Carpe Diem

Updates on the death of ‘peak oil,’ R.I.P.

oil

1. The Department of Energy reported today that US crude oil production for the week ending July 12 surged to the highest level since December 1990, more than 22 years ago (see chart above).

map2. Enormous oil shale deposit found in “Saudi Australia”:

A massive oil find has put the Australian Outback on the energy map. The oil in the Southern Australia oil shale resource is estimated at 233 billion barrels, topping all of Australia’s reserves put together and nearly equivalent to all the oil in Saudi Arabia (see chart above). Some oil experts believe the deposit may eventually yield as much as 400 billion barrels, up from the initial maximum estimate.

The oil yet to be extracted is valued at US$18 trillion, putting Australia on the energy map among the big-money players. The resource is also putting the small town of Coober Pedy on the map. Coober Pedy had long been the home to 1,700 people who lived in residences literally carved out in its caves. Now another 20,000 people have suddenly flocked there, making it one of the hottest real estate markets in all of Australia.

3. From Forbes contributor David Blackmon’s article “As Fracking Rises, Peak Oil Theory Slowly Dies:

Today, given the new abundance of shale oil, almost no real industry thought leaders are Peak Oil proponents, and the theory is now mainly advocated by self-promoting opportunists looking to gain free media attention by being contrarians to prevailing belief, and environmental activists who cobble together misleading data and fright scenarios to justify costly policies that throw billions of public dollars at renewable energy schemes.

The main reason why Peak Oil theorists always turn out to be wrong is that they by and large appear to be unable to grasp the huge role advancing technology plays in allowing the industry to discover new oil resources previously unknown, to access known resources that were previously thought to be unexploitable, and to extract an ever-increasing percentage of oil long known to be in place via secondary and tertiary recovery techniques.  They appear to believe – either through lack of imagination or due to political convenience – that current assessments of available resources in known formations will always remain static and never increase, never understanding or acknowledging that those assessments will rise along with advances in technology.

4. In his classic 2009 blog post “Peak Idiocy” Mike Munger invokes Econ 101 to conclude that:

Of all the idiotic things that people believe, the whole “peak oil” thing has to be right up there. It is literally impossible for us to run out of oil. We have never run out of anything, and we never will.

5. From Forbes contributor Karl Smith’s article “No Peak Oil Really is Dead” (via Jimmy P.):

The core of the Peak Oil hypothesis could be summed up as: sometime in the not so distant future we need to put some effort into finding new oil extraction techniques. This might be easy in which case there will be plenty more cheap oil. Or, it might be hard, in which case either we can switch to something else or, as with most every other good on earth, we will want to devote some fraction of our time and energy to continually pushing the technological frontier. And, while this is superficially true, it leads you to no deep conclusion and provides no serious insight into the future of humanity or the global economy.

6. Mark Mills writing today on the Real Clear Energy website:

The Oil Drum was a forum, arguably the best such, dedicated to the “peak oil” theory; the idea that mankind’s ability to produce oil had peaked and particularly in the hydrocarbon fields of America. The inevitability and urgency to subsidize alternatives to hydrocarbons was fueled by the peak oil theory. But what peaked instead was the ability to argue that the era of oil, and hydrocarbons, was over.

The notion of imminent exhaustion of hydrocarbons has been a core tenet of alternative energy pundits and rent-seekers. But considering geophysics, this has always been, to put it politely, silly. The Earth’s known, never mind unknown, quantities of hydrocarbons are countable in the tens of thousands of billions of barrels. The scale of the resource itself is bottomless. In the end, what is available is mainly about technologies. To believe oil had peaked you also had to believe that technology had peaked, which is even sillier.

The yearning of billions of people for cheap power and transportation can only be met for the foreseeable future with hydrocarbons. Fortunately, both Mother Nature and human technology are up to the task.

 

51 thoughts on “Updates on the death of ‘peak oil,’ R.I.P.

  1. “Of all the idiotic things that people believe, the whole “peak oil” thing has to be right up there. It is literally impossible for us to run out of oil. We have never run out of anything, and we never will.”

    while i really do not have much of an opinion on the peak oil debate, this seems like a fallacious structure for an argument.

    while it is certianly true that we will never run out of oil as it would first get so expensive and there would be substitution etc, that is not the same as peak oil.

    if production were to plateau and then drop as prices soared due to scarcity and exhaustion of easy to exploit deposits, that would be peak oil. it still would not mean we would run out.

    equating “we will never run out” with “oil production will not peak” is simply bad logic.

    peak oil will occur at some point. that is a nearly undeniable fact unless we develop the ability to synthesize it cheaply. when is a matter of debate in which i have no terribly informed opinion, but it will happen.

    peak oil might occur either due to exhaustion of cheap supplies driving prices up above those of substitutes or affordability or (hopefully) substitutes (including more efficient use) becoming more attractive than oil.

    the former might be problematic as it would mean higher energy prices, but the latter could well be fantastic. “peak whale” certainly did not harm our ability to read at night.

    • “while i really do not have much of an opinion on the peak oil debate, this seems like a fallacious structure for an argument.”

      And, yet the poster does not point out the logical fallacy in the prior statement.

      The simple point is that the poster wants to not accept the premise and the supporting data of this report.

      On another note, the notion of “peak” oil is a excellent propaganda tool to strike fear into the masses.

      • i’m not sure i understand your comment.

        who is “the poster”?

        my point was simply this:

        saying that we will never run out of oil is not a valid argument that there will not be peak oil.

        we never ran out of whales either, but whale oil peaked.

      • On another note, the notion of “peak” oil is a excellent propaganda tool to strike fear into the masses.

        I sometimes wonder if you guys understand what the peak oil argument is about. We have already seen the peak of light sweet crude. If we stopped muddying the waters by looking at biofuels and refinery gains people would see reality instead of relying on wishful thinking. Haven’t you guys bothered to ask how it is that oil is over $100 in the face of a collapse of demand in the developed world? Or why hundreds of billions in new capital has been unable to get the production of light sweet to go up?

    • “if production were to plateau and then drop as prices soared due to scarcity and exhaustion of easy to exploit deposits, that would be peak oil”

      Prices need not ever “soar”, only become (whether rising or falling) sufficiently higher than some existing substitutes. There is a broad spectrum of variously more expensive energy, efficiency, and behavioral substitutes already, that already variously substitute for oil as oil prices rise. And whether oil prices rise or not, those substitutes will continue to decline in price, placing ever lower limits on just how high the price of oil will ever be able to attain.

      The belief in peak oil–i.e. the belief that oil prices must necessarily soar–necessarily assumes a very abrupt permanent decline in supply that is exceedingly unlikely (other than from political shocks).

      Put another way, the more the world seems to be on the climb to a peak oil crisis, the less likely a peak oil crisis becomes. The peak oil narrative undermines itself.

      “peak oil will occur at some point. that is a nearly undeniable fact”

      How confident. It is entirely possible that the world will lose interest in oil before even 0.01% of oil deposits are even discovered. We don’t know how much there is to find, we only know what we’ve found. And the rate of discovery (whether of new deposits or new ways of using known deposits) is rising, not falling.

      ““peak whale” certainly did not harm our ability to read at night.”

      Good example of what real peak oil will look like.

      • The belief in peak oil–i.e. the belief that oil prices must necessarily soar–necessarily assumes a very abrupt permanent decline in supply that is exceedingly unlikely (other than from political shocks).

        The Peak Oil argument is not that prices will soar; only that production of crude will peak. If there are adequate substitutes available prices will be stable or go down. If there aren’t then prices will explode until marginal demand is destroyed and the incentive to come up with substitutes creates new supply.

        How confident. It is entirely possible that the world will lose interest in oil before even 0.01% of oil deposits are even discovered. We don’t know how much there is to find, we only know what we’ve found.

        But we do. There are certain conditions necessary to have economic deposits of oil. All areas where those conditions exist have been explored already. While we have not run out of targets the discovery rate for conventional oil will continue to fall. We can identify plenty of shale formations that nobody has been interested in before but those will be uneconomic except in small core areas so they are not a solution to our problems. Gas is another story. Many of the OPEC nations have not drilled into the gas window because there was no market for that gas. I expect many to allow drillers to look for that gas as the supply of oil becomes dire and their production levels continue to drop.

        And the rate of discovery (whether of new deposits or new ways of using known deposits) is rising, not falling.

        This is false. The discovery of reserves is still falling. You are confused by the shale numbers, which deal with resources that are far from economic.

        • “But we do. There are certain conditions necessary to have economic deposits of oil. All areas where those conditions exist have been explored already.”

          That historical moment finale must have occurred in 2008 when the Jupiter oil field was discovered off of Brazil. Somehow “we” know that NOW no more oil reserves will be discovered. Or did we know that when Ferdows/Mound/Zagheh field was discovered in 2007? Or when the the Azadegan field was discovered in 2001? Or when the Kashagan field was discovered in 2000? Or when the…

          “This is false. The discovery of reserves is still falling.”

          If you will read my parenthetical overtly sandwiched within my statement, you will realize that I am referring to something broader than newly discovered physical deposits.

          More to my point would be the rate of *proven reserves* which is rising, not falling–which is the more relevant economic driver incorporating all forms of consumption with all forms of supply. An increased discovery rate of deposits would obviously be driven more by falling reserves (in the setting of non-declining demand). A declining discovery rate is the expected result of a declining desire to discover, so the correlation is the reverse of what peak oil expositors probably think. The discovery rate in the year AD 1500 was exceedingly low, in spite of more quantity being in the earth, because the desire to discover was exceedingly low.

          “You are confused by the shale numbers, which deal with resources that are far from economic.”

          So…there is no oil shale industry?

          • That historical moment finale must have occurred in 2008 when the Jupiter oil field was discovered off of Brazil. Somehow “we” know that NOW no more oil reserves will be discovered. Or did we know that when Ferdows/Mound/Zagheh field was discovered in 2007? Or when the the Azadegan field was discovered in 2001? Or when the Kashagan field was discovered in 2000? Or when the…

            None of what you write is unknown. I was a shareholder in PetroKazakhstan and watched with great interest the political manoeuvring and the technical issues that faced the Kashagan discovery. In case you have forgotten the project has already cost around $50 billion and is eight years behind schedule. After years of pounding its head against the wall, ConocoPhillips finally got rid of its stake. The bottom line was that the porosity and permeability problems, when combined with the extreme environment, made the oil far more expensive to extract than was estimated when the project was approved. In the end that $50 billion plus new investment will give us 350K bpd of oil that has a high hydrogen sulphide and will require a expensive processing and high transportation costs. Many billions more in capital costs will be required to increase production levels if that makes sense to do so and there is a serious doubt about the economics given the fact that costs have exploded and the technical difficulties have turned out to be much greater than anticipated.

            Azadegan is only producing around 50,000 bpd and only one of the layers is light sweet. The Brazilian fields have a small output even though billions have been spent on exploration and development. Many of the claims are still unsubstantiated because there haven’t been enough tests done to verify them. Perhaps that is why its production is falling and the shares are down 60% in the last two years. That said, I hope that Petrobras is very successful because I have made a bet on similar formations on the west coast of Africa. The trouble is that this type of development takes decades and isn’t coming on line quickly enough to offset depletion.

            I suggest that you have trouble understanding what the Peak Oil argument says. It does not say that oil production will stop or that we will never find new fields. It only says that eventually we will see total output peak as older fields peak and newer fields cannot replace that production.

            http://www.energyvanguard.com/Portals/88935/images/peak-oil-growing-gap-between-discoveries-and-production.png

          • How does this:

            “It does not say that oil production will stop or that we will never find new fields.”

            mesh with this:

            “All areas where those conditions exist have been explored already.”

            ?

            “It only says that eventually we will see total output peak as older fields peak and newer fields cannot replace that production.”

            An argument utterly ignorant of the age-old fact of advancing technology. As I said in another post above, it isn’t new field discoveries that matter, but total output (relative to demand) from whatever source. One way for for new field discoveries to decline, is for total output to grow.

      • ““peak oil will occur at some point. that is a nearly undeniable fact”

        How confident. It is entirely possible that the world will lose interest in oil before even 0.01% of oil deposits are even discovered. We don’t know how much there is to find, we only know what we’ve found. And the rate of discovery (whether of new deposits or new ways of using known deposits) is rising, not falling”

        that would still be peak oil.

        you seem to not understand what peak oil means.

        it means that production reaches a maximum, and goes into decline. i never said it would be a crisis. it could be a problem but it could also be a sign that we have discovered somehting better.

        in your next sentence, you agree that peak whale might be what peak oil could look like.

        this is completely true, but also invalidates your prior argument.

        peak oil need not be a bad thing. if we invent “mr fusion” from back to the future tomorrow, oil will rapidly peak, but that would be great for humanity.

        or, prices may rise until oil is no longer competitive with technologies that already exist.

        but the notion that a peak will never happen is absurd. the only way that would not be the case is if we figure out how to synthesize it in a cost effective manner, and that’s a tough bet to make.

        so yes, i am VERY confident that oil will peak. i’m 100% certain that fossil oil will peak.

        what that peak will look like and when it will occur is somehting about which i have very little confidence. it could go a great many ways, but it will happen. that much is absolutely certain.

        • “you seem to not understand what peak oil means. it means that production reaches a maximum, and goes into decline. i never said it would be a crisis. it could be a problem but it could also be a sign that we have discovered somehting better.”

          If that were true, then there would be no peak oil controversy, no peak oil political movement, and frankly, no more reason for anyone to have even coined the phrase “peak oil” than to coin the phrase “peak Tickle-me Elmos”.

          By your reckoning, peak oil could be phase quietly passing away unnoticed in the night as people’s interests happen to change for unrelated reasons. In fact, every single economic change in history and forever going forward, every change in technology, entertainment preferences, clothing fashions, colloquialisms, or anything else, could be described as “peak-” whatever.

          That is not peak oil, and has far too broad a coverage to be of any relevance in most discussions.

          Ironic how after all of this, it turns out that it is you who does not understand the meaning of “peak oil”–at least peak oil exponents think of it.

          “but it will happen. that much is absolutely certain.”

          1/100,000,000th of the world’s oil is used as new discoveries grow exponentially. Then a comet strikes and destroys the earth–Peak oil! (and of course, peak Hershey bars, peak humans, peak Disney parks, etc.)

          0.0000001% of the earth’s oil is tapped just as great new sources of high grade crude are being discovered at an ever increasing rate. Then someone invents a motor that doesn’t run on oil and demand plummets–Peak oil!

          Sorry, but you are quite alone in thinking that is what “peak oil” is about. But if you can infiltrate the peak oil movement with reasoning about how natural, voluntary, seamless, painless, emergent, and even unnoticeable peak oil might be, I’ll gladly donate a few bucks to your cause.

          • vikingvista

            Sorry, but you are quite alone in thinking that is what “peak oil” is about.

            No, he isn’t at all alone in thinking that is what peak oil *production* is about. Instead there seems to be a great deal of confusion about what the term “peak oil” actually means to those who use it.

            Your comet example is silly, but the “engine that doesn’t run on oil” is an exact analog for the concept of “peak whale”. Demand for whale oil dropped even as supplies were becoming constrained so that there was a time of peak whale oil production.

            Peak production of anything is merely a statistic – a number that tells us nothing about causes. Peak production of anything can occur because demand decreases, or because supplies are not available at the former rate of production.

            In the case of crude oil production in the US specifically, this peak rate occurred in 1971. In that instance even though it was well known that enormous amounts of oil existed, it became impossible pull it out of the ground at a faster rate. At that point, the Texas Railroad Commission lost the ability to control oil supply – and thus prices – to a new oligarchy of oil producers known as OPEC.

            Even now, more than 40 years later, higher oil production in the US – despite tremendous advances in technology, huge new discoveries of recoverable oil, and high demand – hasn’t surpassed the 310 million bbl/mo peak rate of Oct 1970.

            That means that Peak Oil production in the US occurred in 1970-1971.

          • Ron H.,

            “Your comet example is silly”

            If it is silly, then it does not meet his definition. If it meets his definition, then it must be his definition that you think is silly. So please explain how it does not meet his definition of peak oil.

            “Peak production of anything is merely a statistic – a number that tells us nothing about causes. Peak production of anything can occur because demand decreases, or because supplies are not available at the former rate of production.”

            Is there *any* good or service “X” in the history of mankind, now out of disfavor, for which your notion of “Peak-X” does not necessarily apply?

            “That means that Peak Oil production in the US occurred in 1970-1971.”

            I’m trying to figure out if you believe:
            1) That there is not a worldwide market for oil, or
            2) That worldwide oil production is not increasing.

          • Ron H.,

            “Your comet example is silly”

            If it is silly, then it does not meet his definition. If it meets his definition, then it must be his definition that you think is silly. So please explain how it does not meet his definition of peak oil.

            “Peak production of anything is merely a statistic – a number that tells us nothing about causes. Peak production of anything can occur because demand decreases, or because supplies are not available at the former rate of production.”

            Is there *any* good or service “X” in the history of mankind, now out of disfavor, for which your notion of “Peak-X” does not necessarily apply?

            “That means that Peak Oil production in the US occurred in 1970-1971.”

            I’m trying to figure out if you believe:

            1) That there is not a worldwide market for oil, or

            2) That worldwide oil production is not increasing.

        • vikingvista

          “Your comet example is silly”

          If it [comet example] is silly, then it does not meet his definition. If it meets his definition, then it must be his definition that you think is silly. So please explain how it does not meet his definition of peak oil.

          It is silly because it is the end of all things. It is as meaningless as Keynes saying “In the long run we are all dead”. Anyone can suggest a comet strike to counter almost any argument. If such an event occurred there would be no one to call “peak oil” or peak anything else.

          In other words it’s not a useful example. Whether it fits Vangel’s definition is irrelevant. We should probably limit our discussion to realistic and probable scenarios.

          Is there *any* good or service “X” in the history of mankind, now out of disfavor, for which your notion of “Peak-X” does not necessarily apply?

          Assuming you mean “now out of favor”, the answer is no. There is no good or service in the history of mankind for which production has not peaked and then declined.

          That being the case, there is no reason to believe that worldwide oil production won’t peak at some point and begin declining as every other product has done. It’s already happened in the US and Europe, That doesn’t mean “running out”, by the way.

          You might find this report interesting. Apparently many of the giant oil fields that have provided the bulk of the world’s oil in the past have passed peak production and are in decline. New discoveries worldwide have allowed world production to increase by 4% since 2004. Not exactly a headline grabbing number.

          I’m trying to figure out if you believe:

          1) That there is not a worldwide market for oil, or

          I’ve given you no reason to think I am unaware of a worldwide oil market. You questioned the concept of “peak oil” and I explained it to you using the US as an example of peak oil production because that peak happened long ago, and the numbers are readily available.

          2) That worldwide oil production is not increasing.

          Nor have I indicated that I believe worldwide oil production is decreasing, only that I believe it will at some point, probably in the not too distant future. Recent increases in production rates have been relatively small despite extensive new production.

          Oil production has peaked in the US, Europe, possibly Russia, and possibly the Middle east, although reliable numbers for the last two are hard to come by. New discoveries are more difficult to exploit than the giant conventional fields that currently supply us with most of our oil, and don’t lend themselves to high, prolonged production rates.

          Oil in fractured shale formations, which is most of the new production, flows much more slowly than conventional sources,and doesn’t lend itself to rapid removal no matter how much oil is present in the formation.

          • “It is silly because it is the end of all things. It is as meaningless as Keynes saying “In the long run we are all dead”. Anyone can suggest a comet strike to counter almost any argument. If such an event occurred there would be no one to call “peak oil” or peak anything else.”
            That is my point. The end of all things is also peak oil to you. So the defintion you all here (as opposed to the vast majority of politically active peak oil exponents) are using, leads to silly results. Therefore your definition is silly. Your definition is silly, because it isn’t discriminating. It doesn’t say anything more than “oil is a good or service” just like typewriters, wagon wheels, sealing wax, triremes, and medical leeches. Your notion of peak oil gives no cause for action, concern, or even argument. It implies nothing bad or good. It is nothing.

            “Assuming you mean “now out of favor”, the answer is no. There is no good or service in the history of mankind for which production has not peaked and then declined.”
            Thanks for confirming my suspicion. Now you are stuck explaining why we shouldn’t all be equally concerned about peak miniskirts, peak incandescent light bulbs, peak movie profanity, peak Reese’s Pieces, peak accounting, or peak anything else. Your overly broad definition should have us having this very same discussion about every single good or service in existence.

            “That being the case, there is no reason to believe that worldwide oil production won’t peak at some point and begin declining as every other product has done.”
            …like horse shoes, wagon wheels, sealing wax, linen diapers, gas lights, decorative swords, … Scary stuff.

            “It’s already happened in the US and Europe, That doesn’t mean “running out”, by the way.”
            It also doesn’t mean oil production has peaked. It hasn’t. Low productivity manual labor in the US peaked shortly after it took off in Asia too.

            “I’ve given you no reason to think I am unaware of a worldwide oil market.”
            Yes you did, by giving numbers for the US. Patterns of trade shift all the time. If US oil production declined while total world production increased, that tells you less about US discovered (and undiscovered) reserves than it tells you about comparative advantage.

            “You questioned the concept of “peak oil” and I explained it to you using the US as an example of peak oil production because that peak happened long
            ago, and the numbers are readily available.”
            Yes, but as I keep telling you, it doesn’t mean anything that can be construed as worrisome, good, bad, problematic, informative, or anything else. It doesn’t mean total extractable oil within US geographic borders has made any significant decline. It doesn’t tell you if the US will have 20 more higher peaks in the next 500 years or not.

            “Oil production has peaked in the US, Europe, possibly Russia, and possibly the Middle east, although reliable numbers for the last two are hard to come by. New discoveries are more difficult to exploit than the giant conventional fields that currently supply us with most of our oil, and don’t lend themselves to high, prolonged production rates.”
            I don’t understand why the basic economic point is so elusive to you. Do you think the incentives to increase production in the US or Europe INCREASE or DECREASE as total world production increases? Why do you assume that the production rates in the US and Europe are not coordinate by the market to maintain a certain rate of total world production?

            “Oil in fractured shale formations, which is most of the new production, flows much more slowly than conventional sources,and doesn’t lend itself to rapid removal no matter how much oil is present in the formation.”
            And extraction technologies, and supply chains, and oil consumption are all immensely more efficient than 50 years ago. You take a very selective view of the economics of the oil industry, which is why, I suppose, Julian Simon makes no sense to you.

          • And extraction technologies, and supply chains, and oil consumption are all immensely more efficient than 50 years ago. You take a very selective view of the economics of the oil industry, which is why, I suppose, Julian Simon makes no sense to you.

            I would be careful here. Even with all of the improvements in efficiency oil is selling for over $100 a barrel. That is the case even though we are in a period of economic weakness. The price is around four times higher than it was ten years ago and had the Simon bet been made a decade ago he would have lost because almost every commodity in the basket would have gone up in price.

  2. Great link on Saudi Australia. Combine Australian, U.S. and Canadian reserves, and the geopolitical nature of oil demand changes dramatically.

  3. Of all the idiotic things that people believe, the whole “peak oil” thing has to be right up there. It is literally impossible for us to run out of oil. We have never run out of anything, and we never will.

    How ironic; Mike Munger does not know what the peak oil theory actually says. Hint: it does not say that we will run out of oil.

    • Depends on what he means by “run out”. As far as I’m concerned, *I’ve* run out of oil if it reaches $10,000/barrel. That notion of “run out” is consistent with the peak oil narrative. That notion is also debunked by economics.

      In other words, “run out” means a crisis of widespread shortages associated with high prices. That (by means of physically depleted supplies) is exactly what the peak oil fallacy predicts.

      • Depends on what he means by “run out”. As far as I’m concerned, *I’ve* run out of oil if it reaches $10,000/barrel. That notion of “run out” is consistent with the peak oil narrative. That notion is also debunked by economics.

        By that measure we have already run out of $3 oil, $15 oil, and $50 oil.

        As I have written over and over again, most of the critics are clueless about what the Peak Oil theory really says and simply create straw-man arguments to be knocked down at their leisure. But those arguments are false because the Peak Oil theory only predicts that there will be a time after which the production of petroleum will no longer go up. Most wells reach peak production in the first few days. Most fields reach a peak and then decline. So do countries and continent.

        The Peak Oil theory says little about price because it is clear that cheaper substitutes can drive prices lower. But if the peak comes and substitutes are unable to meet the need for fuel the price will have to rise to price out the marginal demand.

        • ME: “As far as I’m concerned, *I’ve* run out of oil if it reaches $10,000/barrel. That notion of “run out” is consistent with the peak oil narrative. That notion is also debunked by economics. … In other words, “run out” means a crisis of widespread shortages associated with high prices.”

          DU: “By that measure we have already run out of $3 oil, $15 oil, and $50 oil.”

          Please explain how you think $3 oil has lead to a “crisis of widespread shortages”?

          “Peak Oil theory only predicts that there will be a time after which the production of petroleum will no longer go up”

          Then it is really a worthless theory as it treats oil as a material substance rather than an economic resource. As such, it is a theory that then describes every single possible specific physical item of economic interest, always. Worse, it describes nearly every *observable* short of time, space, or entropy. It is nothing more than the adage “what goes up much go down”.

          Obviously, that does not describe the peak oil movement. Nor does it describe anything interesting, informative, useful, or capable of any kind of influence.

          • ME: “As far as I’m concerned, *I’ve* run out of oil if it reaches $10,000/barrel.

            That is you. It isn’t what most rational people would argue.

            That notion of “run out” is consistent with the peak oil narrative.

            The Peak Oil narrative is very simple. At some point production will not be able to increase and demand will have to be rationed by higher prices. Economics has little to do with this. All that we know is that the inability for production to meet demand will lead to rationing via higher prices or the development of new supplies that produce other types of sources for our fuel. We did not stop using lights when the production of whale oil peaked. But whale oil did peak just as the production of crude will peak. (I have no idea why you pretend not to be able to understand this simple point.)

            That notion is also debunked by economics. … In other words, “run out” means a crisis of widespread shortages associated with high prices.”

            Straw-man arguments are not very impressive. You are arguing against a position that the Peak Oil theory does not take. I suspect that is because you cannot argue the ones that it does take.

            Please explain how you think $3 oil has lead to a “crisis of widespread shortages”?

            We can look to history. When the supply of cheap oil was gone American industry went through a great transformation as electricity generation capacity that depended on petroleum was eliminated and people moved towards more efficient personal transportation.

            The same will happen when cheap $100 oil is behind us and people can no longer to live very far from their places of employment or drive large fuel inefficient vehicles. The number of miles driven per person will fall and many suburban communities will see the price of their homes fall sharply.

            Then it is really a worthless theory as it treats oil as a material substance rather than an economic resource.

            What is worthless is pretending that shale or deep water sources will be able to offset depletion from existing fields. (It is actually worse than worthless; it is dangerous.) It is one thing to pretend that the inevitable technological breakthrough will happen but foolish to think that it will come when everyone has false hopes for unconventional production and alternatives to come through.

            As such, it is a theory that then describes every single possible specific physical item of economic interest, always. Worse, it describes nearly every *observable* short of time, space, or entropy. It is nothing more than the adage “what goes up much go down”.

            It provides clarity to people who expect trees to grow into the clouds. When it comes to economic thought, that reminder is very needed because many of the naive optimists are leading people down the wrong path.

          • “That is you. It isn’t what most rational people would argue.”

            Most rational people would disagree that $10,000 oil is unavailable to them? Are you saying that most rational people are millionaires?

            “The Peak Oil narrative is very simple. At some point production will not be able to increase and demand will have to be rationed by higher prices.“

            Kudos for attempting to cut to the quick. Others here define “peak oil” as “at some point in all history there will have been a time when oil production was at its maximum”, which is essentially “peak oil” means “oil is observable”, allows them to feel correct (since oil is indeed observable) in their wholly mathematical definition while leaving the term uninformative and uninteresting to anyone.

            But you included the narrowing words “be able to”. It still doesn’t capture “peak oil”, since there are reasons (good, bad, indifferent, or unrelated) why it might not “be able to” that have nothing to do with the message or action that peak oil exponents advocate. Also, all market prices ration. So let me follow suit and tell you what I believe to be the definition of “peak oil” as used by peak oil exponents:

            Peak oil means that after some time point, world oil production will not ever again be able to profitably increase, and the ends of oil consumers will thereafter tend to become increasingly costly.

            If you accept that definition, we can proceed to show why peak oil is nonsense.

            “Economics has little to do with this.“

            You just said yourself that peak oil is about “demand” and “prices”. That means it IS about economics. It seems likely that the reason peak oilers are so mistaken, is that THEY have little to do with economics. The economics of peak oil is no different, in this regard, than the economics of peak copper, peak chromium, peak nickel, peak tin, or peak tungsten. It’s a big mistake to bet on peak oil.

          • Most rational people would disagree that $10,000 oil is unavailable to them? Are you saying that most rational people are millionaires?

            My kids have $100 trillion dollar bills in their desk drawers. That is not enough purchasing power to buy them a candy bar. The nominal price of oil is not relevant. You could have made your statement in the 1950s about $100 oil being too high for the average person.

            Kudos for attempting to cut to the quick. Others here define “peak oil” as “at some point in all history there will have been a time when oil production was at its maximum”, which is essentially “peak oil” means “oil is observable”, allows them to feel correct (since oil is indeed observable) in their wholly mathematical definition while leaving the term uninformative and uninteresting to anyone.

            You are over-thinking this issue. Not all oil is the same so we will see a number of different peaks for each category. Since each category produces a different mix of final products, which is what consumers are really concerned about, you have a complexity issue that can get out of hand very quickly. And that is before you figure out that some of the production that is being counted in a year was used up trying to produce another category of crude. Or that the reporting sucks as various national bodies muddy the waters and individual bureaucrats are unaccountable for the reporting errors that they create.

            The Peak Oil advocates, who tend to be far more familiar with these issues than the naive optimists, keep it simple and basically argue that the global production of crude will reach a peak and then decline. While the reporting authorities can hide this for a while by adding ethanol, biofuels, or refinery gains into an gross aggregate production figure that deception cannot last very long and we will recognize the peak around a decade after it becomes clear in the rear view mirror.

            Peak oil means that after some time point, world oil production will not ever again be able to profitably increase, and the ends of oil consumers will thereafter tend to become increasingly costly.

            I do not think this is a bad definition. But look where it leads you; since most shale production is not economic you should not be counting it as part of the ‘increase.’ And keep in mind that even a flat supply can create falling prices as demand is destroyed because the economy must adjust to the new reality.

            You just said yourself that peak oil is about “demand” and “prices”. That means it IS about economics. It seems likely that the reason peak oilers are so mistaken, is that THEY have little to do with economics. The economics of peak oil is no different, in this regard, than the economics of peak copper, peak chromium, peak nickel, peak tin, or peak tungsten. It’s a big mistake to bet on peak oil.

            You have missed the point. Once we get most of the oil out of the reservoirs rising prices will not produce higher production rates. At that point the controlling factor becomes geology, not economics.

          • Obviously, that does not describe the peak oil movement. Nor does it describe anything interesting, informative, useful, or capable of any kind of influence.

            As you have so ably demonstrated, you have no idea what the Peak Oil movement has stated. You are attacking straw-men that have nothing to do with the Peak Oil positions.

          • vikingvista

            You: “As far as I’m concerned, *I’ve* run out of oil if it reaches $10,000/barrel.

            It is impossible for oil to reach $10,000/bbl. The benefit of a barrel of oil must exceed the cost of producing it or it won’t be produced because no one will buy it.

            The approximately 44% of a barrel of oil made into gasoline will allow you to drive your car roughly 350-400 miles depending on your mpg. That benefit is almost certainly valued by every sane person on the planet at something less than $4400 ( 0.44 bbl @ $10k/bbl). Nor will the people of Boston, who used an average 660 gal of heating oil to warm their homes in 2012 be likely to spend $217,000 to do so any time soon, so the maximum possible price of a barrel of oil is is probably MUCH less than $10,000/bbl.

            You: “That notion of “run out” is consistent with the peak oil narrative.

            No it isn’t. The concept of peak oil refers to rate of production, not available or potential supply.

            You: “That notion is also debunked by economics. … In other words, “run out” means a crisis of widespread shortages associated with high prices.

            “Run out” isn’t what people mean when they discuss “peak oil”. And widespread shortages aren’t a necessary feature of peak oil.

            Peak oil is economic concept, not necessarily a description of a physical material. It describes a peak in production which is driven by supply and demand, which tend toward equilibrium in response to a price signal.

            Vangel: “By that measure we have already run out of $3 oil, $15 oil, and $50 oil.

            You: “Please explain how you think $3 oil has lead to a “crisis of widespread shortages”?

            I think you missed the point. Oil sells globally at the marginal cost of production. My understanding of Vangel’s comment is that if oil is selling at a price higher than $3, or $15, or $50 then it must not be possible to produce oil at those lower prices, or someone would be doing it. Oil selling at $10,000,bbl means it’s not possible to do so for less.

            Vangel: “Peak Oil theory only predicts that there will be a time after which the production [rate] of petroleum will no longer go up”

            Yes, and that could be for any number of reasons related to lower demand or limited ability to increase supply. Limited supply meaning not what’s in the ground, but the sustainable rate at which oil can be pulled from the ground.

            In the US that peak oil rate occurred in 1971. Discoveries of much more oil, improved technology, and high demand (prices) haven’t been able to drive oil production rates that high since then.

            No matter how much oil is known or estimated to be
            in the ground, there is a limit to how fast it can be pulled out, especially in shale formations where oil flows slowly.

            It is almost certain that most if not all easy to get at sources of crude oil gushing from the ground have been
            exploited worldwide. The vast amounts that remain are harder to reach and extract despite improvements in technology, which only recently has allowed them to be extracted at all.

            While new discoveries are great news – unless you’re an environmentalists and/or global warmer – it’s possible the maximum *rates* of extraction have – or will soon be – reached.

            And THAT is what we mean by “Peak Oil”.

          • It is impossible for oil to reach $10,000/bbl. The benefit of a barrel of oil must exceed the cost of producing it or it won’t be produced because no one will buy it.

            Actually my friend it is easy to see oil at $10,000 bbl if the currency is devalued due to continued money printing. I think that you are thinking of inflation adjusted prices.

            No matter how much oil is known or estimated to be
            in the ground, there is a limit to how fast it can be pulled out, especially in shale formations where oil flows slowly.

            That is what the naive optimists miss. Even the promising deep water developments may be very limited as to how fast the oil can be produced because of the need to depreciate the cost of the wells and infrastructure over a long enough period to make the projects economic. The same is true of shale formations where the build up of infrastructure must take into account the depletion rates that will limit installed capacity.

          • V: “Actually my friend it is easy to see oil at $10,000 bbl if the currency is devalued due to continued money printing. I think that you are thinking of inflation adjusted prices.

            Yes of course. I was describing a barrel of oil in terms of its opportunity cost, otherwise a cost of $10k/bbl has no meaning.

  4. I think that you boys are having a Peter Schiff moment. During the housing bubble he was very clear that we had a bubble but he was ignored or ridiculed by the self-proclaimed experts. He was proven right and the experts were proven wrong. When the Bakken drilling uses $17 billion to increase the number of wells by 43% but average per well Bakken production still declines by 10% there is no way to spin the shale data into a positive. Next year those new wells will be producing 40% less oil. Have you boys figured out just how much new investment will have to be made just to keep production even?

    • Vangel-

      From your perusal of SEC filings, where do you see the break-even point for shale? $80 a barrel? $100 a barrel? $120 a barrel?

      Seems to me at some point shale makes money.

      SEC filings are online through Edgar; what is your favorite, exemplary filing?

      • From your perusal of SEC filings, where do you see the break-even point for shale? $80 a barrel? $100 a barrel? $120 a barrel?

        Seems to me at some point shale makes money.

        There are wells that can be very profitable at $30 per barrel. The problem is that there are very few of them. The average shale well will require around $150 per barrel to break even.

        SEC filings are online through Edgar; what is your favorite, exemplary filing?

        I just look at the SEC filings. The Form 10-Ks are good enough.

          • Pick your favourite shale producer and look at the 10-Ks. Whether you are looking at EOG, Continental, Chesapeake, you see the same problems over and over again. The debt loads are exploding and the cash flows are negative year after year. Given the fact that wells are most productive in the first year and lose production rapidly that is a problem that the analysts should not be ignoring.

            If you want to look at the big picture in a bit more detail all you need to do is to look at the Bakken data. It shows that over the last year the number of wells went up by 43% but that the per well production rate fell by 10% to 130 bpd, not very supportive of the new era narrative that you are given.

    • For those here at Carpe Diem who are unfamiliar with George Yasafi Muirduck Balella, he is a regular polluter of Cafe Hayek. My good friend, Vidyohs, has a list of some of Balella’s most-noteworthy stupidities.

      Here is the preamble to the List of Muirpidities, and a few of my favorites. (There are more than 60 on the list)

      All of these are stands alone stupidity. Context is not necessary to understand that the person who created these is mentally defective.

      1. “The rising income discrepancy is what prevents people from obtaining affordable housing.”
      Posted by: muirgeo Nov 2007

      3. “Suffice it to say individualism where ever it surfaces is ultimately self-destructive.”
      Posted by: muirgeo | Mar 15, 2008 11:29:41 AM

      To make the case that humans were causing unprecedented global warming, Yasafi posted the following:
      7. “5,000 year old vegetation has been found in multiple areas around the world in the paths of recently receding glaciers.”
      Posted by: muirgeo | Mar 18, 2008 7:00:43 PM

      If he sticks around, within a week, he will give you a quote worthy of this list.

      • He asked a simple question in a very civil manner. Your reply, by contrast, was silly. I’ll repeat it, since I think Mr. Perry should have a opportunity to answer. Why was the graph cut off at 1990? Including previous years would have called the conclusion into question.

        • This is the main conclusion: US crude oil production for the week ending July 12 surged to the highest level since December 1990, more than 22 years ago. Including earlier years wouldn’t change that conclusion.

          • Thanks for the answer. I think it would be better phrased like this: oil production has been increasing, is now at 1990 levels, and will probably surpass pre-1990 levels soon enough. That keeps your conclusion intact and bypasses any suspicion about the nature of the graph.

            I have a question about the whole post. Don’t you really mean there is no such thing as peak energy? Oil itself is finite, but our need for it will be reduced by technology, and there will be substitutes.

          • I have a question about the whole post. Don’t you really mean there is no such thing as peak energy? Oil itself is finite, but our need for it will be reduced by technology, and there will be substitutes.

            This is an important point. Biodiesel and alcohol are not the same thing as light sweet crude. And those that point us to heavy oil deposits have to realize that a barrel of heavy oil does not produce the same grade of value added products as light oil does unless there is a lot of energy spent on upgrading it. We have to do apple to apple comparisons and when we do we have to look at the economics of production. If we get an extra 1 mbpd of production today because we spent a hundred billion last year that is only positive if the decline rates assure us that we can get our investment back. For that we need to look at the production data from the wells and see if they support the EURs that were justified to make the investment decisions. The problem is that outside of a few productive areas we have not seen any evidence that shale oil and gas are economic.

          • Actually, a graph showing a full century of US oil production might cause a reasonable person to question a headline that reads: “Updates on the death of ‘peak oil,’ R.I.P.”

            It is apparent from the longer term EIA graph that peak oil *production* in the US, the rate at which oil is pulled from the ground, occurred in October of 1970 at 310 million bbl/mo. a rate that is 1.4 times the rate of April, 2013.

            A graph indicating that production has now returned to 1990 levels which were, then and now, only 70% of productions levels in 1971, is hardly evidence that peak oil *production* in the US hasn’t already occurred.

            Vast new discoveries are great news, and mean that oil will be available for a long time into the future, but that’s hardly reason to rethink the concept of peak oil, at least until US production reaches levels much closer to the previous peak in 1971.

            Worldwide oil *production* is estimated to be occurring right about now. Such a claim has NOTHING to do with running out of oil, or that no more oil will be discovered, or that technology won’t continue to allow extraction of ever more oil that was previously unavailable. It is merely an observation on the rate of oil production, which has long ago peaked in the US, and appears to be peaking worldwide. Apparently the low hanging fruit has all been picked.

  5. A simple rebuttal to Peak Oil enthusiasts is why then has the price of petrol not gone down? There was a Peak Oil tremor in 2008 when the price of fuel was rising fast and small car sales were also rising but then the price of fuel stabilized. Yet once again the fuel price has stabilized and gone flat but not down to former levels. That a pretty good example of Peak Oil – a slow but steady ratcheting effect.

      • The price is what it is. You have to stop with the typical economic nonsense of referring to exaggerated external costs that you cannot identify or quantify.

  6. The idea that Peak Oil is no longer valid because of a few years worth of a turnaround in U.S. oil production, may be quite premature. The increases in U.S. production are mostly due to recent innovations allowing the recovery of oil and gas from tight shale formations – which are believed to have been the original deep “source rocks” for more traditional oil reservoirs above. The tight shale is now made to produce directly by use of fracking. However, the benefits of fracking tend to be very short-lived and such wells have shown very big decline rates following the first year of produiction. They are totally different from traditional oil formations which would often produce at increasing, then steady, and finally decreasing levels for many years or even decades after initial discovery. While fracked shale formations will produce commercial quatities of oil for only a couple of years without additional rounds of expensive fracking to re-stimulate production. So the great American fracking boom is not guaranteed to last very long at all. Its ultimate duration in terms of increased U.S. oil production remains to be seen. It could all come to a halt very suddenly, if crude oil from shale formations proves less than profitable, or if oil prices drop too low. The gas fracking boom has already slowed way down over the last couple of years after initially leading to gas prices so low that they are no longer profitable for many shale gas producers.

    And the supposed 233 billion barrels in south Australia is not even oil. In fact, there seems to be some degree of conflating oil from shale formations, with “oil shales” which despite the name are totally different. Oil shales (as in the Australia Coober-Pedy prospect) are actually a type of waxy rock (not oil) called kerogen. They even admit this – just not very often. And kerogen is actually a form of under-cooked oil, and it will not become oil without perfecting and applying a still unproven process to finish “cooking” it and converting it to crude oil.

    This is the same type of resource as out in the American West, where the largest kerogen (oil shale) deposits in the world are located in the 3 nearby areas: the Green River Basin in Wyoming, the Piceance Basin in Colorado and the Uinta Basin in Utah. Despite being discovered nearly 100 years ago, this massive potential resource has never been produced in any true commercial quantities. There was a major effort by several oil companies in the early 1980′s based near Parachute, Colorado – but this effort was soon abandoned after no economical method of turning kerogen into oil could be found. There is currently an attempt by Shell Oil in Wyoming (I think) using large microwave heaters buried underground to “cook” the kerogen in situ. So far, I have not heard any news of the results from Shell’s project. Given the significant amounts of energy needed to keep microwave oven-like devices running, it remains to be seen whether or not kerogen will be proven to yield much “net energy” value. If not, then it may prove to be a heat sink, rather than a heat source (at least by this microwave method).

    Another well known kerogen deposit is in Estonia, where the kerogen may be especially energy-rich. The Estonians, rather than trying the difficult conversion of kerogen to oil, simply mine and burn the kerogen in chunks like a sort of coal. It’s unclear to me if this same method is thought to be workable in other locations around the world, or if Estonia is still even using this form of energy, but I have read that Estonia did manage to produce a good percentage of their small nation’s electricity by this method in past years.

    • The increases in U.S. production are mostly due to recent innovations allowing the recovery of oil and gas from tight shale formations – which are believed to have been the original deep “source rocks” for more traditional oil reservoirs above.

      This is only partially true. The other reason is that in the current environment the producers do not have to produce any economic profits because they make far more by selling shares to the public and institutions hoping for another new era. Most of the increase in production for natural gas came after prices fell way below the break-even point. In a normal market, drilling activity would have fallen until prices went up to a level that would guarantee an acceptable level of return. That was not possible in shale because ‘held for production’ drilling ensured more and more product even though the activity was uneconomic.

      However, the benefits of fracking tend to be very short-lived and such wells have shown very big decline rates following the first year of produiction.

      The trouble is that this characteristic is not reflected in the accounting treatment. As Christopher Joye pointed out in one of his commentaries, Continental Resources was writing off one quarter of the costs of its drilling costs after three years even though half of all the oil had already been produced. At some time the accounting will have to be ‘adjusted’ to reflect reality. When that happens, one of the justifications for the ‘economy will boom’ narrative will be exposed and the USD is going to have to be devalued one way or another. It is sad that the US has turned into an economy of illusion.

  7. Never run out of anything? Really? Go to Easter Island and ask the Rapa Nui folks… wait – you can’t! They died off, and they will never tell us what exactly they ran out of. Some archaeologists think it was timber, to build the boats so they could fish, but we’ll never know for sure…

    Ask Sahara farmers how they were the first on Earth to grow cereal. Wait, you can’t – there are no longer any farmers in Sahara, nor any soil or water. OK, so that was awhile back. OK – ask a Tajik or Uzbek farmer if he remembers what Syr Darya and Amu Darya looked like a mere 30 years back. And ask an Aral Sea ex-fisherman what does he do for a living now that the sea has gone.

    And closer to home, ask Native Americans if they remember what bison tastes like.

    And remember: calling others idiots when you have no other arguments tells nothing about THEM, but plenty about YOU.

    • I am still waiting to find a shale company that can make a real profit if the right depreciation costs are used. With the majors writing off assets how long until the primary shale players have to do the same?

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