Some experts say otherwise
January 1, 2007 - When crude oil prices fell from $75/barrel (bbl) to the $60/bbl range in late 2006, there was a sigh of relief. But wait: Let's wipe from short-term memory the 2005 hurricane-driven price action. What was crude's price in 2004? Here is some info from the Energy Information Administration web site:
- 9/04 weekly average high = $39.55/bbl
- 10/04 weekly average range = $41.20 to $46.00 /bbl
- 11/04 range = $36.74 to $41.20./bbl
Of course, prices from September-November, 2006, were higher-much higher. The trend line remains in place, and it has an upward slope.
Oil Pique
In November, the Cambridge Energy Research Associates (CERA) published a paper entitled "Why the 'Peak Oil' Theory Falls Down." Given CERA's reputation in the energy world, this paper could be devastating to the gloom-and-doomers.
CERA's paper dealt with M. King Hubbert and his latter-day admirers. Hubbert, a geophysicist, was regarded as deranged in the 1950s, when he said crude oil production in the Lower 48 states would soon peak. The peak he predicted for 1968 actually happened in 1970!
Yet the first short section in CERA's report is headlined, "Hubbert: Revised and Found Inapplicable." Isn't it strange for a 2006 report on peak oil to start with by demolishing the work of a man who died in 1989 and whose 50-year-old prediction stands as the most successful human forecast since the days of John the Baptist?
What's more, I gave up on finding a direct or indirect reference to Twilight in the Desert 2005 after several readings. This incredibly detailed book by oil industry expert Matthew Simmons talked about the (mostly) hidden troubles Saudi Arabia is having managing its reserves. That omission was startling.
There's a lot of reference in the CERA paper to "peakists . . .using Hubbert's methodology." But as an "insider" in the oil industry, Simmons gathered all the data he could find on Saudi production (some 200 technical and engineering papers). Saudi Arabia's crude reality matters, because it has most of the world's reserves.
Simmons methodology matters, of course, since even CERA agrees, "There still is no accurate assessment of global reserves and resources,"
But most countries with significant reserves are Organization of the Petroleum Exporting Countries (OPEC) members. OPEC nations have an incentive to lie about the size of their reserves. OPEC internally allocates production limits based on . . . reserves. Therefore, the bigger an OPEC member's claimed reserves, the more it can produce.
Consider also that in 2004 Shell Oil fessed up to overstating reserves by some four billion barrels. Given that "error" and the incentive OPEC members have to lie . . . will you base your thinking about future energy prices on the hope that global reserves are understated?
Finally, CERA's decision paper included figure 1 reproduced here. Look at the blue area ("conventional oil"). Do you see a peak, coming around 2030/2040? You certainly do! What about all of that "unconventional oil" supply that starts showing up in big quantities? Those are guesses, folks!
Does this mean you must believe those who say the peak in global oil production has already come, or will before New Year's Eve 2010, or maybe as late as 2015 or 2025? Absolutely not. But you might stop hoping that crude oil prices will return to $25 or $35 a barrel, leading to widespread energy price declines in other markets.
Out of Focus
CERA's paper stays away from the subject of prices. Note that the "peak oil" advocates (and Simmons) don't say energy will become unavailable in the near term . . . just that it will be harder to get at, and therefore more expensive.
Compare this with what you know:
1. Anyone who expected 1970s oil crises was gosh darn quiet before it hit.
2. No one at the time thought that crude oil's price would fall to $10/bbl as soon as 1986!
3. Imported crude oil's price flirted with the $10/bbl mark for much of 1998; the December average fell below $9! Did you remember that? That's right - oil was $10/bbl in 1986, and went even lower as 1998 ended.
4. Oil's price rose before the 2003 invasion of Iraq, then dropped back to $25/bbl. No one predicted a doubling (or tripling) of prices in a few years.
5.
a. How much petroleum will India and China use in the 2020s? Goldman Sachs (in 2004) said this: "China and India may emerge as the world's number 1 and number 2 car markets. Within 20 years, China could overtake the U.S. as the world's largest auto market, with India displacing the U.S. perhaps as soon as 10 years later."
b. Will the Chinese and Indians buy cars . . . and keep them parked?
c. There are 826 cars per 1,000 people in the U.S. What's the number in China? Answer: 15. Of course, there are 1.3 billion Chinese.
Recalibrate Your Thinking
Recently, there was excitement about a discovery in the Gulf of Mexico of a field that reported at three billion to 15 billion barrels of oil. Other than some very specific disputes with the estimate (see Web link below), here's what three billion adds up to: 35 days of global supply, at today's consumption rates.
At 15 billion barrels - the max - we get 425 days of additional world supply. So peak oil, if it's coming, was delayed by this discovery for a maximum of 61 weeks!
You have plenty of options. You can conserve and retrofit your buildings. You can build new ones so they are "green." You can hedge your energy exposure in energy markets. You can build alternative energy power plants for your facilities. And there's more.
But most of all, you need to think about what you're going to do. You can't afford to envision a future without higher energy prices . . . even if one might happen.
Energy Prices: Still Going Up-Undulating plateau versus peak oil
Posted: January 1, 2007
Some experts say otherwise
