This page has been archived and commenting is disabled.
Guest Post: Selling The Oil Illusion, American Style
Submitted by Chris Martenson guest writer Gregor Macdonald
Selling The Oil Illusion, American Style
"The task of the real intellectual consists of analyzing illusions in order to discover their causes." ~ Arthur Miller
US production of crude oil peaked in 1970 at 9.637 mbpd (million barrels per day) and has been in a downtrend for 40 years. Recently, however, there's been a tremendous amount of excitement at the prospect of a "new era" in domestic oil production. The narratives currently being offered come in the following three forms: 1) the US has more oil than Saudi Arabia; 2) the US need only to remove regulatory barriers to significantly increase production; and 3) the US can once again become self-sufficient in oil production, dropping all imported oil to zero.
Let's first take a look at over 70 years of US oil production.
The US is currently enjoying its second stabilization phase since the peak in 1970. (Daily oil production has rebounded from a deep hole in 2008, from below 5 mbpd to above 5.5 mbpd). The first stabilization period lasted for more than 7 years, from 1977 to 1985. While it did not reverse the overall decline trend, which had resumed by 1990, this was certainly good news, just as our current production increases are good news. But the production history laid out graphically here is instructive and gives a clear warning: It would be unwise to herald the recent uptick in domestic production with a "new era" headline. Deepwater drilling, Gulf of Mexico, and Alaska were all "new era" events in their day as well. Or so they seemed.
Now, three respectable publications have recently cast the advent of new oil extraction in America as a kind of miracle. And indeed, technologically, the refinement of hydraulic fracturing techniques -- first used to extract natural gas, and now used to extract oil -- is miraculous. But a technique such as this, although replicable and repeatable, will not change the fact that newer, unconventional resources are developed and produce oil at a much slower rate. One year after the Black Giant of East Texas was discovered in the early 1930s, it was producing just 1 mbpd. The US no longer has resources such as this to exploit. The history of US oil production over the past 40 years should make this clear.
However, this did not stop the Telegraph of London from making triumphant assertions in their October 23 piece:
World power swings back to America
The American phoenix is slowly rising again. Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy.
The US was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day (b/d)," said Francisco Blanch from Bank of America, comparing the Dakota fields to a new North Sea. Total US shale output is "set to expand dramatically" as fresh sources come on stream, possibly reaching 5.5m b/d by mid-decade. This is a tenfold rise since 2009. The US already meets 72pc of its own oil needs, up from around 50pc a decade ago. "The implications of this shift are very large for geopolitics, energy security, historical military alliances and economic activity.
(Source)
The claims made here (or should I say the conjectures here), are completely over-reaching -- but worse, the data is completely wrong. This matters because the article was widely distributed and sustained a very popular position for several days on Twitter and in other media outlets. I have written extensively on the problematic nature of energy data that’s produced by the Energy Information Administration (EIA) in Washington and International Energy Agency (IEA) in Paris. So it’s not really surprising that the public, the average reader, cannot fact-check these numbers easily.
In Secrecy by Complexity: Obfuscation in Energy Data and the Primacy of Crude Oil, I explained how difficult it can be -- even for journalists -- to obtain a time series of commodity production and flows that is continuous, let alone understandable. For example, if one includes biofuels (which, of course, are not oil in any sense and do not contain the dense btu content of oil), perhaps one could claim that 2010 oil production in the US outpaced the rest of the world. But according to the EIA in Washington, 2010 saw China make the largest new contribution to world oil supplies at 277 kbpd (thousand barrels per day), followed by Russia at 199 kbpd, and then Canada at 153 kbpd. The United States? US oil production grew by an average 114 kbpd.
So in a world of global crude oil production currently running around 74 mbpd, we are asked to believe a new era has dawned for the United States on the back of an additional 114 kbpd? That would be funny, if it were not so ridiculous. Let’s also include the 2011 additions to US oil production, at 141 kbpd. Are you feeling excited yet? These are the volumes that will allow the US to re-conquer the world with new oil production, and wean itself off global oil imports? The New York Times is quite enthused about these “major developments,” as evidenced by this October piece:
New Technologies Redraw the World’s Energy Picture
This striking shift in energy started in the 1990s with the first deepwater wells in the Gulf of Mexico and Brazil, but it has taken off in the last decade as a result of declining conventional fields, climbing energy prices and swift technological change. The United States may now have the means to reduce its half century of dependence on the Middle East.
(Source)
Sigh. The New York Times has been selling that dream for several years now. Indeed, if you are old enough to have followed the presidential election cycle since the 1970’s, you’ll know that “energy independence” has been a standard, vague promise trotted out since the Carter Administration.
But let’s say the US did indeed want to become less dependent on foreign oil. How would the country achieve such a shift, if not through a huge increase in production? After all, the recent “rise” or stability in US crude oil production is made partially on the back of a steeper four-year production decline that carried into 2008, when the rate fell to below 5 mbpd. So far in 2011, US production of crude oil just about matches the rate last seen in 2003-2004, around 5.5 mbpd. Despite the hype, the supply side of this equation has not changed enough. Could we do something about the demand side?
So, now you know. The longest and deepest recession (actually a financial crisis and a depression) in the post-war period reduced oil consumption by 12.8%. The “miracle,” if you can call it that, of US oil independence lies not in the illusion that 5.5 mbpd of oil production can be lifted to wipe out 11.5 mbpd of oil imports. Instead, it lies in a further de-industrialization of the US economy, a huge reduction in miles driven on the nation’s roads and highways, and no doubt some energy efficiency.
Perhaps some of these are good things. Even very good things. But they are not unequivocally good things. To the extent that portions of the US economy that can shift to the power grid have done so in the past three years, for example, much of that new grid demand has been met by coal. But more broadly, it is not so much that the US is wisely and strategically conducting energy transition as a matter of policy. No, a whole tranche of the US economy has been literally kicked off oil, mainly due to the financial crisis and high unemployment, but also partly due to the inelasticity of demand in emerging markets. I would remind readers that 100% of the new demand for global oil since 2005, mostly coming from the non-OECD, has not been met by new supply. Instead, in a world of flat oil production, the resources for the developing world have come solely from a reduction of demand in the developed nations. Global oil supply is now a zero-sum game. Let’s stop litigating this fact.
Of course, no tour through the world of badly mangled energy data or energy optimism would be complete without noting the opinion of Dan Yergin. Interestingly, Yergin’s research group CERA has produced one of the best indexes of rampant cost inflation in the global oil and gas industry over the past decade. This is a key point that often eludes even the educated reader not familiar with the complexities of resource economics, and which was a ghosted irony in the New York Times article cited previously: The unconventional resources on which we now depend are complex and costly. Most important of all, they are slow. The tar sands are slow. Ultra-deepwater off the coast of Brazil is slow. However, this does not stop Mr. Yergin, who has been given free range once again to make vague, grand forecasts about future supply. In an October 31 piece in the Financial Times, he is quoted:
Pendulum swings on American oil independence
“Over the past couple of years, there has been a great U-turn in US oil supply,” says Daniel Yergin of IHS Cera, the research group. “Until recently, the question was whether oil imports would flatten out. Now we are seeing a major rebalancing of supplies.”
(Source)
It no longer amazes me to hear Yergin make such claims. U-Turn in US oil supply? A major rebalancing? Yeah, sure; whatever. This pabulum is, of course, not taken seriously by energy investors as a whole, and certainly not by some of the more notable hedge fund managers, who took it upon themselves to get out in front of oil depletion early last decade. Mr. Yergin is useful to a political complex that wishes to avoid the career risk of actually having to do something about our increasingly uneconomic transportation systems and the developed world’s dependence on oil. This is as true here in the States as it is in Europe. Indeed, why take the political risk of telling Americans they should choose to transition away from automobiles, when price will start to do some of that work regardless?
Continuing with our theme, the Telegraph of London was completely wrong when it claimed that the US now meets 72% of its own oil needs, up from 50% a decade ago. Worrying to the cause of mathematical accuracy in journalism, that 72% figure nearly describes the amount of crude oil the US must import -- which is currently running at 68% of US consumption. Moreover, given the peak and decline in VMT (vehicle miles driven), we once again confront the myth that the US economy is recovering and has new oil supply to do so. This is a nasty combination of normalcy bias, which plugs in to the wish for resurrection and the plain old fallacy of composition. A very small amount of new oil production has been blown up beyond all scale and proportion. To the Arthur Miller quote in the header of this essay, the question is: Why has the media presented this illusion now, to the American audience?
We need to examine even more closely, however, the actual prospects for lifting US oil production, were we to imagine a kind of War on Oil Depletion in the United States. (No, we're never going to extract the kerogen deposits of the Green River Formation, despite the investment-opportunity (!!) spam in your email). Environmentalists probably believe for example, especially in the wake of their victory this week on the XL Pipeline, that the US is unlikely to ever adopt a full-on, drill, drill, drill policy for oil. I think that's a mistake, and I would point to a country like Australia, which, despite a new tax on carbon, has increasingly become a single, vast territory of resource extraction.
Unfortunately, our oil transition effort has only just begun. It's still taking place only in very minor fashion, at the margin. The balance of this decade must be tackled first, and it will be felt as an ongoing battle between oil prices bumping up against a ceiling as economies repeatedly fail to recover.
In Part II: How To Postion for the Next Great Oil Squeeze, I also show the specific data on US Imports of crude oil, and why Canada, with its very slow-flowing tar sands, is hardly going to save the US, XL pipeline or not. Most importantly, I will explain how oil depletion will likely mean quite a profitable future for America's independent oil and gas companies and address the key questions: how can the average investor position themselves for the next great oil demand shock? and when will it happen? All within the context of overall, energy-induced economic decline in the OECD, as resource depletion of oil -- which remains the master commodity and the primary energy input to the global economy -- means that a higher level of economic volatility will be the new normal until energy transition unfolds more fully.
Click here to access Part II of this report (free executive summary; enrollment required for full access).
»
- 24221 reads
- Printer-friendly version
- Send to friend
- advertisements -
yes, it's all hype that the USA has become the largest producer of Nat Gas in the world in 2010.
Every one of your points is wrong. Way to spew bullshit. I hope you don't do anything important for a living. If you work.
Please explain what you believe is wrong.
Not one. Not two. Not three. Four oil shocks and the US still never developed a responsible energy policy. The response? We burned even More: SUVs became legal, avg vehicle mileage dropped, speed limits were raised, public transportation crumbled, residential and corporate energy efficiency dropped, suburban commutes became longer, and commuting time in traffic increased. Greed was good, while it lasted
You'd think people would finally wake up and smell the coffee, eh? TPTB need oil shocks to keep the flocks in control. It's all Hollywood -- fake. But you've got to give them some credit -- there's lots of believers in their bullshit.
I reckon this is the answer to our problem is algae. The original source of oil before it was oil.
Chevron, Bunge and Dow are all on board. Bill Gates has an investment in a similar company but their method is supposedly not as advanced.
Check out
Solazyme, Inc. (NasdaqGS: SZYM ) Bunge has it valued at 13.50 a share right now.There are 550,000 holes drilled in the ground in the US - producing an average of 10 barrels a day. The Ukraine has about 110,000 doing much better.
This is a blood from a turnip kind of bullshit.
There is a simple reason we're working so goddamn hard to build a pipeline from northern Iraq to the North Sea: Chinese nuclear missies that can now reach all the way across the Persian Gulf, in the hands of our friendly friends of Iran.
The magic number to follow for water extraction from oil production is about 23%. Once that threshold is crossed, you run the danger of destroying an oilfield for the long haul.
The easy stuff is gone. It's more expensive and risky from here.
The planet uses about one cubic mile of oil per year. Best estimates place that which is left at about 60 to 90 cubic miles.
Oil shales (North Dakota - Canada) are all North American has left to produce in hopes of beating the curve.
The Gulf of Mexico is a go-to kind of place now (5,300, wells and counting), but it's deep.
The USGS owns the flux magnetometer business in this country, which is what Halliburton depends on to control the head of a directional drill doing exploration at 20,000 to 30,000 feet of debth.
it's going to take more than wishfull thinking about oil to fix this fucking mess.
Eh, no.
Look into the fields that are drilled and tapped and just sitting there in Alaska and then get back to me.
Would you like to share with us? Please don't bring up Gull Island.
You might want check this out.
http://www.usgs.gov/newsroom/article.asp?ID=2784
Rockefeller's virtual oil monopoly, still very much alive, has engineered it so they squeeze every dime they can out of oil down to the day they announce we've consumed the last drop. Huge fortunes were and are still made off war profiteering. It's the major source. From the people who brought you Napalm. How perfect a symbol of reckless oil consumption for profit: An Oil Bomb! :-)
It should be the duty of each American to drill a test well in their backyard. About one per acre of land. So we can maximize our output.
Let us know how that goes when the EPA and the DOE come in and seize your land and all your equipment.
Unless we get busy developing alternative methods of transportation and energy production we will all be living like the Amish or starve.
Martenson has some interesting things to say from time to time. However, I would not scoff at the notion of a resurgance of domestic oil production as he does. It is likely there will be a resurgence for some time which pushes the real peak oil events further out in time as has happened repeatedly. There will be a peak oil period and we have lived through a harbinger of it these last few years. But hydraulic fracturing techniques are just now really being brought to bear on oil deposits in the US and hardly at all internationally from what I have read. Technology will extend the time to Peak for awhile. If you really want to read something that explains some of what has been going on in energy, read http://www.pkverlegerllc.com/assets/documents/Blundering_to_3001.pdf
And then read the rest of the stuff on his site. Basically, there are many types of oil with varying properties in the world. The path of least resistance leads to demand for the lght sweet crudes that have been easiest to refine (and are the ones traded on commodity exchanges and quoted by the media) given the market demands as shaped by government policies in the past. There is a lot of sour crude with high sulfur out there in the world but not so much refining capacity capable of refining it economically given the current state of the industry. As with many things the Peak Oil theory (something I started taking seriously round about 2001 or so) is not quite as simple as presented.
bangpath.com
The real elephant in this room is deep oil in the Gulf of Mexico. Many insiders have hinted that this source could be larger than Saudi reserves. As we've seen already, however, getting deep oil out of the gulf is going to be a dangerous proposition.
The best source of oil is going to be conservation. We don't need 500 horsepower, 6000 pound cars to get around. 50-60 mpg is easily attained in a comfortable sedan.
Peak soil, bitchez!
and his sister peak clean water.
we can live without oil
we can't live without clean water.
Why do you think Barry released 60 million barrels of emergency reserve? It is no coincidence only half of that release reached the market. the other half was handed by Barry to JPM...for $92 a barrel from what I read.
So banks are now buying and storing massive amounts of physical commodities including oil.
Oughta tell ya something.
Yeah, it tells me that the banks own Barry. Liberal democrat? In your dreams!
This is for the fools that think that cars cannot run on natural gas.
http://www.afdc.energy.gov/afdc/fuels/natural_gas_locations.html
cars can run on natural gas, think how much faster we can use up our natural gas reserves if we convert everything to run on natural gas.
How much natural gas would it take to make enough steel to replace just the gasoline tanks and fuel injection systems of existing motor vehicles to retrofit them with natural gas compatible fuel tanks and injection sytems? Now how much natural gas to fly a jet cross country?
how soon can we deplete all natural gas supplies if we run everything in the country on natural gas?
Somebody simply said cars can't run on natural gas. The answer is they are wrong.
For answering the wrong question, you get an 'F'.
For not being intuitive enough to understand the larger problem that lies outside your smaller solution, you get an "uck you" put it together with your "F" and have a nice day.
There won't be a make-up exam.
LFTRs = gasoline/diesel
The main thing to take away from the writer's brilliant evisceration of the Telegraph/NYT/FT pieces is NOT that energy-sector journalists (and their editors) are innumerate morons who don't bother to fact-check press releases.
No. the main point is that these organs produced sheer puff-piece propaganda that appears absurd to anybody who reads it... but that 99% of their readership will never know that what they just read was bullshit from headline on down. They will 'take it as read' that these august organs would never publish something for which a tenth-grader would get an 'F'.
What those stories serve to point out, is that there is a very good reason why the NYT, FT, and the rest of the old guard, are dying the death of a thousand cuts-in-print-ad-budget. They are so busy trying to pander to their respective political overlords, that they no longer produce content that is reliable or relevant.
I'm surprised the NYT didn't trot out the Abiotic Oil Hypothesis (about which I have read a decent amount, and which - oddly - seems not to be as silly as it sounds)... but then again the AOH would not be of interest to the originators of the press relaeases from which those august organs were cribbing.
Peak sex has been a bigger issue for me, which was sometime in the 80s.
Wouldn't it be nice if we had a president who came right out to the public and said, " It would be good for our country if we could try to use less oil." Forget global warming, forget peak oil, forget trying to go 100% oil free, we should be trying to go as oil free as we can. We should be rezoning like crazy to intersperse work, housing, shopping, even some farming closer to each other. We are ridiculously wasteful in this country for no good reason. In Oakland, California maybe 6 or so years ago, they made a community where everything was walkable. People paid extra to live there. They loved it.
We should be using as much solar power as we can, and hybrid cars. It doesn't matter that we can't get 100% off of oil, lets just get as oil free as we can.
"In Oakland, California maybe 6 or so years ago, they made a community where everything was walkable. People paid extra to live there. They loved it. "
I think there is a great demand for transportation-free living. As America grows older that demand will increase. Yet it seems that "the system" never tries to meet the demand.
I just have to drop a little comment into the peak oil discussion. A few of us in another forum did a lot of research, discussion and brainstorming on this. Oil is both abiotic and abiogenic in nature. We theorized that oil is being produced chemically through both forms. Now, the plankton in the sea is continuously being injected into the earth by the natural process of the expansion of the Earth's crust and it folding in upon itself. I am not the geological type, so I am using basic terminology here. Millions of tons of carbon is being injected every year into the Earth, a sort of oil engine. It takes the carbon source, be it plant and animal in origon or other forms of carbon and creates the complex hydrocarbons through pressure, heat and other chemical reactions.
A couple people here are stating that oil production is not an infinite exponential possibility. Well heck, neither is the use of it going to be an infinite exponential possibility.
Of course this argument about production is a strawman argument, or an Non sequitur. It does not have anything to do with reality in other words.
Just as oil will not be the power source of the future. I am imagining sooner or later the reaction that is prevalent through the universe will be our power source. Fission and fusion. A couple of others possibly gravity based or time/relativity based, if we can ever solve what exactly time and gravity is.
As for those creating the fallacies, please stop, you may be kinda smart, but not as intelligent as you think you are.
edit, to remove extraneous word
Simply put:
What process stopped that quit producing oil deposits?
(I think it's when they cancelled the tv show "Dinosaurs".)
What has been done to measure the rate of this deposit?
We tryed to get some information on Russian documents, but not surprisingly, a lot of their info has not been translated into English.
On the ocean floor, dead plankton and other carbon sources are folded into the planet continuously. Let us say 1 million tons per year. From just this source alone, what is the conversion rate? How long does it take? Just a couple of the 100s of questions to be investigated.
The main reason I believe that oil is produced by the planet itself, not just from plant and animal remains, is the depth that Russian and now the US is getting to oil deposits.
Think of the Gulf accident. The depth of that deposit is an indicator of the source. The planet not just plant and animal remains.
Politicians and governments are dangerous. They take a simple problem, make it hard and then use life destroying force to solve it.
shut the fuck up traveler. you don't know what you're talking about. go ram you head up someone else's ass this time and ply your bullshit there.
"Fracking" is more a Ponzi scheme than a long term solution to America's energy problems. The big NG companies are selling assets as fast as they are produced because they know they deplete rapidly. The profit in "fracking" is largely an arbitrage against the "true believer" investors that equate these assets with conventional ones.
"Fracking" wells deplete much more rapidly than conventional NG wells and take considerably more energy and resources to produce. Think of all the big tanker trucks hauling water and fracking fluids. All the big trucks hauling steel pipe(that gets left in the ground). All the big trucks moving the drilling rigs around like a Chinese fire drill.
There has already been some economists that have questioned the longterm commercial viability of "fracking" yet there seems to be no bottom to the amount of credit available for these operations. Central planners are no doubt prominent players in the U.S. energy "renaissance".
Oil will become incredibly expensive and drop like a stone. Why? Thorium. The whole core of the planet runs on it, we have a huge quantity of it, iscurrentlytreated as waste in mineral sands. Make no mistake G4 nuclear plants of that sort have efficient about 150 times of light reactors, burn more than 85% of the fuel, those can burn the Plutonium waste of G1 and G2 plants. They run at atmospheric pressure (can not have a depressurization), the G4 are been built for an operation of 250 years. There is a bit a waste, but the half life is short ( a few hundred years). Covalent bond energy against fission can not compete against G4 reactors. Oil good idea for next 5 years, beyond that horrible idea. The material science revolution will make the oil look a barbaric relic. I am a Gold bug though, this technology will not come in time tosave the ass of the central planners...
Oil will become incredibly expensive and drop like a stone. Why? Thorium. The whole core of the planet runs on it, we have a huge quantity of it, iscurrentlytreated as waste in mineral sands. Make no mistake G4 nuclear plants of that sort have efficient about 150 times of light reactors, burn more than 85% of the fuel, those can burn the Plutonium waste of G1 and G2 plants. They run at atmospheric pressure (can not have a depressurization), the G4 are been built for an operation of 250 years. There is a bit a waste, but the half life is short ( a few hundred years). Covalent bond energy against fission can not compete against G4 reactors. Oil good idea for next 5 years, beyond that horrible idea. The material science revolution will make the oil look a barbaric relic. I am a Gold bug though, this technology will not come in time tosave the ass of the central planners...