Guest Post: Daniel Yergin And Peak Oil - Prophet Or Mere Historian?

Tyler Durden's picture

Submitted by John Daly of OilPrice.com

Daniel Yergin and Peak Oil - Prophet or Mere Historian?

On 17 September The Wall Street Journal published a fascinating article on “peak oil,” “There Will Be Oil,” written by Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, an energy research and consulting firm and deserved recipient of Pulitzer Prize for his 1991 book, The Prize: The Epic Quest for Oil, Money and Power.

According to The Wall Street Journal, “There Will Be Oil” “is adapted from his new book, The Quest: Energy, Security and the Remaking of the Modern World.”

The essay will doubtless have widespread influence amongst prosperous The Wall Street Journal readers, but in his glib dismissal of “peak oil” theory advocates, Yergin glosses or ignores a number of issues fundamental to the larger picture, for whatever reason, and these oversights should be considered in any evaluation of the piece and the peak oil “specter.”

Yergin notes, “Just in the years 2007 to 2009, for every barrel of oil produced in the world, 1.6 barrels of new reserves were added.” But this fails to take into account the following points.

First is that for oil producing nations reserves are like money in the bank and inflated reserve figures are common. Even with the newest technology oil reserve figures remain at best “guesstimates” and should not be taken as hard and fast figures.

Secondly, while the Middle East for the foreseeable future will remain the world’s top producing area, it is unhappily also one of the most politically unstable regions of the world. The “Arab Spring’s” impact is still playing out, much less potential impact of Palestine’s incipient bid at the United Nation’s for recognition, both of which could yet still throw a major spanner in the works.

To recap briefly:

Saudi Arabia, the world’s first or second-largest producer, vying with the Russian Federation for top position, is not immune from either of the two aforementioned effects. Saudi Arabia does not allow foreign oil companies concessions and has adopted a strict conservation policy, so don’t expect to see a massive rise in production there anytime soon. As for Palestine’s impact, last week former head of Saudi Arabian intelligence and ex-ambassador to Washington, Prince Turki al-Faisal in an essay in the New York Times warned that an American veto of Palestinian U.N. membership would end the ''special relationship'' between the two countries, and make the US ''toxic'' in the Arab world.

As for Iraq, eight years after the U.S.-led invasion, holder of massive amounts of untapped reserves, the country remains mired in a low-grade civil war and unresolved political issues between its oil-rich northern Kurdish region and Baghdad. Further east, Iran is most unlikely to boost production significantly anytime soon because of U.S. sanctions imposed in 1979.

Libya remains the wild card, with only 25 percent of the country’s oil potential explored, but it has been wracked by six months of civil unrest, and the irredentist cadre of Gaddafi supporters could easily target the country’s oil infrastructure in the future.

In the Western Hemisphere, OPEC recently announced that Venezuela’s potential reserves could top those of Saudi Arabia, but the deteriorating relations between Caracas and Washington make an increase here unlikely anytime soon.

Many optimists pin their hopes on increased offshore production, from Brazil through Western Africa, the Mediterranean and the Caspian to the South China Sea but these regions’ output will suffer from the twin curses of both greatly increased “lifting costs” in the billions as well as political instability. West Africa is synonymous with corruption and civil war; Lebanon, the Republic of Cyprus, Israel and Turkey are sparring over eastern Mediterranean hydrocarbons; two decades after the collapse of the USSR Azerbaijan, Iran, Kazakhstan, the Russian Federation and Turkmenistan have yet to reach a definitive agreement on the division of the Caspian’s offshore waters and tension is rising markedly in the South China Sea, where China, the Philippines, Taiwan, Vietnam, Malaysia and Brunei are all pursuing contesting claims.

Of the aforementioned areas only Brazil has uncontested national sovereignty claims over its offshore deposits, and the government is sufficiently concerned about their security that it is considering building a nuclear submarine to patrol its offshore oil platforms. As for the rest, it is difficult to see how the nations involved will be able to attract large-scale investment into potential conflict zones.

Furthermore, quite aside from political wrangles, offshore drilling is both extremely expensive and comes with increased environmental risks.

Interestingly, the word “environment” appears only once in Yergin’s essay, in the sentence, “Environmental and climate policies can alter the timing and scale of development, as can geopolitics and politics within oil-producing countries.”

Given that the majority of the future’s oil production increase will come from offshore developments, the term should have been given greater prominence.

BP’s Deepwater Horizon Macondo oil spill in the Gulf of Mexico began on 20 April and spewed crude for three months in 2010 and was the largest accidental marine oil spill in the history of the petroleum industry, dwarfing the 1979 Gulf of Mexico Ixtoc I oil spill. Since the Deepwater Horizon incident unleashed 4.9 million barrels of oil the Gulf of Mexico suffered another rig explosion and fire at the Vermilion Block 380 A Platform on 2 September 2010.

Across the Atlantic, on 12 August a British subsidiary of Royal Dutch Shell announced a leak at a platform flow line in its Gannet field concession in the North Sea.

As for the BP leak, on 12 May 2010 California Democrat Representative Henry Waxman said that the House Oversight and Investigations subcommittee investigation into the Gulf oil spill revealed that the Deepwater Horizon Macaondo oil platform’s blowout preventer (BOP) did not pass a crucial pressure test just hours before the explosion.

Waxman said, "This catastrophe appears to have been caused by a calamitous series of equipment and operational failures. If the largest oil and oil services companies in the world had been more careful, 11 lives might have been saved and our coastlines protected."

The Deepwater Horizon Study Group of University of California’s the Center for Catastrophic Risk concluded in its “Final Report on the Investigation of the Macondo Well Blowout,” released 1 March 2011, “At the time of the Macondo blowout, BP’s corporate culture remained one that was embedded in risk-taking and cost-cutting…”.

Tracking back the signs of incipient failure, on 28 February 2009 the Department of the Interior exempted BP's Deepwater Horizon drilling operation from a detailed environmental impact study after concluding that a massive oil spill was unlikely.

Four months later, on 22 June 2009 BP engineers warned that the Deepwater Horizon BOP’s metal casing might collapse under high pressure. Seeking to spread the blame, in April 2011 BP sued Cameron International Corp., the maker of the failed Type TL 18¾in 15K double blowout preventer on the Macondo well, Deepwater Horizon drilling rig operator Transocean and Halliburton, the well’s cement contractor, saying they were largely to blame for the accident.

There are 3,800 active oil platforms in the Gulf of Mexico – how long until another major spill?

So, where does all this leave the world? Older producing fields and nations, such as Indonesia and Saudi Arabia’s massive Ghawar superfield have seen their production decline. Indonesia, which had begun producing oil in the early 20th century, saw its production slide so much that it left OPEC in 2008, seemingly confirming Marion King Hubbert’s “peak oil” theory.

While it is true that Hubbert’s predictions, made in the 1950s, took no account of future energy developments such as Africa, the Caspian and offshore, all of these regions and projects come with increased costs, which ultimately will undoubtedly be passed on to the consumers.

Is the world then running out of oil then? No, but the increase in future global oil production will likely be modestly incremental and production could be thrown off course by any number of possible events, from an Israeli attack on Iran to (another, but successful this time) al Qaida attack on Saudi Arabia’s Abqaiq oil refinery.

Accordingly, it is inexpensive oil that is in terminal decline, a development viewed positively by Yergin, who writes, “Activity goes up when prices go up; activity goes down when prices go down. Higher prices stimulate innovation and encourage people to figure out ingenious new ways to increase supply.”

Many American motorists would disagree.

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BrocilyBeef's picture

Ohh look over here it's your friend PEAK OIL! blaa blaa blaa

 

EnglishMajor's picture

I am sure that we will find a way to make oil from two to three miles deep in the ocean off the coast of Brazil flow just as quickly and get to market just as fast as we do from a Middle Eastern desert a few miles of pipeline away from waiting tankers, and I am sure it will be just as "sweet" as Libyan oil and just as easy to refine.

In the meantime, don't bogart that Hopium and concentrate on these four words: Liquid Flouride Thorium Reactors.

They can even sustain a colony on the moon:

http://www.youtube.com/watch?v=N2vzotsvvkw

 

bid the soldiers shoot's picture

I'm gonna concentrate on four words: EnglishMajor/MagicalThinking

EnglishMajor's picture

Don't get me wrong, we have a good thousand years worth of Thorium on this planet, but we are still fucked.  Thorium LFTR reactors can be built for under $2 billion dollars, but instead we secure oil fields with extreme prejudice in the name of democracy.  Shit, we experimented with a Thorium reactor at Oak Ridge in the 1950's.  Why the fuck didn't we run with it then?

Oh yeah, Thorium is resistant to proliferation.

bid the soldiers shoot's picture

I will allow you all your confidence in the effectiveness of Thorium and Thorium reactors. But there is something else beside a replacement for crude oil in play. I'm not saying I know when, but there's a drop dead date by which time crude oil's replacement has got to be on line and not just talked about. Or else.

Arguing for PO is just a fool's errand for another fool's errand.

The impossible task of convincing someone that they believe in the possibility of an impossible event. It would be funny if the stakes weren't so high.

MSimon's picture

An oil engineer looks at the oil market:

 

http://powerandcontrol.blogspot.com/2007/01/oil-outlook.html

 

I believe the details may have changed some but the overall view is correct.

greyghost's picture

well i just don't know. is this about "peak" oil or just maybe "shortages" in the pipeline from time to time? talks about peak oil and than rambles on and on about problems with  supply from the far reaches of the world. my favorite is "even with the newest technology oil reserve figures remain at best "GUESSTIMATES" and should not be taken as hard and fast figures. whoa...DOES THIS GO FOR THIS JACKASSE'S FIGURES ALSO? i think the time has come to ask...who the hell is paying this guy's salary? who funds this clown's work? the only people on this planet that have anything to gain from the "peak oil crap??? IS WHO?????

bid the soldiers shoot's picture

The people who want to live in comfort for as long as they can. And squalor when they are so reduced.

Regretably they must assume absolute power to do so. What they gain is that invaluable asset: Time.

Got Time?

TheMerryPrankster's picture

The first place he falters is when he declares we are producing more oil today than we did 5 years ago - then in his chart to prove it, he includes biofuel and other liquids - which are not oil and do not have the same energy density as oil - as a matter of fact most have only  50% of the energy density as oil.

so we might produce more oil like stuff, but it is more difficult and it produces less energy - even a fool can see where this curve ends.

New_Meat's picture

BrocilyBeef: Trav777777777 gonna b mighty pissed that u stole his top spot on a "peak oil" thread ;-)

Better watch out!

Market Efficiency Romantic's picture

just pushed his book on Bloomberg.

That Peak Oil Guy's picture

There will be blood.  Not so sure about the oil.

TOD rebuttal to Yergin's essay:

http://www.theoildrum.com/node/8391

That Peak Oil Guy's picture

I would avoid any criticism of peak oil that does not include the phrase "EROEI", or "energy returned on energy invested", or does not look at maximum flow rates for these wondrous new sources of oil.

CrashisOptimistic's picture

Of course he's pushing his book.

His doctorate is from Cambridge.

IT IS NOT IN PHYSICS OR GEOLOGY OR ENGINEERING OR ANY OTHER SCIENCE.  My recall is it's in International Economics or some such blather.. 

He polished up his writing skills, won a prize with that very narrow and irrelevant talent and parlayed the prize into a consulting company that tells the oil industry what it wants to hear (and what it wants its funding sources to hear).

He does not understand BTUs.

He does not understand energy density.

He is safely ignored.

 

Spitzer's picture

The Russian oil theroy makes a hell of allot more sense then the dead dinosaur fossil fuel theroy. With that considered, peak oil looks like bullshit.

Under the keynesian Bretton Woods 2 system, everyone is led to believe that rising oil prices are the result of a growing economy. That is wrong. During legit economic growth, oil prices fall because there is not only higher demand but also higher supply.

Spastica Rex's picture

Your mom looks like bullshit.

kito's picture

is his mama black and highly vicsous?

Greyzone's picture

Your support of the Russian oil theory is based on what scientific background. State your credentials and the evidence, please.

I work at a large oil company in Houston. Nobody and I mean nobody looks for oil based on the Russian theories. Now if the Russian theories were correct wouldn't some western oil company be using them to get an edge on their competitors? If you believe in the Russian theory so much, go start an oil company based on those theories and tell us how much you lose.

The Russian theory is baloney, regarding oil.

 

As for peak oil, even if the Russian theory were true, we'd still run out unless the Russian theory creates new oil faster than we use it. But at our current rate of consumption, about 85 million barrels per day, if it had run continuously for the last 5 billion years, the entire earth would be one big ball of oil clear down to the core. You can't have it both ways, Spitzer. Either the Russian theory fails to replenish oil at current consumption rates or the earth must only be a few thousand years old. Or are you a creationist too, believing in a young earth?

 

So the truth is, this is a finite planet and there is a finite amount of oil we can get out of the ground. The future is thorium reactors, not stored ancient sunlight. Eventually this will be realized. In the meanwhile, prepare for steadily increasing exploration and recovery costs for petroleum. (Note: Natural gas is a slightly different topic.)

Citxmech's picture

No no, you don't get it - the abiotic hypothesis relies on the "oil gnomes" (close cousins to the underpants gnomes btw).  They control the rate that the Earth produces oil to match our rate of consumption.  They do this by changing the size of the metering orifices they insert into the sweet oil-shitting unicorns that live in the center of the hollow Earth. 

duh.

Spitzer's picture

So everyone here believes the dead dinosaur theroy ?

The Russians got oil out of ground in Vietnam using their theroy. Why has Russia all of a sudden taken over Saudi Arabia for oil reserves ?

Flakmeister's picture

Quit with the bullshit dead-dinosaur strawman..... or if you choose to use it, take it to Yahoo!

And if you talking about the White Tiger field, try this

"Petroleum samples from the White Tiger oilfield contain biomarkers which "indicate a lacustrine organic facies with lipid-rich, land-plant debris and fresh-water algal material," which indicate that it is of biological origin"

Edit: BTW, you played your hand when you confused production with reserves, do yourself a favor and simply STFU.

 

chindit13's picture

I think you just added one more dead dinosaur to the compost pile.

+1

Citxmech's picture

So when will Cantarell or Ghawar replenish back to their peak production rates?  Inquiring minds want to know.

CIABS's picture

Spitzer:  please stop writing "theroy".

TheMerryPrankster's picture

What about the sock gnomes? they are the most prevalent of the assorted gnomes - surely they must be involved perhaps trading socks for oil from the petroleum dwarves?

bid the soldiers shoot's picture

If you want to get picky about the gnomes, as you call them, these are a branch of the Nibelungen race who developed an alchemy to turn gold into oil.

It's very expensive, but it's very lite and extremely sweet.

Flakmeister's picture

Lets play a real simple game, since you would not understand the real rules, I'll use the rules for 8 year olds.

The most wildly optimistic estimate of world oil reserves in all their various forms is 10 trillion barrels. The earth is about 4.6 billion years old. That works out to an average production rate 21,000 barrels a year....

CrashisOptimistic's picture

That's a good rebuttal.

Another is you still find oil under capped sedimentary rock.  Nobody in a petroleum geology lab staring at seismic studies worries about dinosuars or abiotic origins.  They look for the rock structures that might hold oil and they drill -- and most of the drilled wells find nothing.

Where it comes from is of no interest to the process of finding it.

bid the soldiers shoot's picture

You did not emerge from your mother's womb making $87,000 per annum, did you ?

Mr Lennon Hendrix's picture

Yes, Spitz, there is a Santa Claus.

UTICA CLUB XX PURE's picture

I'm Going Long Belgium Draft Horses & Short John Deere & Cat..

CrashisOptimistic's picture

There are far, far worse investment strategies than that one. 

Wyoming has more horses than people.  Its day as the center of civilization (what little of it is left) is coming.

 

TheMerryPrankster's picture

Wyoming also has more nuclear missiles than people, one good reason not to live there since it will be a very big target when the missiles fly. We have never built a weapon we didn't use and I don't think mankind is in danger of changing its ways anytime soon.

Rusty.Shackleford's picture

Cheap conventional oil is over, and the world can't just keep chugging along on shale oil and tar sands

noobzilla's picture

Why not? Canada has 1.75 trillion barrels in oil sands that are being produced at a cost of $28 a barrel.

Flakmeister's picture

First off, it is production rate not reserves that count. You are aware that the tar sands currently consumes 25% of Canadian domestic NG production? Did not think so....

Rusty.Shackleford's picture

yeah tar sands production will never exceed 5 million b/pd,

noobzilla's picture

Production rates are not a problem when Canada's oil sands are the size of Great Britain.  Oil sands already account for half of Canada's production, and hundreds of new projects are being started. New extraction methods are being developed that will cut NG consumption in half over the next 5 years.

LawsofPhysics's picture

No, production rates are one problem, along with many other technical issues that engineers are working on.  More to the point of this website, the only thing that matters is the return on capital investment, period.  The two most important forms of capital being money and energy that is already available.  Tar sands require a lot of both and the oil that is recovered very expensive from both the captial and energy prospective.  With real wages going down faster than your mother, I have no doubt that the world will stop using oil with plenty in the ground simply because the energy and capital input will simply make it not worth the investment.  Bring on the fission reactors already. 

 

Fresh water for numerous applications (including refining) will become a major problem south of the 48th parallel long before oil is.

Mr Lennon Hendrix's picture

Maintaining their watersheds and aquifers should be their number one priority, but no one ever said desperation is pretty.

taketheredpill's picture

Saudi Arabia only has political influence so long as they are a swing producer.  The second peak oil becomes accepted, that is, that the SA output capacity is insufficient to drive prices down, they lose.

Yergin is an oil consultant.  One of his clients, and I would guess largest clients, is Saudi Arabia.

He really has no choice, professionally, than support the status quo.

 

TheFourthStooge-ing's picture

Yergin is a shale shill. Kunstler put it best on Monday:

So, last week Daniel Yergin came out with a blast in the Wall Street Journal affecting to debunk peak oil. His own theory is much like Irving Fisher's economic theory set out October 21, 1929 that "stock prices have reached what looks like a permanently high plateau." Three days later, the markets crashed and the Great Depression commenced. Yergin says we've hit a permanent plateau for oil production. He is pimping for a bonanza in shale oil, tar sands, and other innovative ventures in picking "fruit" that is not hanging so low anymore.

http://kunstler.com/blog/2011/09/the-rainmakers.html

 

Mr Lennon Hendrix's picture

The House of Saud has not been the swing producer for over a year.  Russia is now the world's largest, and Russia peaked production in '89.

The whole reason that Paulson fire bombed the economy was to continue the status quo.  The set the House up to Fall.  They put oil on the bumpy platue by pulling investment. 

But the game of chairs can go on for so long.  Oil is finite.  If you do not understand this then you are stupid, misinformed, or uninformed.  There have been NO large oil discoveries in decades.  Even if there is one made it will not mitigate the problem.

Peak oil is here and it is the only thing the US has at its back.  The New World Order has penetrated the minds of almost all Americans and Europeans to believe in its Democracy.  The US and Europe has the weapons they need to continue to rule.  They have the gold.  The one thing they do not have is the oil, so they have been trying to destroy the wealth of the oil producing states during the last years.  Yet when reality is fought with imagination, in terms of dollars vs. oil, there is oil set to lose.  Care to bet against reality?

bid the soldiers shoot's picture

Any real person with a real job would be nuts to argue Peak Oil in public.

You could lose your membership to Costco.

BrocilyBeef's picture

agreed... PEAK DEBT is more likely.

Flakmeister's picture

Don't you get it? Peak Oil implies Peak Debt