A Debate on the Substance and Timing of the Peak of Oil Production and Consumption, Part II

First of all, while I kept the title consistent with Jeffrey's opening essay, I consider it to be a misnomer. I do not intend to debate the timing of Peak Oil. Some have misunderstood my long-running debate with Jeffrey to be a quibble about the timing of the peak. That is not the case. Yes, in my opinion Peak Oil is at least 3 years out. But that opinion is based on some things I can't discuss, so I have indicated that I will not debate the matter.

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.

Some of you know that I was a scientist before I became an engineer. I was halfway through my chemistry Ph.D. before I decided the job prospects looked better as a chemical engineer. That scientific training helped foster my skepticism, a trait I have had since I was very young. It reinforced for me that theories and hypotheses need to be backed up with solid, objective evidence, and it made me a stickler for interpreting data carefully. Metrics need to be consistent. 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.

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.

Folks, consider this a reminder to positively rate these articles (using the icons under the tags in the story title) at reddit, digg, and del.icio.us if you are so inclined. Also, don't forget to submit them to your favorite link farms, such as metafilter, stumbleupon, slashdot, fark, boingboing, furl, or any of the others. These posts are a lot of work, and the authors appreciate your helping them get more readers for their work however you can.
I agree it is very important to have a water right argument especially when dealing with a technical audience. However, predicting peak oil to the nearest year or even decade is less important with the general public. Most people I talk to don't deny we will start running out of oil. Some will even admit this could happen within 1 or 2 decades. However, 100% of them feel it won't be a problem because technology and alternatives with provide a smooth progression away from oil dependency. They believe that with little or no changes on their part, things will just continue as normal. We need to somehow convince these people of the enormity of the task to get ourselves off oil. They need to understand that changes need to start happening NOW not 20 years in the future.
Robert, very well argumented, though i'm still a bit puzzeld by the fact that KSA can't sell its oil at the same time that Nigeria loses 200-300K production.

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 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?

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.

And that in turn wuld have a potentially large influence on figuring out a peak, wouldn't it?

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......?

The 'triple-net' is far far lower than 20:1, when you include indirect costs (hiways, insurance, food transport, etc) and environmental externalities. So as energy becomes more difficult to access, the % allocated to energy sector, wide boundaries and all will increase. How much of the 85 mbpd is required to procure the 85mpbd now is an interesting, important and near impossible question to answer.
..overlooks the portion of ethanol that is a legitimate net addition to liquid fuels.

When the debate is about peak oil how can any biofuel be counted towrds production?

I totally agree and have often wondered why the 2 issues are mixed.
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.

"Because peak oil is not really the relevant metric. It is peak energy"

Do you mean to say "peak liquid fuels"?

Yeh Robert - I'd certainly prefer to keep petroleum on one side (C+C+NGL) and other liquids and other forms of energy that may be used to mitigate the shortfall on the other side of the equation.

Peak energy is what we should be focussed on with PO (C+C+NGL) a subset of that broader debate - IMO.

In my opinion, the question of whether or not Saudi Arabia's decline in oil production this year is voluntary is the key question.

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.

Jeffrey, do you think the allocations by Saudi in east Asia support your net export decline theory, or is it just to damn early to tell?
"Jeffrey, do you think the allocations by Saudi in east Asia support your net export decline theory, or is it just to damn early to tell?"

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.  

The main question I have about comparing KSA and Texas is the fact that KSA has so many oilfields, most of which apparently have been either totally untapped or almost totally untapped.

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.

The only evidence that we have is that the number or rigs drilling for oil is up 3x over two years, and production is down. It is not enough to say that, in theory, with enough rigs, SA could increase production to a new peak.  The world has a limited number of rigs, all of which are drilling for either oil or gas somewhere; as it is, ksa has poached rigs from our gulf to drill in theirs, presumably resulting in less production in our gulf even as their production also declines; all rig manufacturers are fabricating rigs as fast as they can; and demand for rigs everywhere continues to climb because, nearly everywhere, each new well produces less, and for less time, than old wells used to.
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.
Nice article... but pretty much for nought, like the one it responds to. As everyone keeps pointing out, we will know the date of the peak a couple of years after the peak with all the precision in the world. And it won't matter even then. Except, maybe, for people who are three years old in the inside and like to say "I told you so! I told you so!"

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.

As everyone keeps pointing out, we will know the date of the peak a couple of years after the peak with all the precision in the world.

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.

Do you see now Robert?
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:

stepback said...

    RR--Whether you are right or Jeffrey (westexas) is right is totally irrelevant because what counts is the date when society (civilization) acknowledges Global PO and not the date on which it technically happens. In that regard it is somewhat surprising that Daniel Yergin (CERA) is claiming that energy innovation is "bubbling" well ahead of recognition date. While on the one hand the CERA folk are saying the "undulating plateaus" will stretch out for many decades before production declines begin, they are saying that the innovation markets have already recognized the oncoming declines and are mitigating the effects through the early "bubbling" effect. On the other hand, you and Jeffrey are saying almost no one (except us Peak Freaks) recognizes the coming PO crisis and the issue is that of accurately predicting the exact technical moment.

Robert Rapier said...

    I will direct your attention back to something from this 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.

    The point is, if you lose credibility by using poor evidence, you will lose the ability to convince people that there is a problem. That is my main concern.

stepback said...

    Right you are .. I suspect I'm not the only one who "saw" those words but did not absorb them. Also I agree that "economic" data is no way to determine when actual peak happens. We humans arbitrarily "value" things. One day tulips are super valuable and the next day dot.com companies with no business model are super valuable. It's no different with oil prices.

Actually... I did read the article and I think I understood it quite well. While your claim is that this was not about the timing of the peak, the argument presented seems to be all about the question how to read the most recent events and if they present a real peak or a false peak. One of the headings reads:

"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?

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...".

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.

I think IP is correct. We won't have proof until after the fact. Waiting for proof is exactly what cera, xom, sa and other oil patch sellers would have us do... continue as if there is no problem, continuing with demand, which will boost prices as high as possible and as long as possible, even if 'apres nous le deluge'.  This is not an academic exercise but, for most at tod, trying to establish a probability that the nation should be taking action now to avoid large problems in the future.  How long should Hirsch et al have waited before coming out with their report?

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.

To say that buyers on the NYMEX would pay $70+/b but would not buy from the saudis is absurd, regardless of stocks.

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 guess what ID says is: "There is enough proof and consensus that there will be PO at a not too far point in the future, so we do not really need to wait for more proof before we ACT."

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

"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."

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.  

This may get lost amongst the 222 comments already made, but...

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.

  Sorry, that's wishfull thinking. Boards of Directors get off scott free, as do most CEO's. And I've never heard of a criminal prosecution for an environmental crimes. In our country, prisons are strictly for poor people.
The environmental crimes section of the DOJ brings criminal charges for environmental crimes all the time.  In 2001 alone, the agency obtained prison sentences totaling 256 years.

OSHA is the area where criminal enforcement has been lax.

In my county, Galveston Co. Texas, we gave out at least 11,000 years on piss-ant crack possession and sales charges alone. 256 years nationwide means practicially no environmental crimes are prosecuted. Its a scandal and a shame that we have 150,000 people in Texas doing time, and about  3% of our US adult population in prison and on parole with practicially no charges against "white collar" crimes.
  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.
The US could use you in government.
The hard data you are looking for simply isn't available.
As everyone keeps pointing out, we will know the date of the peak a couple of years after the peak with all the precision in the world.

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.

And it won't matter even then. Except, maybe, for people who are three years old in the inside and like to say "I told you so! I told you so!"

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

ron, you and i both know youd rather be wrong and 5 years off than right and change your lifestyle.