed to keep oil prices high and help bring money into Iran. Shell decided to evacuate some workers in Nigeria during the turmoil, which prompted the Times Online to report on January 16, 2006:
The withdrawal, combined with Iran's threats to force up prices in response to threatened sanctions over its nuclear programme, prompted a rise in the cost of oil, up 93 cents to $63.18 a barrel this morning.
In February, militants in Nigeria launched their "dark February" campaign designed to make foreign oil interests leave the country. By March, exports from Nigeria were down 300,000 barrels a day over the 4th quarter of 2005. This was significant given Hurricane Katrina had taken hundreds of thousands of barrels of daily production offline. In February 2006, 362,796 bpd were still shut-in. Shell's Mars platform alone produced 140,000 bpd of oil production. This production wouldn't start to come back online until late May 2006.
Those geopolitical events, combined with lingering production upsets from Hurricane Katrina, drove oil prices to record levels. There was a threat from Iran, and actual production gone from Nigeria and the Gulf of Mexico. In a nervous market with little excess oil production capacity, one doesn't have to appeal to an oil production peak in order to explain why oil prices shot up.
Couldn't This still be Peak Oil?
I said I won't try to argue for a specific date on the peak, but I will argue that the import/price data are poor arguments in favor of calling the peak. This is not the case you want to present to the media. They will poke holes in it, and then if/when imports do climb back up, credibility is shot.
Back in the spring, when some others were calling December "the peak", I predicted that as long as demand stayed high we would set new production records in the summer. Well, demand did soften, but the EIA estimates that July 2006 will be higher than December's 84.5 million bpd at 85.2 million bpd. They also project August to be over 85 million bpd. The previous total liquids record was in May 2005 at 85.2 million bpd. (Stuart Staniford also discusses this issue here).
There is a lot of debate about total liquids, and whether it is an appropriate metric. There are two primary problems with total liquids. First, some production is double-counted. If liquid fuels are used in the production of ethanol - and they are - then the production gets counted twice. However, the majority input into ethanol is natural gas. In that case, even though the energy balance might be poor, you have a legitimate addition to total liquids, albeit an addition with a lower energy value. Second, total liquids include items like orimulsion which isn't a replacement for liquid fuels. On the other hand, if orimulsion is used in an application that displaces liquid fuels use, then you again have a legitimate addition to total liquids.
Without question the "purer" metric for predicting peak oil is crude plus condensate (C+C). December in fact remains the highest month on record for C+C at 74.1 million bpd. This summer, we reached an estimated 73.8 million bpd in August. However, a metric somewhere in between - like net total liquids - would be the most appropriate measure. You can't use just C+C because that overlooks the portion of ethanol that is a legitimate net addition to liquid fuels. But you can't use total liquids because it double-counts on the liquid petroleum inputs into ethanol (as an example). What is needed is a net total liquids metric that has subtracted out the double-dips. To my knowledge no such metric exists, and for now we have to live with the imperfect system we have. As it stands, the best we can say is that it is possible that a new record was achieved during the summer for net total liquids.
Conclusions
My intention here is not to "win" a debate. Jeffrey and I are in fact on the same side. My purpose is always to learn, educate, and generate food for thought. As I stated in the opening segment, I believe that credibility is crucial. However, to build credibility we have to build a strong case and be careful with data interpretation. If I argue that there is a problem because imports are down, I need to be prepared to answer the critics. I need to be sure that my case is objective and consistent.
If I use falling exports and rising prices as evidence that my prediction was accurate, then rising exports and falling prices should be evidence that the prediction was inaccurate. If I come up with some new reasoning that explains the latter, I must be willing to apply this reasoning to the former. Otherwise, the reasoning is ad hoc. If I say that A is like B because both are blue, but then I say A is not like C because C is heavy, this is an example of ad hoc reasoning. I can't use one metric in one case and a different metric in another case. When you do this, you make it impossible to falsify your argument. And an argument that is impossible to falsify is not an argument that will withstand scientific scrutiny.
As always, I invite comments, questions, or corrections. If Jeffrey wishes to continue for another round, I would be in favor of that. In that case, I would presume he would have a response up in a week or so.
Question: you say:
"If liquid fuels are used in the production of ethanol - and they are - then the production gets counted twice.
I don't understand why people bring up only ethanol in this example.
What to do with the liquid fuels that are used in the production of liquid fuels?
Don't they count as "double-counted" just as much?
When oil's EROEI drops from 100:1 to 20:1, doesn't that simply mean you use a lot more oil to produce the oil, and you have to discount that 1 barrel in both cases? You use 5 times as much to produce the same.
I started to elaborate on this point, but yes, these liquids are also double-counted. Any liquid fuel inputs that go into producing a liquid fuel product get double-counted.
But I would also again point out that any portion of biofuels that is actually renewable would not get counted if one just looked at C+C. The relevant metric is somewhere between total liquids and C+C.
If 84 mbd is produced, with that 20:1 EROEI, you lose 4.2 mbd every day, so you have net production of 79.8 mbd. That is quite a difference.
And it would be less important if EROEI stayed the same, but it's getting worse all the time, so you lose ever more, and the numbers reflect reality ever less.
I understand that it would be hard to model, but still feel it's too easily neglected.
You biofuel comment is valid. I guess it would be too much of a stretch to look at natural gas use, like in the tar sands?! It may not be C+C (+NGL), but is sure is a waste of energy. Isn't it more appropriate to count these things in some kind of "energy" form, like calories, or joules, or......?
When the debate is about peak oil how can any biofuel be counted towrds production?
Because peak oil is not really the relevant metric. It is peak energy. One could say "Sure, we lost 1 million bpd of oil, but we gained 2 million bpd of ethanol." But an accurate metric has to account for the net of that 2 million bpd of ethanol.
Do you mean to say "peak liquid fuels"?
Peak energy is what we should be focussed on with PO (C+C+NGL) a subset of that broader debate - IMO.
http://www.energybulletin.net/16459.html
Published on 24 May 2006 by GraphOilogy. Archived on 25 May 2006.
Texas and US Lower 48 oil production as a model for Saudi Arabia and the world
by Jeffrey J. Brown & "Khebab"
These comments are based on the graphs, prepared by Khebab, in the captioned article.
At the end of 1972, Texas had produced about 35 Gb of crude + condensate (C+C). Khebab's plot showed that Texas had remaining estimated recoverable reserves of about 27 Gb at the end of 1972, with an annual production rate of about 1.25 Gb/year, resulting in a reserve to production ratio of about 22 years at the end of 1972. This implies that production had to fall, and since peaking at 57% of Qt in 1972, Texas has shown a long term decline rate of about 4% per year.
At the end of 2005, Saudi Arabia (KSA) had produced about 108 Gb (I believe C+C). Khebab's plot showed that KSA had remaining recoverable reserves of about 78 Gb at the end of 2005, with an annual production rate of about 3.5 Gb/year, resulting in a reserve to production ratio of about 22 years at the end of 2005. This implies that production had to fall, and since since (IMO) peaking at 58% of Qt in 2005, KSA has shown an estimated 4% decline so far this year (and about a 7% decline from 12/05 to 12/06).
I estimate that Saudi Arabia, in calendar year 2006, will have burned through about 4% of their remaining conventional crude + condensate reserves.
Unless someone has a question for me, I probably won't post any more comments.
I think that the reduced exports are not voluntary. Based on the 2004 to 2005 increase in consumption (about 22% for KSA) and assuming that we see something similar for 2006, and based on the reported production decline, I estimate that KSA's net exports fell by about 13% from 12/05 to 12/06.
I understand that the overwhelming bulk (> 90%) of their production has come from the 5 largest fields and perhaps a dozen or so smaller fields over the past 50 years. This still leaves 80 or 90 oilfields that are supposedly capable of producing oil. The 'rest' of the oilfields in KSA, as I understand and as Matt Simmons outlines in 'Twilight', are not only smaller than the super-giants and giants, but are potentially more problematic in terms of geology and the ability to produce at a high volume.
Nevertheless, if KSA has 80 untapped oil fields, and though 'small' by KSA standards, some are large by oil field standards in the rest of the world, it would seem that there remains potential in KSA that does not exist in Texas. How does one get large production from a slew of slow producing fields? By drilling many wells (look at Russia's 1,000,000+ wells), and, guess what? KSA is apparently in the process of drilling many new wells.
I know that the conventional wisdom is that these leased rigs are being used to upgrade and workover the existing producing fields, but to what extent do we really know this?
It may be true, if KSA's super-giants are in decline, that there is no way to reverse the production curve and that drilling several thousand more wells, whether in new formations or old, will only slow the decline. But, in reading 'Twilight' one keeps seeing the maps with these dozens of untapped fields which are barely even mentioned. Unless they are totally fabrications, they still represent a significant amount of reserves, however slowly their contents may be produced.
Hubbert's curves work because, when a region peaks, it becomes much more expensive to even maintain production, much less expand it, and not because a region has run out of oil. If ksa has in fact produced 58% of urr, we will never again see 9Mb/d, much less 10, 12, or 15.
The PO community, as pointed out, has put itself into the role of Cassandra. But Cassandra does not have any influence. She is a tragic figure, at best, a farce, at worst.
The world has entered the hydro-carbon endgame since the 1970s, when the US peaked. The only thing that matters now is solutions.
I would encourage to stop the bickering about the date of the peak and think ahead of mitigation strategies. The same amount of analysis that gets the peak nailed down to +- 5 years can also predict the economic impact of gas taxes, CAFE standards etc. We have seen enough linearizations. They are a bore. Lets talk solutions.
I don't know why I keep having to point this out, but 1 more time. From the 3rd sentence of the essay:
Some have misunderstood my long-running debate with Jeffrey to be a quibble about the timing of the peak. That is not the case.
If you think this is about nailing down the timing of the peak, you have missed the entire gist of the article.
You can broadcast the words.
But that does not mean that they were received in the sense of being understood or absorbed or believed.
Just to clue others on this insider observation, here is the exchange from the R^2 site:
"Why Were Imports Down? Or Were Imports Down?"
The analysis which follows is quite thorough and I agree with it. One of the arguments made is: "I would note in addition that Saudi oil production started dropping in January just as OECD imports started to fall...." implying that, if a downward trend in production exists, it is driven by demand, not by (geological?) supply. Maybe I was reading too much into this, in which case I apologize.
But in toto what I got from it was an overall attempt to moderate the discussion as in saying "Easy as she goes... Wait! Not, yet!... Not....yet...".
In my opinnion this is not a practical political argument. Well, actually, it is, if one does not talk about PO at all. I believe this is what most politicians do to avoid the Al Gore fiasko. I think we all can agree that this plitical micro strategy achives the goals of political survival of a few but does nothing to help the nation(s).
I liked the crying wolf analogy but also think one should go far beyond that by saying:
"Peak oil is a fact. It does not matter if it will hit us ten years from now or tomorrow. What matters is that we are prepared. The metric can not be to predict PO with absolute precision and start measures the day after or the day before. We have to start WAY BEFORE. And here is how we can prepare ourselves YEARS before the fact... Moreover, to be prepared for an event that will happen and that will happen SOON ENOUGH has the following economic advantages NOW... e.g. lower trade deficit, lower geopolitical risk, lower economic variance in primary energy prices etc."
I might be unrealistic in my expectations to shape the discussion completely like this and I admit that. But I also think that we can learn a lot from modern political campaigning, especially that those who steer the discussion usually win the discussion, even if they have the wrong arguments.
To put peak oil into the category of "it has yet to be mathematically proven before we can afford countermeasures" is a win for the other side (and thus a loss for everyone). And yet, we seem to put ourselves into that corner more than anyone else does. Am I completely wrong about this? Or maybe we really agree about much of it?
No. I believe it is not yet, but not on the basis of this. Saudi's moves could be dictated by the market, and yet they still could be peaking.
To put peak oil into the category of "it has yet to be mathematically proven before we can afford countermeasures" is a win for the other side (and thus a loss for everyone).
It is not about mathematical proof. It is about having the kind of evidence that will withstand scrutiny. If the evidence doesn't withstand scrutiny, then it won't be taken seriously.
Imagine you are Barry Marshall, and you believe ulcers are not caused by stress and spicy foods. You believe they are caused by bacteria. How do you convince people? You make sure your evidence withstands scrutiny, because the whole world and all the pharmaceutical companies are lined up against you. He isolated what he believed to be the bacterium responsible, but he then gave himself an ulcer by taking the bacterium. That's not the entire story, but it ended with him winning the Nobel Prize.
Imagine a different tactic. He believes this bacterium causes ulcers. He never does any actual tests. He argues by analogy. He says "I have an ulcer, and I am not stressed nor do I eat spicy foods. Therefore, it is probably the bacterium." Make that case, and you never convince anyone.
The point is, the case must be able to withstand critics poking holes in it. Even if the case is right, if the evidence is not substantive then nobody is going to give it the time of day.
Aside from this, the fact that SA production declined as prices climbed to a nominal record is IMO proof positive that they were producing at a max. To say that buyers on the NYMEX would pay $70+/b but would not buy from the saudis is absurd, regardless of stocks. And, if further proof of problems in the desert are needed, 3x rigs drilling for oil while output falls is damning evidence. Falling sa production does not prove po is at hand, but the naysayers, eg cera, go first to sa as our saviour, and the probability of this happening is IMO quite low.
You are grossly underestimating the speculative forves in the global markets. Part of the price, a part which can be in both direction is based on irrational factors like fear and greed. Both can lead to temporary fluctuations, but long term the prices seem to settle down at the balancing level (which is what is happening now). There is even the chance of the market going the other extreme and "undershooting" the oil price, but not very likely IMO.
I mean, Westexas does not make the point crucial for the whole debate, he just has a current bad feeling about KSA having peaked already. PO does not need this assumption to be true (enough).
Cheers,
Davidyson
Very true. We are still missing key pieces of the puzzle. Although, I have a feeling that in the end it won't matter. These are finer points on a very strong dynamic which allows only for logarithmic corrections.
I think I understand your argument about needing the evidence. I am a phsysicist/engineer and most of my life I would have argued the same way. However, I find that in "real life" the precision of arguments does not matter as much as their packaging. The sophist can win an argument over the philosopher.
This can be seen in politics as well as in economics. Often a business deal in publically traded companies is not all about absolute economic value but about visibilty to the stockholder. The important part there is to spin a story that is liked by the analysts, even if the fundamentals are not watertight. In the end trust in management's decisions is just as important as the bottom line to assess future outlook. And sometimes the bottom line is bleak, and yet, good managers can earn trust in the market. I am not talking about black sheep here but about CEOs who are struggling to create real businesses with products and real profits. To project a believable image where no data can give any outlook is an important part of the job description.
And in politics the timing and the verocity of an attack can be more of an issue than anything else... see "Swiftboat Veterans". Sad but nonetheless true.
IMHO we do not need to convince the experts any longer. They know the truth already. The management of BP and Aramco are not clueless about how much oil they have left and how much more they can find. How do we know? Because we look at every word of the Saudi's already as if they would be playing poker with us. We want to see their bluff... which implies that we know that they know.
The real problem now is to find language to sell to the public what needs to be done to minimize damage. I think that is much more a problem for ad agencies and campaign managers than experts.
Robert wants PO types to be able to make a strong, 'scientific' argument, and I see a great value in this, because:
In the case of human-induced global climate change (AKA "AGW"), a very strong case has been made, and when that case is put into the hands of CEO's and boards of directors, they have become subject to legal prosecution, jail and fines, if they continue to deny it and act in a way that adds to an event that decreases shareholder value.
Persons in government, or testifying in front of congress, can be prosecuted or fired for lying (unless you're president, I suppose).
Only private think-tank types (Yergin) will be able to glibly lie and not face very real serious consequences IF A STRONG/AIRTIGHT CASE CAN BE MADE.
OSHA is the area where criminal enforcement has been lax.
The fact is that if you are white and median income or above, you walk facing no more than probation if convicted of a non-violent crime.
True, but that awareness will not "suddenly appear" two years, or three years after the peak. That information, whether or not the peak date has passed, will come upon us very gradually. There will be subtle signs that appear from time to time, like Saudi cutting "allocations" to their customers. The point is, we become more and more aware as to whether or not the peak is now, or past, as time goes by.
And right now, most of the world says "no peak until 2030" or some far out date. The majority of "peak oilers" are saying, "peak by 2010 or 2015" or something similar. A very few are saying, "peak is past or right now." By this time next year I predict that the majority of peak oilers will cross over from the former to the latter group.
What an incredibly stupid thing to say! I will guarantee you if we are wrong, WestTexas, myself and the very few others who have the courage to stand by our convictions, will be dragged through the mud if we are proven wrong. You guys will never tire of pointing out how wrong we were if our predictions are premature and what damn fools we were to predict such an early peak. But....but....if we are right, we have the mind of a three year old if we dare try to take credit for our early insight.
God, there is just no damn way we can win is there? No wonder so many peak oilers are going with a more distant peak. It is a kind of "Pascal's wager" for peak oilers. We have nothing to gain but everything to lose by expressing our convictions of an early rather than late peak.
Ron Patterson
That being said....you are still wrong. This is very difficult to put into words and few people will understand. However I will give it a try.
Peak oil will happen, that is an indisputable fact as far as I am concerned. With that in mind, let's look at a few other facts.
- The world's population increases every day, therefore the later the peak, the greater human misery it will cause.
- More of the world's wild animals are going extinct every day, therefore the later the peak, the fewer species that will survive.
- More of the world's forest are being felled every day. More of the world's lakes are drying up and being polluted. More of the world's rivers are drying up, more of the world's land is being blown away, the world is getting warmer and the weather patterns are changing, and I could go on and on. The later the peak, the worse everything gets.
Bottom-line, the later the peak the greater the misery and suffering and the greater the destruction of the world's ecosystem. If we could just hold off peak oil for 50 to 100 years, the earth would be a choking, polluted and barren place.Peak oil? The only thing worse than peak oil would be no peak oil.
Ron Patterson
Youre children and your grandchildrens happiness and well being are by definition your own, as they are part of your life. Suffering by them translates to suffering by you. So unless you have your PO lifeboat and community completely setup, you should be hoping for a later peak, unless of course youre a group selectionist or youre leveraged to the gills in crude futures...;)But the point of my post was be careful what you wish for, you just might get it.
I think this is really a deep and recurring political question... what should we want in the area of PO?
And the answer I come up with is actually "a false peak, leading to a rush to invest in alternatives, followed by a few big discoveries that mitigate the pain while not being so big as to damage the investment program, followed about 10 years later by the actual peak."
And the reason for that is even though we should be investing in alternatives, it will probably take an actual crisis to get things rolling...
We shouldn't want a megacrash...
We shouldn't want a long delayed 20 to 30 year peakoil forced transition away from fossil fuels for all the global warming and environmental reasons outlined above.
Of course what we want has little to do with what we'll get in this case.... But if we imagine the reality that would be most likely to induce intelligent political/technological and economic response this is perhaps it.
We do want reality to shift people's awareness, and what we'd really like is for reality to give a little wake up knock before it smacks us on the head with a 2 x 4.
pdx - i completely agree this would be the best scenario, because it would kick in our evolutionary 'panic' response while still having time to be meaningul.
But this is kind of an unlikely scenario, is it not?
I don't know if y'all can remember the '70s, the panic, the embargos, the "demand destruction", the strangling of the oil market by OPEC.
That was the event and era that let us know that "oils-not-well". Some countries learned a bit from it and raised (and are still raising) taxes on petro-products. And in some areas of the world, society collapsed (Soviet Union/Cuba); besides, it was the shot to the bow which launched a scrambling to invent new technologies.
Wind and Solar have (probably) already come so far only because of the "first" peak.
From a technical trader's perspective, we are in the (possible) middle of a S-H-S (head + shoulders) pattern - late '70s peak was the left shoulder, we are in the middle of the head now, a (relatively) quick contraction will bring us back down to ca. 60 mbd like around 1980 but will then be able to be expanded again.
Maybe using the technical analysis would convince Martin Lynch of the reality of PO???
Hubbert Theory says Peak is Slow Squeeze
I've bookmarked Stuart's Plateau Background, which has a handy index to most of his posts.
So lets assume that the OECD procures energy supplies at the expense of the developing world, we end up with a developing world descending into chaos - their OECD markets may have declined, they will have extreme energy shortages and probably not enough food - cos its been converted to ethanol?
Against this background in the devloping world - I just don't see the OECD financial markets surviving as they are just now with dire consequences for pensioners and everyone else who holds a stake in these markets.
This is one way to look on my local Swedish arguing that we should invest heavily in peak oil preparations that arnt timing specific. Infrastructure that lasts for decades and pilot projects that lasts for manny years. When the peak is obvious market forces will increase the production of what already is being done and fill in the needs as the market prioritizes them.
Sorry sir, but I object to your contention. Single cell 'animals' are just fine, thank you.
BTW, many thanks for all time & effort put forth on this site, and that's even extended to Hothgor.
Byron
Are you referring to politicians?
(I don't know, I relayed your messages. That was his response. Something like that.)
Oh shit, when is that meeting in Nigeria?
FWIW: Declining production of conventional oil and gas is likely to accelerate destruction of the environment as people switch to burning wood and hunting. Rich countries will increase consumption of coal increasing pollution emmissions since businesses will most likely lack capital to build clean coal plants.
Of course this is true. People will hunt the songbirds out of the trees when things really get tough. But what would be worse, 6.5 billion people hunting animals and felling trees or 8 billion people hunting animals and felling trees?
Everything environmental will get worse after peak oil. But it is getting worse everyday anyway. It would be best to start now with fewer people than start much later, after much continued destruction and with many more people.
Ron Patterson
on peak oil much you have learned. the path you predict we will see maybe. but everything set in stone yet is not. else what good are these internets dialogues, hmmm?
p.s. nuclear, wind and reciprocal altruism surprise you they might.
I tell you GWB is our friend :-)
Although I agree with Ron on the early peak, and on this quoted statement, I wonder if he -- and I -- are biased in our cognition of the near-term peak due to our view that a later peak is worse. And I'd also mention the terrible suspense, waiting for the shoe to drop, so to speak. So if only the peak would come, soon, then we could at least break that suspense. (Although I'm sure there would be even worse suspense in that case, e.g., will there be a nuclear world war and when...)
In 'The Empty Tank' Leggett makes the point that if PO is now, renewables lack the credibility (in the eyes of public, politicos, VC-types) of proven coal 'technology' and in our panic we will turn to coal. If given just a few years' more time, many of the non-coal alternatives will have cleared the hurdle of general/public credibility.
I agree with you 100% though that the sooner the consumption/population juggernaut is derailed, the better.
I can change MY lifestyle. And I bet most evryone else who posts on TOD can.
I can't control the reaction of others. I can't contol the reaction of the elected leaders and their attempts to take my prep efforts and call it 'hording' or 'not supporting the war effort' or taxing the property.
How do I defend myself from the increases in robbery as others try to take whatever to pay their expenses? What arguments can be used to make my concerns the conserns of the people who make the laws? What arguemtns don't result in blowblack?
An interesting comparison between the USA and the USSR.
http://energybulletin.net/23259.html
There won't BE wildelife and plantlife to hunt/gather. In addition to the issue of being shot as a tresspasser on a hunt/gather misson.....The 'forage off the land' will end up as a strip the land bear operation.
I can almost certainly guarantee that you will be dragged through the mud, anyway, should your opinnion become a matter of public discussion. That is just part of the game. Look... I agree with you on basically everything. What I am concerned about is that someone needs to take this to the next level. And sometimes, in politics, if you want to achieve A but you can't sell A, you have to sell B which hopefully solves part of problem A. And once people see that the solution to A did not cause an economic collapse, they might even be willing to listen to you about the real solution to A...
Just recently I heard a story from someone who spoke to one of the top managers of NASA's science program. He was young and outspoken scientist at the time and, being asked by this superior what he thought about NASA policy, he let off the usual frustration about the waste on the manned space program vs. the unmanned and much more succesful science program. And the old guy just smiled and said "But young man, you are aware that without the manned program none of us would be here?".
It is the same here... we are hearing politicians talk about oil as a matter of national security. Maybe that is the only way to sell peak oil to the US population. I wouldn't be surprised if that was the case. This does not make anything happening on TOD false... it just puts a spin on it that might have a higher chance of success.
My only serious arguement is that the latest news that KSA is cutting its export allocations in Asia supports his theory And my only real problem with the debate is that the short-term noise obscures the truth-I think we won't be able to decide where the real peak happened until a couple of years have passed after the event. It could be that the Saudi's are avoiding cutting oil supply in the US while cutting Asia in order to prop up the dollar since so many of their assets are in dollars, or it might even be part of their machinations to keep the US in Iraq to protect the Sunni's. We just won't know for a while.
Robert, for clarification, what is condensate and where does it come from?
Is condensate one type of liquid from Produced water?
thanks
oilcan
OK, I am offline for a while. I have to get some actual work done. If a pressing question comes in and doesn't get answered, I will check in later today.
Condensate is easier to pour than oil-higher gravity-and is in essence partially refined by nature. In the Panhandle Field up north of Amarillo, Texas they called these liquids "white gas" and used to steal it off leases to burn directly in old Model A's and trucks. Its worth a premium to light sweet crude.
His argument could be right. The point of this essay was to show that some of the evidence he used to support his argument falls down upon inspection.
The allocation news is certainly interesting. I have surveyed some people this morning and most people think they are just trying to boost prices. But allocating product is a good way to alienate customers. I think the piece of information that would shed some light on this particular question is the inventory level of the Asian market (where they are cutting their shipments). If inventory levels are high, this could be a preemptive move. If inventory levels are low, then allocating product points to something like production problems.
When you have been too long in the House of Mirrors and cannot find the exit.
a) all we have in the absence of data disproving this, and:
b) is probably correct, or fairly nearly so.
The acid test will come when oil is again above $70, or maybe above $75 possibly in about 12 months. If KSA then cannot get production back up to 2005 levels and keep it there, then the argument that they are voluntarily restricting production, or nobody wants the extra light sweet oil at that price, will not be credible. We will then, surely, be on plateau and be on course to drop off it in a couple of years. If by some means they do then WT will have been proved wrong and peak may be around 2010-12.
Which unfortunately does not help us in the short term, but at least is better than the notion that we can only know the timing of the peak and issue credible warnings about it 2-3 years after it passes, which is a sure recipe for disaster.
Stuart, as I have argued recently, unable to, or never called upon to? I have seen no evidence that they were actually called upon to increase production. They said that they would do so if needed, but if I am a refiner I take my chances with the SPR rather than buy from Saudi while prices are shooting upward. I also looked recently, and if I am not mistaken OPEC production during this time was stable.
Prices are not an external force set by Martians. The price of oil arises from the balance of supply offered and demand expressed, and if the price is high despite available spare capacity, it's because some suppliers will withhold oil from the market rather than see the price drop. In response, some demanders have had to curtail plans to take trips they otherwise would have taken (as is very clear in the US VMT statistics).
As to stocks being high - last time I checked on a days-of-supply basis they were not historically anomalous. And the market is probably (and rightly IMO) demanding inventories at the upper end of the range due to increased perception of geopolitical risks to supply.
Days of supply is a completely irrelevant measure when talking about full inventories. If the tanks are full, they are full. It doesn't matter if that's only 1 days worth of supply. If the tanks are full then you aren't taking deliveries if your refinery is down.
Here's the actual data. First is OECD stock levels (from Table 1.5 of the EIA IPM) divided by both global production and OECD demand (through Aug 2006). The upper curve (OECD stocks/OECD demand) is probably more relevant.
As you can see, both the last two summers, when prices have spiked up (from an already very high base) have been associated with higher stocks. However, "higher stocks" is not very much higher at all. If we plot the "days of supply" as the number of standard deviations from the mean over this Jan 01-Aug 06 period, we can see that these are in the upper tail, but not outlandish compared to past behavior.
So to me, this is the fear factor in the market (as I assume you'd agree).
How long does it take an oil company to order and build a new storage tank?
You can't imagine what a low priority item storage tanks are. It drives the guys at the refineries crazy, but the guys doling out the capital don't like spending money on tanks.
Three to five years are needed to get any significant storage capacity on line assuming that you have to start from scratch, that is it is not pre-permited.
- Find and aquire land and right of ways.
- Get necessary zoning changes
- Do design work
- Do environmental assesment
- Finalize permits
- Let bids
- Actual construction
- Testing and acceptance by regulating authority
If any glitches try eight or more yearsInteresting project, though. There's a lot of heavy oil at shallow depths thats never been produced, as well as on several other piercement domes. Its very sour-the biggest onshore sulphur dome was Boling-but its real heavy, around 10-12 gravity. There are a number of domes with oil like that here on the Texas Gulf Coast. Won't be much production compared to US useage, but at $40-50 bbl would probably make a good living. Anybody want to drill some 400ft. wells?
Second, we've got to get some maps, preferably with good well data Tobin Map out of San Antonio makes some, but the old Zingery maps are the best, but they were purchased and put out of business about 25 years ago so they wouldn't compete with BACA Landata. Maybe some can be purchased, I don't know. The Railroad Commission of Texas has excellent field maps, but they are mostly good only after 1940. The county Tax Apraisal maps are good and cheap.
Third, we need to get some professionals interested in the possibilities. I am seriously looking for a geologist with some time to gamble and a good engineer. This is low volume and long lived production. The only two geologists who might know something about this stuff that I know are old-one's 86 and the other about 75. Nobody has messed with shallow salt dome production in years. The last person I know to try to get this stuff developed was Bob Garwick, the 86 year old geologist in the late 1980's at Moss Bluff in Liberty County. I know he drilled a couple of wells there. He also had a prospect at Hockley in Harris County, but its probably under a subdivision by now. The Moss Bluff prospect is I'm sure unleased by now and might have a reentry
The next step is raise some money and take a few leases. I've got some sources for the money, and I'm a good landman I'm getting a nice inheritance this year, and I think shallow oil production is a sure thing money-maker.
Then we need a good engineer to complete and produce the wells. I don't know any, but somebody does. There are also some excellent contract operators. They operate wells for a fee, and I have a couple of contacts there.
The next to last step is write and print a prospectus and raise the money. I've a few contacts for the money, and I plan to do a little gambling myself.
The last step is drill the wells and complete them and sell the oil. I could elaborate for hours, but you get my drift. Its not difficult, just tedious, and a process thats been going on here in Texas since about 1890. And, its in all areas of the state, I just happen to be more familiar with the Gulf Coast than other areas. I'm pretty sure that's what Jeffrey Brown is doing, although in a different area with different types of prospects. My uncle, Charles Passel made a wonderful living for over 50 years in shallow Ft. Worth Basin wells as a geologist, but he's dead.
As an investor, my first question is why hasn't this been done before. Its a function of opportunity costs. Why drill a well for a couple of barrels a day, when with virtiually the same effort you could drill a well making a lot better production. There haven't been many guys interested in shallow prospects in the last 50 years, and much of the areas have been literally forgotten. But I think that crude is going to get so tight in supply in the US that most anything will get drilled and produced. The other main reason is overhead. I office at home, work as contract labor on other people's prospects and am willing to gamble my time and labor. I don't need a fancy office and lots of employees for my ego, so I can make money on small production.
I was squeezed out of the oil patch about 15 years ago, and have just been back for a year and a few months, but I listened to the old guys and have a long memory. I thought after the Club of Rome report that this kind of prospect is worth remembering.And, I've got a dozen ideas worth looking in to, Boling is by no means the best. I keep my best ideas tight, but I'd sure like to hook up with some other professionals with the same interests. At any rate, email or call.
If the oil companies own a huge chunk of the oil inventory, wouldn't they be motivated to keep as low an inventory as possible in order to get as high a price as possible for themselves?
Anecdotal evidence tells me something different as well. I have this friend (working for a supermajor) who was in charge of supplies to the Pacific Islands. According to him, his main objectives were to a)minimise the inventory holding on hand to reduce inventory holding costs while b)ensuring that a stock-out situation does not arise. Due to the lead time in getting a vessel with the appropriate kind of products to the islands, he would normally have to keep 45-60 days of inventory on hand.
RR is the expert on this though
You have touched on a subject that is a great source of interest and mystery to me, and one that I am surprised has not been more heavily discussed here at TOD.
For years, KSA and OPEC generally controlled the flow of oil to keep prices from getting to low, but they seemed almost equally concerned about prices becoming too high. Now, they have totally changed their tune, and think that $60+/bbl is just right. What happened?
I can think of a number of possibilities:
- They just got used to the higher income, got greedy, and can't give up the extra cash even though it is likely to hurt them in the long run; apparently they have forgotten what happened the last time prices spiked.
- They are desperately trying to maintain production without letting the world know how hard they are working to do so. At that point, they want to destroy some demand, in order to rest their fields.
- They have realized that oil has entered the endgame phase, and are going to sell their remaining resources as slowly as possible, in order to maximize both value and timeframe of this income.
- They realize #3, and they are altruistically trying to help the world prepare for peak oil by jacking prices up before the geologic peak hits.
OK, I don't believe #4 either. But beyond that, it's a real mystery to me. Maybe there are specific political factors that have changed the equation. Maybe it's greed.Does any one of you gurus want to take a shot at this? It seems like a subject worth exploring in an article of its own, but I do not have the knowledge to even begin to do so effectively.
2)
And re #3, 'slowly as possible' might be a bit out of their control. 'As slowly as maintains the peace' might be more correct.
Happy days are here again! So, no reason to allow prices to hold under 60, maybe even 70 is ok now. I think they will pick some price but index it for dollar deflation against the euro (price in dollars with a constant euro equivalent.)
So, OPEC is reborn, as tod would like, cutting production and reducing gw. The question is, is this their last hurrah? And, how long will this round of cuts last before demand once again climbs past their ability to produce?
The blue line (right scale) is US ending month stocks of crude oil and petroleum products (exclusive of the SPR) divided by US consumption of crude oil and petroleum products that month. That axis is not zero scaled to better show changes (it runs from 40 to 60 days of supply).
The pink curve (left scale) is spot price.
As you can see, there is nothing anomalous about US stock levels on a days of supply basis. They are higher than in 03 and 04, but not as high as late 01 and early 02. So US commercial stocks are actually less high relative to their historical level than OECD stocks as a whole.
This whole "stocks are much higher than their average band" is, as far as I can see, a complete distortion perpetrated by the EIA because they are failing to divide by the obvious scaling factor in the situation (throughput of oil to the economy has hitherto generally increased year after year, with rare exceptions, and so we would expect, other things being equal, that stock volumes would need to grow in line with that.
- When stocks rose to the present level end 01, and remained there for several months (perhaps on account of the dotcom recession), prices fell maybe 40%. When stocks rose this high in sep, prices ultimately dropped 25% (this would be more visible if chart was log scaled and if prices were extended to today. Also, would have liked to enlarge the chart).
- I am continuously reminded that the market knows more than we do. Your chart is as of Sep, the market reflects refiner buys as of today. Considering that oil continued to fall, and has only reluctantly stabilized on account of opec cuts plus threats of more to come, one might infer that either stocks have statyed high, or perhaps climbed higher. For example, in feb stocks were nearly as high, drawing price down to the bottom of the band, but stocks immediately fell, encouraging price to resume its climb.
- From end 03 stocks climbed fairly continuously, possibly on account of high futures.
- It may be, as you suggest, that the days coverage is just keeping pace with increased use. BUt, have refiners increased storage capacity in line with the incrase in processing capacity? And, even if they have, perhaps 56 days is the point at which every tank is full, in which case refiners would have to refuse delivery and stop buying, regardless of how much higher futures have gone. Consider... if this is so, they would be enthusiastic buyers as long as futures are higher, but suddenly coming to a full stop when the last tank is full, increasing volatility. In this case, climbing stocks will not result in lower price, as was true in the past, until the tank is full, explaining the concordant rise of both price and stocks from end 03 to sep.
- Regardless of future prices, stocks were able to climb only because excess product was available to buy and store. Production and consumption are fairly stable, but the excess liquids had to come from somewhere, imo it is surging ethanol production. Much maligned at tod, the subsidy costs the us around $20/b or maybe $40M/d at current production. BUt, in addition to directly displacing 2Mb/d imports (gross), at maybe $120M/d, there is a case that this production has dropped the world price of oil from 78/b to 62/b, saving the us alone some $200M/d. OPEC's fall in revenue is around twice this and they are hardly amused, furiously meeting to cut production to shore up prices. Even if they are successful they will probably not jack up prices to where they were and, in any event, their revenues look to be down for some time. Accordingly, one might say that ethanol is one of the substitutues that economists predicted the hidden hand (itself visibly helped by farm subsidies) would produce in response to higher prices. How about a thread that looks at ethanol's role in
reducing pricesreducing US energy costs
rducing US BOP deficit
reducing OPEC production
gw
while ignoring, for the moment, eroei, scaleability, peak ng, etc.
6. I wonder if high ethanol production in late summer/early fall is seasonal, resulting from harvesting the corn? It can't be stored for long, right? Maybe supplies will decline until the next crop comes in?
But as I have argued, "days of supply" is pretty meaningless unless sufficient tankage has been installed. If not, days of supply could be down to 10, and yet inventories could still be full. It is not days of supply that anyone buying or selling crude is primarily worried about; they want to know "where can I put it?" And I can promise you tankage is a low priority expenditure.
When investment banks start buying up physical commodities, it's a sure sign of a commodity bubble.
How many barrels could you store in a warehouse? I doubt that it's anything significant.
I haven't been able to get any figures on how much physical oil was/is stored by financial institutions. It would be a very interesting number to track over the last few years.
Yeah, but why would oil companies want to maintain production levels and also incur the expense of storage, instead of simply cutting back production? I think cutting back production is the optimal decision for them, and has the same effect as arbitrage.
Oil companies have different business models to financial institutions, so I would expect them to make different operational decisions.
Building tanks is a pain. You have to do a lot of environmental footwork, get your permits done, etc. It takes a while. It's not that we are unable to expand storage capacity, it is just viewed as a low-priority item. The powers that be just say "Aw, you can get by with what you've got."
You have also not explained why, if storage capacity is the problem, crude prices are not at $22-$28 while storage rents are through the roof.
Stuart, I am just telling you what I know to be fact. Firsthand. I think sometimes you put a bit too much faith in price as an accurate indicator of what's what. Price doesn't tell you everything. Sometimes it lies. Often it is driven by psychology. In the case of oil, excess capacity has shrunk quite a bit. Why wouldn't this cause prices to rise? And how much should the price of oil be?
your graph looks far more volatile than I would have expected looking at how storage levels have changed over the past 3 years. See the link below.
http://www.energyeconomist.com/a6257783p/wpsr/graphs/WTESTUS1.gif
Inventories, short-term, influence price. Inventories, long-term, are a hedge against supply disruptions. In this regard, they matter not at all since 30 to 40 days of supply is nothing. Building up inventories only reflects greater insecurity but does little to alleviate it in any situation we might care about.
Getting to the point, Robert's argument (below) that Saudi Arabia was not "called on" to increase its exports holds no water. This is prima facie evidence that they can not do so, which I thought was common knowledge. They (and OPEC generally) can only cut production to prop up prices.
Having written extensively about the supply, demand & the oil price, I will say that, when history is written about this period, no one will have anything to say about inventories.
I find each and every post here about inventories, even my own, completely irrelevant to the peak oil problem. Some people say if we're at peak, inventories should be low. In fact, high inventories could easily indicate the opposite.
Sorry about the mistake.
Next time I hear one of you people talking about inventories, I shall remember to think about time scales that matter and time scales that don't. I hope you all see what I mean, here.
The first quarter inventory picture, though, supports the point the Saudis were making. Inventories were going up even though they had cut production. That does in fact tell you something.
I said: think about time scales that matter and time scales that don't. This peak oil problem has nothing to do with these ephemeral events in the oil markets, nothing at all.
I meant what I said: these meaningless fluctuations tell us nothing of interest in the bigger picture.
Well, here's what it tells me. When they said they were cutting production due to lack of buyers, they were probably telling the truth. The inventory data back them up, because they told that story as inventories were rising.
Now, if you are not one of those who said that they were lying when they claimed this is why they cut production, then perhaps this information is meaningless to you.
But the peak oil problem has everything to do with the Saudis, so I am very interested in figuring out if they are prone to lying, or if their statements are supported.
What if refineries were down 5% (seasonal maintaince and what no) and SA production was down 2% (PO).
Now in that case wouldn't inventories rise even if SA had peaked?
I'm not saying this happened, but just that you can't draw you conclusion as the only one.
Then imports wouldn't have returned to normal as soon as the refineries came back up. That's what a lot of you are missing. You are looking at one piece of a graph and drawing conclusions. Look at the rest of the graph and tell me how that fits your scenario. I know a number of others have tried to do that - find an explanation for the downslope while completely ignoring the fact that imports interestingly enough returned to normal as refinery utilization did.
/Please accept my apologies if you already explained this and I just missed it.
I distinctly remember it being pointed out in the past that the post Katrina imports were mainly refined products (gasoline etc) and not crude. Therefore you cannot directly link Katrina to the increase in imports in 2005.
I know this because I read the reply to your post where you said the above.
Also imports are down for the same period 05 and 06, this has nothing to do with seasonal cycles.
I can't wait till Prof Goose gets that troll button setup.
That should read
Therefore you cannot directly link Katrina to the increase in crude imports in 2005.
This discussion clearly shows that crude imports are not down, and only refined products are, for the reasons mentioned above. If that is a troll comment then god help all of us. I for one am thankful that Prof. Goose isn't one to act like a child and wouldn't implement a TOD wide popularity contest.
How is that for transparency, Rethin?
I'm not talking about WT. I was commenting on what RR said.
Go back and read the thread.
RR:The first quarter inventory picture, though, supports the point the Saudis were making. Inventories were going up even though they had cut production. That does in fact tell you something.
RR:Well, here's what it tells me. When they said they were cutting production due to lack of buyers, they were probably telling the truth. The inventory data back them up, because they told that story as inventories were rising.
Me:What if refineries were down 5% (seasonal maintaince and what no) and SA production was down 2% (PO). Now in that case wouldn't inventories rise even if SA had peaked?
RR: Then imports wouldn't have returned to normal as soon as the refineries came back up.
ME: But I thought imports were down?
From RR's article:
http://tonto.eia.doe.gov/dnav/pet/hist/wttntus2w.htm
Imports are down Nov 06 vs Nov 05. They are also down compared to Nov 04 (no hurricanes then).
I called you a troll because your comments were
I'm not debating RR, I'm trying to learn. I am asking him questions to increase my understanding of the issues.
RR is incredibly patient and has taken the time to answer me.
Thank You RR
Other people educated you as to why you Katrina import theory is inaccurate, not me.
I don't have to be a genius to see your post is a non-sequitor.
My underlying assumptions were correct, the wording was not.
What if refineries were down 5% (seasonal maintaince and what no) and SA production was down 2% (PO).
And since I was talking about Crude imports and stocks why would you be posting about refined products even after it was pointed out to you?
And even if it included refined products, acording to RR's link you'd still be wrong since Nov 06 imports were down vs Nov 05 (hurricanes) and Nov 04 (no hurricanes).
BTW, telling you something you don't want to hear is not "twisting the facts".
Perhaps its you who doesn't want to be told something aside from the usual doom and gloom.
Imports are down because refinery capacity is down several % from its usual average for this year. As RR stated, when the refineries are down, they aren't going to import oil. If the maintained the same % as before, we wouldn't be down. The entire years data to this point shows that our crude inventory is much higher than normal, and our refinery % is down below normal, leading to lower gasoline inventories but higher crude stocks.
WT on the other hand has stated repeatedly that net refined petroleum products are down, just as his ELM projected, but he fails to take into account Katrina and Rita.
Yes, imports were down because refiner utilization was down. But didn't it rise again to the low 90% in Nov? So why are imports still down? This is my question. Couldn't SA production have been dropping when utilization was low and thus masking the drop?
I am wondering if RR's correct that demand dropped but WT is also correct and that drop in demand is hiding a drop in production.
Down thread someone notes we will find out when demand rises this summer. And RR agrees.
You come charging in to the thread posting crap that has nothing to do with the question I asked RR. What was the point other than to muddy the discussion/spark an argument? Ie trolling.
I'm not comparing apples to oranges. I'm talking about apples, and you bring up oranges.
How can I be twisting facts to support my position when I have no position?
Why do I continue to respond to you?
But its not what RR implied in the post I was responding to.
RR:Then imports wouldn't have returned to normal as soon as the refineries came back up.
I read that as imports have already returned to normal. Hence my question to him
Me: But I thought imports were down?
Which they are in the data he linked to in his article.
Your reply was at best a non sequitor. What was the point in posting it? Especially since other more knowledgeable posters have pointed out it is inaccurate.
Don't you see?
Go re-read what he commented on.
Try thinking outside the box.
If you still don't understand, I'm sure he would be more then willing to point out what your missing.
I am truly humbled.
No, Dave, they have been criticized for not increasing production as promised after the hurricane. What they said was that they would help if needed. If nobody actually asked them for more crude, then you can't turn around and criticize them for not delivering. If we had said "By all means, we need more crude" and they didn't produce more, then there is a legitimate argument. Total OPEC production did in fact come up in the month following the hurricane.
So, you believe that, Robert?
Why would Katrina be different? For the first time we just forgot to ask SA for the oil? For the first time the SPR was more desirable?
RR, it doesn't pass the sniff test.
In other words, you, like everyone else who has brought it up, have no actual evidence that any of their customers asked for more crude and didn't get it? You are just jumping to a conclusion based on your preconceived notions. I don't know if they could or they couldn't. In fact, none of us do unless someone can show that Saudi turned down a request. Simple as that.
Sure its possible the US just forgot to ask SA for Oil this time around. But with the all the other evidence you've seen do you really believe that?
But yeah, its not proof beyond a reasonable doubt. But that's not the point I was making either.
Bingo !
But that's just another way to define demand destruction.
So to determine if we are at peak we need to do only two things.
Show obvious demand destruction at current prices.
Show that their is a good chance that supply will not increased significantly and indeed may have or will peak shortly.
Stuart, I understand how markets work. But the Saudis don't sell on the spot market. They have customers. Unless a customer requests more oil, or the U.S. requests oil from them to refill the SPR, then they aren't going to increase production.
I will point out that nobody has yet demonstrated that more oil was requested from them and that they didn't fulfill the request.
I guess I am not following the point you are trying to make. Could they have gone against the market after Katrina, lowered prices, and sold more oil? Well, sure, but that would have been an insane business move. And they never said they would do anything like that. They want market prices for their product, just like everyone else. But what they said is "If you need it, we've got it."
So unless someone can point to a case where someone had their request for product denied, then there is no case that they couldn't have produced more following the hurricane. That's the key here. Folks are looking at what they did, and saying they couldn't raise production when it was needed. That's an inappropriate conclusion based on the available data.
However, "And they never said they would do anything like that" I disagree with. In the past, they have explicitly said that they are the producer of last resort, that they maintain spare capacity in order to be able to stabilize prices in the event of an emergency. Not only have they said it, but they have done it (in the late 1970s and again during the first Gulf War). So, if they are acting entirely out of "us-first, jack the price as high as it will go" thinking, that is a new thing. Therefore, it is in need of explanation.
Overall, I think there are two possibilities that are hard to distinguish. Either they cannot raise production, or they could, but they haven't because they wanted to let prices rise. The rig counts tend to tip the balance of the evidence towards the "can't" explanation but I agree it's not conclusive at this point - more time will be needed before we can be sure that it isn't just due to delays in new production from all those rigs coming on stream.
I don't think there is any question that they have changed their attitude about pricing. At one time they were content to keep prices at $25. I think what's happened is that prices rose, and the economy was able to absorb the price rise. Hence, $60 became an acceptable floor that wouldn't destroy the economy. I know people personally who have gone through the same evolution of thinking.
But that is not what happened. It was the Saudis who told the Asians that they (the Saudis) can't fulfill their contractual obligation. In my opinion this - coupled with that fact that the price is close to nominal all time high - is clear evidence that the Saudis are unable to increase production.
In other words, they have probably peaked. And if Saudi Arabia has peaked, the world has peaked.
Suyog
I agree that this is the way it should work. But I think the Saudis are trying to tighten up the market to keep supply tight. Look at this article this morning from Iran on the same topic:
The fact that the Saudis can't meet their contractual obligation to Asian refinaries is a clear and unequivocal sign that the production decline is not voluntary.
Suyog
You are jumping to conclusions. First, allocation is written into contracts, so they are meeting their contractual obligations. Second, there are reasons for allocating other than you "can't" meet the demand. I have firsthand experience with some instances of this.
So, while the allocation issue is certainly something to keep an eye on, you can't concluded "can't" where you have chosen to. The vast majority of allocations are temporary, and this one may very well be driven by concerns about oversupply. The statements from other OPEC members tend to indicate that they all think the market is oversupplied.
The point is that if the Saudis had had the light sweet available to make up the shortfalls, they would have sold it on the market. But, they did not.
Could it be (he asked, speculatively) that the European oil/refined product imports here into the U.S. were a more reliable, easily-refined source than what Saudi Arabia could offer at that time and even now -- which was/is basically Spam in a Can?
Robert, it is high-time for you to show some skepticism toward what the Saudis say, on the one hand, and what they do, on the other. While I am not necessarily in the Jeffrey Brown camp about 50% QT and all that stuff, with Ghawar at peak, etc. -- I will say this: the KSA track record over the last year raises many doubts about whether what they say has any proximity to the truth. They put Haradh on-stream (300 mbd) but all I've seen since is production declines. Doesn't this create some doubt in your mind about what is going on there?
-- best (going to bed) -- Dave
It wasn't actually at that time. He made the statements about heavy crude in late spring.
Doesn't this create some doubt in your mind about what is going on there?
Of course it does, and if they were here I would be all over them with questions. My skepticism doesn't just run one-way. But they aren't here for me to question right now. What I can do is take their statements and see if I can find things that actually don't add up. That was my whole purpose of looking into what was going on with inventories when they said they couldn't find buyers. If inventories had been falling when they were saying that, their statements would have been much more questionable.
were loading terminals. Saudi crude would not arrive soon
enough to keep the refineries operating.
"unless something is in our refinery in a week or so, we're starved."
http://www.businessweek.com/bwdaily/dnflash/aug2005/nf20050831_0413.htm
(First post, I'm nervous, great debate folks, and TOD rocks).
Welcome, and thxs for the link to help refresh our memories. Don't be nervous, just realize that top-notch debate is hard work, and TOD ruthlessly works the data very hard and from every perspective. Just imagine what we could do if Simmons's data transparency wish came true.
Yep, TOD rocks: must be the beating on those empty oil drums that is drawing the crowds. So, welcome newbie TODer, grab your steel drum and start banging away with the rest of us. =)
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Now that all is well, the exports are back down to status quo. Y'all are chasing the wrong rabbit...
We are doing fairly Ok at $60 per barrel, at least in western Europe and USA, even if some countries in Africa are struggling. When our economies start to creak under higher prices, there would be strong public pressure for governments to lean on the Saudi's to increase production if they then tried to say they were holding back. Then they would - presumably - either have to up production or come clean on their inability to do so.
The tax income could be invested in a more efficient fleet. I believe the US consumes some 380 million gallons of gas a day. So that makes for $140 billion annual tax income for every $/gallon of tax. That would be enough money to pay for no less than 6 million new Prius per year... and certainly enough to give very substantial tax subsidies for basically all new vehicle purchases. Such a consumption tax would allow Americans to replace their whole fleet within a decade and at the same time collapse the oild market. Not a bad idea, indeed. Certainly one that would almost pay for itself.
Sometimes the analogous case is simply a new iteration of the same case. Or call it a new example of a general case.
I can't make the call for which animal we're looking at here.
On this page the weak analogy is often argued. Then the same poster will put HL plots at the level of Laws.
It's disorienting.
I've personally become tired of the debating as to exactly when a peak in oil production will occur. It is an empty exercise that we all know will have little to no impact on the effectiveness of our response (or lack thereof) to the problem. It does however, seem to serve the needs of many an ego that feels it necessary to confirm their superiority via intellectual sparring over the minutiae of an overwhelmingly large problem.
It has been stated numerous times on this site and elsewhere that energy industry metrics are inherently flawed and opaque. I'm also a subscriber to the idea that such opacity serves the varying agendas of varying segments of human society. I applaud your suggestion for more transparent metric but somehow it reminds me of the represenation of "image enhancement techniques" used in movies. A digital picture is zoomed into a mess of pixels. These mysterious blocks of colour are run through some supergenius' algorithm and reveal perviously unseen pixels within unseen pixels exposing the killer/perpetrator/hero/detail vital to the plot. You can't enhance what isn't there - that's called drawing.
Short of establishing a group to rival Petroleum Intelligence wouldn't reinterpretation of opaque, skewed and inconsistent "Total Liquids" data simply be the statistical equivalent? A very difficult attempt to seperate signal from noise and reinterpret bad data to try and get good data?
I personally think that our metrics were defined before there were any positions on peak oil, and most of the experts didn't even know the questions we would be asking of the data. It would be more useful to use Roberts proposal.
I doubt we could get all of the worlds oil analystist to agree, and,change how the datum were gathered. Inertia is a heavy topic (yes, the pun is intentional, you humorless SOB's).
Thanks.
Once a grave insult, it has lost much of it's sting (although NOT a compliment).
Alan, your friendly acronym techer :-)
It's an acronym for a curse meaning "Son of a Bitch" and often used playfully in some English dialects amongst friends when they are trying to lighten the mood.
It can also be, like most curses, used in a very angry and provocational tone.
Side note, Explaining English sayings is such a pain. I always get blank stares when I try to interpret some things to my Indian, Vietnamese and Chinese co-workers.
Thx in all cases.
I of course mean it in a playfull sense. For some reason jokes don't work very well on blogs, people seem to always be misunderstanding them, so I try to label mine. It messes with the timing, and detracts from the humor somewhat, but I try to inject a little levity into our conversations because too much seriousness tends to put people off. Where are you from? I am really glad we get perspectives from all over the planet!
- Has almost as gold as the United States
- Let women vote in federal elections only in the 1970s
- Yet claims to be one of the oldest democracies in the world
- Can exist, if it has to, on almost no oil
- Is spending, if one adjusts for population, the equilavent of the US spending $1 trillion on improving their railroads
- Requires middle aged men to keep an assault rifle in their home, yet has few murders
- Manages to coexist peacefully with 3.5 languages and two religons
- That does not like Austrians (who does) :-)
Best Hopes,Alan
No wonder I'm onry and opinionated-its in my genes! Its why they keep me segregated in Texas!
In fact, i come from the french-speaking part of the CH, Geneva.
Alan, i'will respond u tonight on the house kept guns and the fact that democracy in CH is the best (maybe not the oldest though) in the world..
One word to oilmanbob. I think that if your ancestors emigrated, it's because the catholic people around in Switzerland were intolerant, so who's the most intolerant in final?
Then: I am for the guns kept in house, although i was being dismissed from the compulsory military duty, because it prevent a coup (is this word right??).
As you said, our crime rate is not as high as yours, so as long as this situation carry on, we should stay with this tradition. There's voice, however, that want a change..
About démocracy: we've got 2 tools that i think u (and the whole world) would envy: the initiative and the referendum.
With the first, if u collect a total of 100'000 signings, your proposition to modify the FEDERAL CONSTITUTION is submited to the WHOLE swiss citizenship. (our constitution is change fast each year).
With the second, if the federal parlement adopt a law, with 50'000 signings, you can make the swiss citizen to vote on.
The same tools exists in the States level.
And we all know that the oldest democracy is England..! (Or is it the Ancient Greeks??)
Cheers.
I think this and the point about pee-review are very important points. Much of what is posted on TOD is based on pre-concevied notions and frank emotionalism. Very few posters have the knowledge base and motivation to do true data analysis as Robert has done here. I try never to post an opinion about oil production, peak date, etc. bc/ I don't have the knowledge or expertise to do so, and all but a few of us here would be best to leave this type of analysis to those that do.
I have pointed out before the importance of accurate data with a classic medical case-in-point. Hormone replacement therapy for middle aged women was recommended for decades as a means to prevent heart attacks. Studies of hundreds of women, and then even thousands of women seemed to support that. Not until a study of over 17000 women was conducted over many years did we have the true answer- hormone replacement therapy was killing women! There is admittedly some gray area in defining whether a woman had a heart attack or not, but it is far, far less than our measurements of KSA's production and reserves. One of Matthew Simmon's big complaints about oil production is the lack of reliable data and transparency. It's hard to make predictions without reliable data.
Alan
Of course, KSA has reliable data and if the very public appearance of W and Crown Prince Abdullah holding hands is any indication, it would seem that Washington is getting accurate data on KSA production directly from the camel's mouth, as it were.
If we can infer KSA's probable state of production decline from actions taken by the Bush administration, then the supposition of an imminent decline is given further support.
By actions, I am referring to the timing of the invasion of Iraq and the behind the scenes preparation for civil unrest: Patriot Acts, Military Commissions Act suspending habeaus corpus, John Warner Defense Act of 2007 (followed by NorthCom excercises pairing military and local law enforcement), increasingly stricter travel regulations for border travel and overseas travel, etc.
The contrarian argument might be that while Bush et al are, in fact, getting accurate data from KSA, the unusual precautions taken by Washington are only steps taken in preparation for eventualities perhaps 20 years down the road. However, this is typically not how things have been done in the past. Katrina is a perfect example of the general lack of initiative to prepare for future hazards well in advance.
Scientifically speaking, patterns of behavior are not as tangible as hard data on production, but, nonetheless, when they are consistent we can use that information to bolster a point of view.
Sure you can mitigate the problem to a degree by producing liquid fuels from other sources (CTL, BTL, GTL, shale, tar sands, etc) we can mitigate the problem even more easily simply by increasing efficiency and by replacing the demand for liquid fuels with electricity (tip of the hat to Allan).
Just set all mitigation strategies aside and note that C+C is peaking. If we could just get the general public to accept the near term peak of C+C that would be a huge shift in public perception all by itself. The general public still thinks we can drill our way to energy independance if only we opened up more areas to drilling.
Since the affordability of crude and condensate is a heck of a lot better than any proposed substitutes, then its a lot more relevant to the economics. But I sure wouldn't try to explain that to Joe and Jane. Their eyes are going to glaze over and they'll dismiss you as a nerdy wonk, probably with good cause. EROEI is a wonderfull tool, the problem is that its boring and incomprehensible. So the way to talk to them is "The earth's running out of oil someday soon, and , or whats left is going to cost you more" or Arianna Huffingtons arguement that "every gallon of gasoline you buy puts anothe dollar in the hands of terrorists." In other words, people respond better to fear. I know, its shitty and manipulative and not very "scientific", but its also true
This discussion between you and Westexas is very educational...this is why I frequent The Oil Drum. I do have a couple of comments from my perspective as a scientist. You stated:
More important than seeing predictions fulfilled is an understanding of the mechanism by which they are fulfilled. A prediction can be fulfilled, and yet the underlying mechanism could be in error.
While I agree with this in principle, I also acknowledge that one test of a hypothesis is whether it accurately predicts future events. If the Export Land model failed to predict future events it could be rejected as false or needing revision. My training as a geologist included T. C. Chamberlin's notion of "multiple working hypotheses" which contends that many simultaneously considered hypotheses prevent elevating a favored or "ruling" hypothesis. A link to this: http://www.gly.uga.edu/railsback/railsback_chamberlin.html
Using this approach has saved me a good deal of fieldwork over the years by forcing me to observe rather than interpret what I see in outcrop.
Also:
correlation coefficient for imports and refinery utilization over the past year was 0.72.
As a veteran of misusing statistics, I always worry about correlation coefficients...high correlation coefficients are not necessarily causal. My age and the price of gasoline correlate quite well over certain periods, but my getting older, while regrettable, obviously did not cause gasoline prices to rise.
Thank you both for your hard work and dedication to enlightened discussion.
Hi
Which class, and where?
~Mike
The missing factor here, though, is not just the correlation. It is that I explained why there was a correlation before I ever even did the statistical analysis. The "why" has been pretty obvious to me. The correlation just says "how much."
How about this? Oil refineries that are down will not be purchasing crude oil, especially when inventories are full.
Feel free to refute the logic that went along with the correlation. I not only correlated, I explained the causation before I ever did so. I have been arguing this point since last spring. If anyone has a rebuttal, now would be the proper time to pull it out.
The oil refinery percent utilization levels are still significantly below average:
Do you know why? is it still a Katrina/Rita effect?
I suspect that adding support for increasingly heavy/sour oil is a factor.
2000 2001 2002 2003 2004 2005
16595 16785 16757 16894 17125 17335
in thousand barrels daily
Change
2005 over
2004
1.2%
For throughputs the story is a bit different
2000 2001 2002 2003 2004 2005
15067 15128 14947 15304 15475 15204
Change
2005 over
2004
-1.8%
again in thousand barrels daily
The capacity baseline in the past 12 months has increased slightly, from 17.129 million bpd to 17.390 million bpd. Actually refinery inputs are almost the same as they were this time last year.
More rigs = more production.
HIgher prices = higher sales.
Hypothetical case: I produce 1mbpd of oil and you purchase my 1mbpd. Now your refineries undergo maintenance reducing total refinery capacity by 5% just as my production drops by 2%. You don't even notice my production decline. You can't notice it because you are not buying the full 1mbpd any longer. You can only notice it if/when you get back to prior refinery levels if I cannot supply you with that same amount of raw material.
Now, what makes this worse is that the real world is not served by a single producer. Instead there are lots of producers. So KSA can start declining and if the decline is slow at first, you don't notice, and don't even really care because you can meet needs by buying from someone else, thus masking KSA's decline.
In other words, you are trying to make a causal assertion when I can demonstrate an equal scenario that answers the same situation with decline. All you've done is bounded the decline problem, not eliminated it. So for now we know total world decline has not exceeded seasonal fluctuations. And since we've just completed one full year since the 12/05 possible peak, it's going to be very hard to see that peak. As I've said before - go back and plot US production from a period around 1966-1975. Look at the peak years and look at the noise. It was not at all clear from the data that we were at peak, but nonetheless we were. Furthermore, as the EIA data shows, we have an exploding "other liquids" production that is also masking the total C&C production situation.
In my opinion, your position does not refute the notion of a near term peak. It does indicate that the early part of KSA's downslope will be very much as Stuart previously discussed - slow and gradual if this is the downslope. But you do not disprove the near term peak with what you've posted thus far.
Interesting, and taking your analysis a step further - if I import less due to maintenance but still import more than I use, total imports decline but inventories increase all while your production declines unnoticed. In such a case, peak oil could first appear as demand destruction without higher prices.
Yet inventories rose during this time, indicating the market was adequately supplied. Also, and perhaps more importantly, note what happened when the refineries came back up. The correlation isn't just on the downslope.
What you have said does not disprove peak.
If that's your perception of what I was trying to do, then you haven't read carefully enough.
In other words, you are trying to make a causal assertion when I can demonstrate an equal scenario that answers the same situation with decline.
But of course you did no such thing. Your hypothetical falls apart on several points. First, inventories rose during this time. And second, imports came back up and even exceeded the previous levels when the refineries came back up.
Please try again. Or admit that the refinery utilization argument explains the behavior of imports for the entire year (not just on the downslope).
OK, MBA textbook.
Most changes (by total volume) in refinery utilization (not all) are due to scheduled maintenance. Scheduled maintenance has a definite start date and a firm goal date for completion and re-start.
MBA solution is to stop crude deliveries BEFORE shutdown and draw on-site inventories down to a minimum at shut down date. Several days before scheduled start-up one or more tanker loads/barge loads etc. of crude would be scheduled and more to rebuild inventories around start-up date.
OTOH, finished product inventories are built up before maintenance and sold off during downtime.
This minimizies carrying costs of inventory and keeps sales inventories high enough to bridge gap in production.
Please note that the drop in crude imports should pre-date drops in refinery utilization, not be co-related to them.
My quite limited knowledge of industry practices would suggest that about a 30 day crude inventory should be worked down before maintenance, and this drawdown would be spread over 45 to 60 days. OTOH, there should be a large spike in crude imports just about the time that refinery utilization increases.
Given that there is a week plus delay between deliveries at LOOP and refinery gate delivery, this further offsets crude imports-refinery utilization corelation.
So I see your refinery utilization to crude import co-relation as being "better than ideal". Random luck ?
Is there another industry practice, and why if there is one ?
Best Hopes,
Alan
So far, so good.
This minimizies carrying costs of inventory and keeps sales inventories high enough to bridge gap in production.
Still OK.
Please note that the drop in crude imports should pre-date drops in refinery utilization, not be co-related to them.
Note the time-offset in the graph. If you corrected for known utilization cuts (maintenance) as well as unplanned (demand is down) you would have an even higher correlation.
So I see your refinery utilization to crude import co-relation as being "better than ideal". Random luck ?
Not sure what you mean by that. In fact, I would invite anyone to track this issue back for 20 years, and you will still find a very high correlation between utilization and imports. The logic is simple. We import most of our oil. Refineries that are down won't need as much oil. Imports will have to drop when refineries are down, or we will fill up the inventories.
So I see your refinery utilization to crude import co-relation as being "better than ideal". Random luck ?
rate really bites us.
My question is: instead of arguing for a discrete peak of "x bpd," at a distinct
date, shouldn't the argument to the press (and public) be: peak is temporally
indistinct, likely last years, and for all practical purposes, we have arrived?
Although I am primarily focused on mitigation and adaptation at present, I do
appreciate this debate, and both authors, very much.
That noise is all of the other world events that are taking place now and in the relevant future. The noise in this case is predominantly above ground.
There are far more people studying geopolitical events and economic events than peak oil, and the data they have to work with is extremely noisy. But in analyzing the actual noise enough of a pattern is emerging from the noise to cause credible people to fear a looming recession or even a severe economic collapse (sort of the powerdown versus collapse debate).
Even the "political speech" of good times is a form of noise from which a pattern can be derived. The more political speech per unit time, the more doublespeak and spin, the greater the information, although the information and the message are not the same. I tended to view CERA's pronouncements as political speech without the background to make a scientific judgement. It just seemed to fit the mold, but that is a political judgement.
Even though oil economics is a key contributor to what may become an economic collapse, actual peak oil need not be the cause of the collapse. If that is the case, the actual peak may be very difficult to pinpoint in some future past.
If there is in fact a collapse, and depending on the severity and length of the collapse, it might just be possible for a sobered world to get back to a pre-collapse production level, but the world may have moved on and never want or need to use oil to such a degree again.
In the meantime, I pour over the excellent charts and graphs available here and elsewhere in the oil industry. It would be our very good fortune if, someday in the future, we get a strong, clear signal of peak oil.
The strong, clear signal will probably come from KSA production (and all eyes
are on them now). Khebab's linearization below, with their recent production declines, and apparent water cut of over 50% in Ghawar makes me think that
skeptics like Simmons, Jeffrey Brown, and others are spot on.
Effective communication to the public (especially through the myopic mainstream media) is a huge problem, and obfuscations like CERA's are
horrible. I understand the trepidation of crying wolf, and being dismissed, but
changing the terms of debate - focussing less on the specific maximum. That seemed to be the real value of Hirsch et. al.'s report - that if P.O. is now, in three years, or ten - it is already time for a crash mitigation program.
I can understand KSA announcing a cut to China. China is in the process of filling their SPR, which is exactly what KSA says they are trying to mitigate.
But the co-announcement that they are ready to increase production to 12.5mbd would be redundant if the industry is completely confident in their ability to do so. The more KSA tells us they can dramatically increase production without actually doing so, the more it smells like propaganda.
There is an interesting undercurrent to the KSA allocation cut to China. China is using a merchantilist approach to energy security, trying to lock up long term delivery contracts for oil in much the way LNG has been secured by other nations.
China's approach leaves it vulnerable to targeted cuts, just as the US was in the '70s. The cut could be a not so subtle message to China to move to the open market, the same open market that the US would like (absolutely needs) LNG to move to.
The cut announcement looks innocent enough on its face, but there may be a lot of agendas and a lot of actors involved. That also means that it could be completely irrelevant to below ground issues.
I see Jeffrey (Westexas) as operating under a looser standard of proof and you, Robert, as demanding a stricter standard.
If one is in a threatening situation, the weaker standard applies towards precautions. "I smell smoke, lets leave the house and call 911 from our cell phone outside" only to find out that some toast had been burned by the neighbor.
If one is 99% sure, does one sound the alarm ? Of course !
95% ? Sure
80% ? {pause} Yeah
50% ? Maybe
20% ? I dunno
IM V HO, we will not know Peak Oil when it happens with even 80% surety. 50% will be a stretch. Your standard of proof will likely not be meet until at least 12 to 18 months post-Peak Oil. A poor time to sound the alarm !
Again, IM V HO, the risks, and consequences, of a late alarm outweigh the risks of a premature alarm. My judgment call.
Jeffrey is in a profession that has a unique requirement for acting upon poor information with a high degree of failure (independent geologist). His alarm now follows that same pattern. EVEN IF HE IS WRONG the consequences of a premature (not false) alarm are less serious than a late alarm, which your standard of proof seems to require.
IM V HO, A false alarm called 3 years before true Peak Oil/All Net Liquids/Exports (multiple peaks likely clustered together) will introduce the meme and start people thinking about alternatives/making adjustments. The damage to crediability will be small compared to the irrelavance of an alarm sounded 18 months post-Peak, when the effects will be obvious.
A tough call !
Best Hopes,
Alan
If CERA is right...
Why are we converting bitumen to oil?
Or, getting our shorts in a bundle when the Chinese sign another delivery contract in Venezuela?
Or, watching bankers speculating in oil futures?
Or, reading about the latest nationalization scheme where the IOC's get dis-invited?
Or, stuck with that tar-baby called Iraq and wondering how to leave it?
Or, pondering yet again the drilling of ANWR...
It doesn't matter whether the number is 84.5 mb/d or 85.4 md/d... that's noise. The next "sign" to watch is Mexico. As Canterell crumbles we're going to share a lot of their pain.
CERA's going to look mighty stupid when we have to build that wall.
I want a standard that withstands scrutiny. If it doesn't, then it doesn't matter how loudly you sound the alarm. More credible sounding voices will convince people it is a false alarm.
"I smell smoke, lets leave the house and call 911 from our cell phone outside" only to find out that some toast had been burned by the neighbor.
This is not the appropriate analogy. The appropriate analogy is the next time you do it, it won't have the same effect. The first time you cry wolf is one thing. But if there is no wolf, then people won't listen to you the next time.
The damage to crediability will be small compared to the irrelavance of an alarm sounded 18 months post-Peak, when the effects will be obvious.
Again, damage credibility and nobody is going to listen. That is the whole point.
What is the objective here? To educate and convince people that Peak Oil is to be taken seriously. If you are to be taken seriously, you had better be careful with the case you present.
Peak Exports/Oil/Net Liquids may sneak by us during a recession and no date can ever be set. Iraqi production may collapse, KSA production may surprise us by increasing by 600,000 bpd for 5 months and then dropping 1 million b/day (was it storage or production ?) When was Peak ?
We have, in essence, a one time event with massive uncertainity about the metrics. Your model on credability is suited for multiple events, not single events. Cassandra was right only once.
I, quite frankly, have told friends & family that we are on the cusp of Peak Exports with Peak Oil likely within a couple of years. "We" (oil importers) will have to reduce demand.
I am "splitting" the difference between Peak Exports (global, now) and Peak Oil (soon). Somehow Peak Exports is less threatening that Peak Oil. A tactical decision based upon the facts as I understand them and, more important, saleable.
I point to the Russian Minister of Economics (not Energy BTW) that predicted increased oil production and reduced exports for 2007-09.
We will not see a smooth transition into "T1", etc. but a bumpy one, driven by otherwise minor supply & demand events. Even a wrong prediction is likely to "feel" right.
Best Hopes,
Alan
Alan, it sounds like Bush & CO would tend to agree with you.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aGPIIdq61Hdo&refer=home
``The American people are very interested in the leadership of our country figuring out a way for us to be less dependent on foreign sources of oil,'' Allan Hubbard, director of Bush's National Economic Council, said in a Dec. 8 interview. "
I am cursed with being able to see patterns and extrapolate into the future fairly accurately. This is very frustrating most of the time because you can't get anyones attention early on.
I always "live about 2 years in the future" based on this processing ability. It is never accurate enough to time markets, but my predictions usually come true within a few months or so. People that I make these statements to always ask what they are based on.
I usually cite numerous data bits I have scavenged over months or years to support my position. The position is logically sound (in my mind) but I rarely am able to convince others of the trends that I see. Too many complex things interacting with each other. Others reach different conclusions looking at the same data. My concerns are easily explained away by others.
I understood the peak oil debate instantly upon being exposed to the ideas and models. I also understand the limitations of the data sets. It is impossible to make accurate predictions using the data. Garbage in Garbage out problem. You make whatever prediction you want as because the data will support contradictory outcomes.
Having said all that, the simple concept of peak production is being strengthened daily. The peak is coming soon if not already here. There has been no news in the last 12 months that indicates there is plentiful oil just over the time horizon. All statements are that the delines are not going to be as bad as they could have been. That price won't support more oil production. That geopolitics is the problem.
It is all delaying tactics and putting the best face on poor production numbers. All of a sudden people are not geedy and won't sell all the oil they can pump at $60/barrel? These are not characteristics of an industry that is in growth mode.
Not only do I smell smoke, but I think there is a big fire raging because the door and walls are hot to the touch.
"I am cursed...It is not accurate enough to time markets..."
This is NOT a curse; you and I and others are the "personal computer" equivalent of the biocomputer featured in "Hitchiker's Guide to the Universe". So I'll tell you what "42" means; it means forget trading, just invest in fundamental trends you feel sure are right and hold for 2 to 10 years. Verily I say unto you, you shall be RICHLY rewarded.
Frankly, the main reason I lurk this site and others is to gather the many points of data I need to sucessfully make a staggering amount of money from the narrow-mindedness and groupthink of others. I now have enough data points to confidently place my bets; special thanks to Stuart Staniford for the graph of KSA production vs rig count over time, and to memmel for the link to the paper on the historical record of the other "peak oil".
I think I can stop visiting this site for a while, but I hope to come back after the End of the Era (2012) to say "Thanks a Million!"
Blessed Be,
Errol
I have missed out parts of the above paragraph, but it does seem from this paragraph that OPEC can see a case of Russia producing less oil next year, regardless of the Russian consumption denting oil exports.
You make it sound as though reasoning has to be bullet proof before one can say peak oil has happened or is immenent, that the arguements have to withstand stringent peer review etc. What makes you think that is going to make any bit of difference? Your country went into Iraq not on a bullet proof case of WMDs but on nearly the opposite. GW is the closest thing to proven that's out there at the moment and yet the world drags its feet. The MSM and the general public don't give a rat's a$$ about logic, proof or even plausibility until after the fact. The people with the bucks win the propaganda game because most people are too stupid or lazy to call bulls**t.
I gave up thinking that I could do anything to help the world understand any of these critical issues. Now I'm just working on my close friends. In the mean time, I'm building a life raft. When oil is $400/barrel, enlightenment of the masses may be possible.
Thank you for your work. I have no criticism of it otherwise.
The problem is if we don't follow scientific methods and confine our opinions to fact, we lose credibility. Think about the whole debacle about fats in our diet over the last 20 years. First fat was just plain bad. Then people avoided fat and as a result ate too many carbs and got even fatter. Then we said, ok it's not all fats, just saturated fats. Next thing we know, there are reports in the media that many foods that contain saturated fats such as peanuts and olive oils are not bad for you, and are probably even god for you. Now we say, OK, really it's only the trans type of saturated fats that are bad.
Through all this, the average consumer has been left completely confused. They end up saying something like, "well if even the experts can't figure out what kind of fat is bad for us, then why shouldn't I just eat whatever I want."
Too much contradictory information came out about fats bc/ too many scientists held too many press conference about their findings before the data was complete enough to know reliably what sort of recommendations could be made. That's not to say that we shouldn't say PO is very near and we need to do something now. We should say that. But we shouldn't pretend to a level of specificity that we don't have. When we say PO will be in 2000, oops I mean 2003, oops I mean 2005, oops 2008- we lose credibility and people decide they can just ignore us.
Furthermore, it is wrong to pretend to a level of accuracy that we do not have. I had a professor who used to criticize our reports when we reported too many decimal places. If your data set is 1, 2 and 4, you report an average of 2. You do not report an average of 2.33 bc/ your data set does not support the decimal points. If your data is accurate to the second decimal point (i.e. 1.00, 2.00 and 4.00) then you can report 2.33, otherwise you are pretending to a level of scientific accuracy that does not exist in your measurements.
$150/gallon? Sure. We could have that now. It is called a gas tax and would reduce the US trade deficit by close to $100 billion a year.
:-)
Robert, years of rigorous science and a now longstanding scientific consensus on global heating has amounted to what? Continued 'he says, she says', as though the deniers still deserve equal time.
Moreover, who exactly are you wishing to educate? If you expect media types, politicians or the general public to be concerned with the nitty gritty of technical analysis, you are indeed naive, as anyone of us who has been involved in the public policy process can attest.
I hope you're not spending all this time attempting to come up with a valid criticism of Westexas' commentaries because you're envious of the creativity he displayed by introducing the export land model.
Global Warming deniers have been completely marginalized. Global Warming is overwhelming scientific consensus. That's what years of rigorous science have done. There will be peak oil deniers for years after production has peaked, but rigorous science will ensure that they are marginalized.
Moreover, who exactly are you wishing to educate?
You first have to convince the scientific community. If you don't do that, they are the ones the media is going to call upon to refut