The Oil Drum

In our last poll on 16 APR (and here's the old accompanying comment thread), 42% of you predicted that CL would hit $127 in the front month before it hit $103. Yep, we've passed it today, though we closed below it. Oil has risen from $115 to $127 (~10%) in a month.

This is the comment thread for the poll, offer your conjecture and reasoning here...the actual poll itself is in the post below today's drumbeat.

In our last poll on 5 MAR (and here's the accompanying comment thread), 43% of you predicted that CL would hit $115 in the front month. We've passed it, but we haven't closed at it yet.

Either way, I thought a new poll was in order to celebrate Three Yergin Day. This is the comment thread, the poll is in the link below.

We have been writing for almost 3 years on this site about the privatization of energy data by IHS Energy and the negative impact the lack of accuracy that CERA's historically optimistic claims are having on energy policy. The rebuttals and counteranalysis at TOD to CERAs assertions are too numerous to list. Today at the IHS Energy Conference in Houston, the CEO of IHS Energy, parent of CERA and other energy information agencies, asserted that Peak Oilers don't have the data to support their claims. This post is a brief rebuttal to this 'news' coming out of Houston, and a plea to refocus the questions to what is relevant and probable, not on what is irrelevant and unlikely.

Source - various - detailed here by G. Morton(Click to enlarge)

.... and Cresswell takes a pot shot at CERA...

Back in November I ran article highlighting Peak Oil in the Mainstream Business Press lifted from the monthly Energy Supplement from the Press and Journal, a broad sheet that serves North Scotland - including Aberdeen, the Houston of the North. This month, two stories by Dick Winchester and Jeremy Cresswell caught my eye.

My, my, Gordon, you really are losing the plot

By Dick Winchester

GORDON Brown has come up with a new way of doing things. What you do is go and visit your biggest competitor, who has saved a few hundred billion quid to invest in or simply buy companies you might own, and who is already making oodles of cash because you’re subcontracting to said competitor most of the things you used to do, and then give them £50million to help them develop new “green” technologies.

Yes, folks, Britain’s PM’s been at it again. In exchange for a couple of carry-outs and a tour of the Beijing Olympic village, he’s offered the Chinese:....

This is a guest post by Glenn Morton, a geophysicist in the oil industry. For Kerr-McGee Oil and Gas Corp., Glenn served as Geophysical Mgr Gulf of Mexico, Geophysical Mgr for the North Sea, Dir. of Technology and as Exploration Director of China. Currently he is an independent consulting geophysicist, and he is known here at TOD affectionately as seismobob.

This post started when I heard Daniel Yergin, the CERA Energy Analyst interviewed by Larry Kudlow on Sept. 14, 2007 on CNBC. Yergin claimed that the high price of oil was not supported by the fundamentals. My jaw fell to the floor. Last year (2006), the price of oil deserved to plummet by 20% (which it did). The amount of oil in storage tanks was very high. But this year, week on week, the oil in storage has dropped, meaning that the fundamentals do support a higher price than last year. The chart is below; note that in 2007 (red curve) the US storage numbers are way way down from what they were in 2006 and we haven't even had a hurricane.

Today, the Wall Street Journal (WSJ) had a Page 1 article about limits to world oil production. The article begins:

A growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limit to the number of barrels of crude oil that can be pumped every day.

Some predict that, despite the world's fast-growing thirst for oil, producers could hit that ceiling as soon as 2012. This rough limit -- which two senior industry officials recently pegged at about 100 million barrels a day -- is well short of global demand projections over the next few decades. Current production is about 85 million barrels a day.

The WSJ sees a number of above-ground issues as being the reason for this looming plateau (below the fold...)

Seven am breakfasts in O’Hare are not a habit I plan on developing but there was I, for the second day running, at the same table even at Wolfgang Pucks.. But all in a good cause, as I headed off to Houston for ASPO. Going to the hotel - very new and needed, as the cabby proudly told me,– he asked which Convention I was here for (there is an Olympics meeting of some sort down the hall). I explained about Peak Oil and though initially he had not heard about it, he then mentioned a Houston City Council effort to have the cab companies use hybrids. This is now on hold, since it did not appear to be a well-received suggestion. Concerns that he brought up included the small size of the cars, that they were only 4-cylinder and would not stand the wear that a cab life would impose, and that the cabbies, who have to buy the cabs, could not afford the $3,000 to replace the batteries. Apparently the cab companies had suggested that they would comply right after the police Department bought theirs. Talking at an ASPO break about this, apparently Denver are experimenting with the process, but have only just introduced it with a few cabs., and a quick Google shows that a number of cities have already bitten that bullet.

With getting here a little late I walked into the first joint sessions after they had started, and, as with the ASPO in Cork, the atmosphere immediately conveyed that the meeting would be a success. (Though the initial judgment was made because I had to drop my bag and lean against the wall since there were no free seats, and when more were brought they were still not enough). The audience was obviously knowledgeable and the questions were technical, as were the answers. For the first “Workshop” day the sessions were divided, with TOD stalwarts Stuart Staniford and Euan Mearns giving the story of their incredible detective work in, as an audience member put it, developing the story of Saudi oil with virtually none of the resources or computing power of Aramco, and yet coming very close to what has to be the real story. Stuart explained how the numbers that he, and others at TOD, had put together and painted the picture of Ghawar depletion, (which is in the citation so I won’t repeat it) and Euan put this in the broader context of Saudi Arabia in general. Gail Tverberg acted as moderator to the session and the discussion. Perhaps the crux of the issue is that the authors do not think that Saudi Aramco can produce the volumes that they claim for Ghawar since, in part they assume a higher recovery factor that has been historically true for this type of rock, and with around half the production gone, things are not looking all that good. Reference was made in questions to other papers coming in the meeting that will bring further light to the topic, including such a comment from Matt Simmons.

I wrote this article to put together answers to questions someone new to peak oil might have and to directly counter some common misunderstandings. One topic I talk about is CERA estimates. While there is a little overlap with Oil Quiz-Test Your Knowledge, most of it is different. Pass along a link or a PDF (available below) to your friends.

The message that "peak oil" may be a problem is now reaching respected publications like Business Week. But how can a person learn more? Information about peak oil is often fragmented, and the quality of the sources is questionable. The purpose of this article is to document some of what is known about peak oil, so that readers have a better framework for understanding our current situation. Many links are provided, so that readers can dig deeper if they like.

1. What is peak oil?

"Peak oil" is the term used to describe the situation when the amount of oil that can be extracted from the earth in a given year begins to decline, because geological limitations are reached. Extracting oil becomes more and more difficult, so that costs escalate and the amount of oil produced begins to decline. The term peak oil generally relates to worldwide production, but a similar phenomenon exists for individual countries and other smaller areas.

2. Why would oil production begin to decline? Can't we extract oil as fast as we want to, until it finally runs out, many years from now?

There continues to be considerable disagreement on both the timing and the magnitude of Peak Oil, though last week's GAO report(pdf) should be helpful in shrinking that gap. Part I of this 3 part series summarized some of the recent discussion of why some are very concerned about Peak Oil and others are relatively unconcerned. We also discussed why there needs to be a clear definition of Peak Oil so that policymakers discuss 'apples and apples'. This post will continue to examine areas of disagreement between the two camps, and will particularly focus on what I perceive to be the largest disconnect in energy, financial and government circles - that of the difference between gross and net production of finite resources.

Decline in Net Energy on US Oil Production
A Hypothetical Sensitivity Analysis on EIA Projections (mbpd)(click to enlarge)