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Pure Energy

Reflections on the Saudi Wars

Meet the Doomers

It was early 2007, and I was riding high at The Oil Drum. I had written a number of articles on energy policy, and a consistent theme of mine was that biofuels weren’t going to replace our current level of fossil fuel usage.  For the most part these essays were very well-received, until I turned my attention toward the topic of oil production in Saudi Arabia.

Realize that while there is a diverse readership at TOD, there are quite a few very vocal contributors who are ‘doomers.’ What exactly is a doomer? Doomers believe that peak oil will inevitably lead to a Malthusian collapse of society. Many cheer for stories that support their idea of doom (e.g., “biofuels will not save us”), but they can be downright vicious if what you are writing implies that things may not be exactly as bad as they think. The latter was the case with my Saudi essays.

Matt Simmons and Saudi

I have been highly interested in what is going on with Saudi oil production for a long time. Saudi has a tremendous amount of economic leverage because of their oil production, and if their production declined sharply, then a lot of doomer points would start to look more plausible. Thus, I am keenly interested in understanding the true situation in Saudi. This was one of my primary motivations for reading Twilight in the Desert.

Twilight was published in 2005, and argued for a near-term collapse in Saudi oil production, with an inevitable price shock to follow. Following publication of the book, Matt Simmons made a $10,000 bet with New York Times columnist John Tierney that oil prices in 2010 would average over $200/bbl (see the Simmons-Tierney bet). This bet is useful for understanding the time frame Simmons had in mind for a Saudi collapse; certainly by now we would be in the midst of a full-fledged Saudi production collapse.

Given his message, it should come as no surprise that Simmons has gained quite a following among the doomers. He is held in very high regard by many at TOD, and a number of people have used his work as a jumping off point for their own claims of a Saudi collapse. And in late 2005 when Saudi production began to fall, it seemed to many that Simmons’ analysis had been spot on and very timely. The bandwagon began to fill up; the decline had begun and Simmons’ star was on the rise.

The Saudis maintained that the declines were voluntary because the world oil markets were oversupplied. But they would say that, wouldn’t they? Or would they? I went back and forth on that point; I could see pros and cons either way. But the doomer contingent had decided: The Saudis were bald-faced liars. I lost count of how many times I saw the Saudi Oil Minister accused of lying when he maintained that the declines were voluntary, because the doomers “knew” good and well they weren’t.

I Had My Doubts

I was especially curious to get to the bottom of whether Saudi was on the brink of a production collapse. Saudi production fell from the end of 2005 through the end of 2006 by one million bpd even as oil prices were rising. But I started really trying to get my head around this issue, and the more I looked, the more I was convinced that the Saudis were not lying. The declines did appear to be voluntary.

I laid out much of my reasoning in When Will Saudi Arabian Oil Production Peak? My position had three major points. First, worldwide crude inventories were at record highs and rising when the Saudi cuts began. We had this information directly from the OECD, but I also found news accounts of this coming from important non-OECD consumers like China and India.

Second, I took a long hard look at one of the major tools being used to project that Saudi had peaked. The tool was called Hubbert Linearization (HL), and I tested it first by plugging in historical data to see if it would have predicted previous peaks. In the case that was being used as a proxy for Saudi – Texas – it would have predicted peak production 16 years too early (as shown in the previous link). It would have also had a large degree of uncertainty until about 5 years after the peak. So for 21 straight years, one could have made the argument that Texas had peaked in that particular year on the basis of the HL.

Worse, I found that it would always predict a peak even if I fed the model an infinite series of constant, or even mildly rising production rates. And as more data was fed to the model, it predicted higher and higher recoverable reserves. In the case of Texas, what was predicted to be recovered in 1960 was far lower than what has been produced to date.

HL was the mathematical version of a dowsing rod. There was so much wiggle room that you could predict peak based on very liberal criteria. For many doomers, 2005 was that year, and I received a great deal of verbal abuse and hate mail for pointing out that the technique didn’t really work. I documented some of that in Peak Oil and the Lunatic Fringe, and that led to me taking an extended leave from TOD. (I had to block two regular TOD contributors because they bombarded me with e-mails over this).

There was one final point that convinced me that Saudi production declines were probably voluntary. First, it is true that Saudi reserves are not an open book to outsiders. They have withheld detailed data on their reserves since 1982. They raised their reserve estimates by 90 billion barrels in 1990, once again leading to chants of “Liar, Liar” about their reserve numbers. Presently their reserves are estimated to be 267 billion barrels. Doomers will tell you that this is laughable. The HL technique was pointing at a remaining reserve number of only 70 billion barrels.

However, I did a little sanity check on this number (a more detailed analysis than what follows is here). It is true that Saudi stopped publishing detailed data in 1982, but prior to that their reserves were an open book. In 1982, their reserves were estimated to be 164.6 billion barrels. Even if I assumed no new discoveries and just subtracted subsequent production, I came up with 95 billion remaining barrels – already well above the HL prediction.

But of course they would have had new discoveries as well and technology has increased the amount of oil that can be recovered. Look at what happened in the U.S over that same period of time. In 1982, U.S. reserves were estimated at 27.9 billion barrels. Over the next 24 years U.S. production was 56.9 billion barrels. Yet in 2005, U.S. reserves were still 21.8 billion barrels. So over that 24 year-period the U.S. produced 57 billion barrels of oil and pulled reserves down by only 6 billion barrels. To me this was another piece of evidence that the HL technique had to be wrong about Saudi.

I also tried to put myself in the shoes of the Saudi Oil Minister. How would I manage their oil? Pretty much just as he was doing it. I wouldn’t manage oil just so American consumers could have cheap gas. I would try to maintain prices at the highest possible level that could be tolerated by the economy. That oil endowment would have to serve future generations, so I would want to maximize the value. That’s a fine line, and if you are too aggressive you can cause economic havoc. But if I saw that global inventories were rising, I would begin to cut production as well to avert a future price collapse.

So my conclusion – which I stated numerous times starting in 2006 was: The Saudi production decline was voluntary, and if global crude inventories starting dropping they would raise production.

The Critics Emerge

If you want to get a real flavor for the kind of trollish commentary I had to deal with over this issue, see the comments following Stuart Staniford’s TOD essay A Nosedive Toward the Desert (…Or, Why the Decline in Saudi Oil Production is Not Voluntary). (By the way, none of this is meant to pick on Stuart. Reasonable people can disagree about the data, and that’s how I would characterize my debate with Stuart. I think his analysis was data-based, unlike many of the others. He was not using the HL as the basis for his analysis, and he did come around to the view that the HL wasn’t useful for predicting a peak).

Stuart called me out in that essay, suggesting that my arguments for why the Saudi decline was voluntary were “completely implausible.” His argument was the polar opposite of mine. He wrote “Declines are rather unlikely to be arrested, and may well accelerate.”

But people really went after me in the comments section. I was dealing with one attack after another not only on TOD, but they even spilled over to other sites. There was this great thread as well at the Peak Oil message board. One commenter who belonged to the “I love HL” and “Saudi has peaked” fan clubs had this to say (among other snarky comments):

Robert Rapier was among the more optimistic (David Cohen being another) regulars at the Oildrum. Those two are in decendence as the very convincing argument for SA decline by Westexas, Stuart, Euran (and tons of others) continue to gain validity.

And then this one, by the same poster (responding to a comment from someone else):

“Robert is way too optimistic regarding SA. I always side with west texas on those debates.”

and so do I, and it appears the majority at the Oildrum agrees that Mr. Rapier is no longer a major player. The ball is definitely in Stuart’s court. I understand Stuart has submitted his analysis to Science magazine for publication.

I was no longer a “major player” because I took the view that Saudi was not on the verge of terminal decline, which a lot of doomers didn’t like. A major player can’t give them an opinion contrary to what they “know.” If they do, they are by definition not a major player. Well, I would just have to settle for the consolation prize of being correct.

Saudi Production Turns Around

Look at what has happened since Stuart’s post. When Stuart wrote Nosedive in March 2007, production (C+C) in Saudi was 8.6 million bpd (Data from the EIA). I predicted that the declines would stop by summer, and little did we know that when Stuart published that essay, declines had just stopped and would be stable until late summer before beginning to rise.

The Saudis had production back above 9 million bpd by December 2007, and by July 2008 they had production at 9.7 million bpd – the highest level in almost 30 years (and without the aid of some of the major new projects that were expected to bump production a little). Their production then pulled back after prices collapsed. Just the fact that production flat-lined for 7 months with no new major projects coming on says without a doubt they were sitting on spare production when I was arguing that they were. If they hadn’t been, they would have declined a bit each month and could have only reversed that by bringing new projects online.

One argument that many people made for a permanent decline was that if Saudi had spare production they would have brought it online in 2006-2007 as prices climbed. As I replied at the time “Not if inventories are full.” (Of course Saudi production rose with the price of oil in 2008, and hit 9.7 million bpd in the same month that oil prices hit $147). This argument (and I am not naming names, but many of you will know who I am talking about) goes like this: “If Saudi had just kept producing at their 2005 levels, they would have produced X billion more barrels and made XX billion more dollars. Thus, it is implausible that their declines are voluntary.”

Later, a friend sent me a paper explaining that Saudi often cuts production in the face of rising prices. That’s because they are looking at data besides prices. See Saudi Production Management.

Motivation

So what’s the point of this post? Am I just gloating? Not really, but after some of the treatment I received as a result of my arguments, I think readers could forgive me for doing so. I have to admit that it wasn’t all bad; I always had supporters as well. It is just that the kind words of a supporter have less impact than a bitter diatribe and volley of e-mails from someone whose world view you are threatening.

Anyway, three things motivated me to write this post. First, a reader commented after the previous post that they had appreciated the critiques of the HL. That planted the idea for maybe taking a look back at how Saudi production played out following the predictions of imminent doom and my counter-predictions of a production rise.

Second, I have observed that the amnesia and selective memory have really gotten bad on this point. People who made dire predictions seem to have completely forgotten about them, or they rationalize them away by saying that the declines are right around the corner. Or, they say that they knew all along that the decline would really be the plateau we have seen instead of a steep drop – and that the financial crisis would be the real story.

The level of rationalizing has been impressive; I have seen none of the vocal predictors own up to being wrong about this issue. Some people have simply stopped talking or writing about it, but others are still out there making the same sorts of predictions (some even insisting that their predictions of steep declines were correct; that the Saudis are lying about their production).

Finally, today I saw a post over at The Oil Drum by Leanan, the Drumbeat editor who really captured the mass amnesia in a nutshell:

Back then, it was a topic of much debate here. Was Saudi heading for “a nosedive into the desert”? Or would they “turn on the taps” later in the year, proving they were not yet at peak oil?

In reality…neither happened. Production did not crash, nor did it sharply increase.

I did respond by saying I disagreed; that in fact Saudi had increased production by 1.1 million bpd in the 15 months following Stuart’s essay. If over that same time period production had fallen by that amount (which was the magnitude of many predictions), I think we would have agreed that this would have been a crash. So it is hard to argue that a 1.1 million bpd swing in the opposite direction was anything but a sharp increase. But I also thought to myself “I should go ahead and write up my historical perspective on this, which I have never done.”

Conclusion

Something that was repeatedly misrepresented was that this was a debate over the actual peak date of Saudi oil production. It was not. It was a debate over a faulty methodology used to come up with a date that was being heavily promoted.

One thing is clear now in hindsight: Saudi did not go into terminal decline in 2005. Proponents of that theory have now shifted their position to “I will give up the idea that 2005 was the peak when the January-December average production exceeds that of 2005.” That’s wrong on two counts. First, production in 2008 rose hand in hand with oil prices, and by July when prices hit record levels the production rate was at the highest level in almost 30 years. If 2005 was the peak, no way would that have been possible.

Second, they seem to forget their argument. Assume for a moment that Saudi produces at only 90% of the 2005 rate, but do it for the next 40 years. Will the 2005 peakists maintain that 2005 was the geological peak? As I pointed out recently to someone who made that argument (“I am correct that 2005 was the peak until production for a calendar year exceeds 2005 production”) – Saudi production in 1980 and 1981 were both higher than for 2005. By their logic, I must conclude that 1980 was the Saudi peak.

I think ridicule and loss of credibility is inevitable if you are out making predictions based on shoddy analysis – which I felt was the basis for many of the imminent Saudi decline predictions. I believe when you are wrong about something, you try to learn from it so that future projections are better. If you simply rationalize away wrong predictions, you will likely continue to make them. But I have also learned that people using shoddy analyses to make predictions are also unlikely to own up to failed predictions. There appears to be a strong correlation between them embracing shoddy analyses that gives them the “right” answers – and rationalizing when the “right” answers turn out to be wrong.

Finally, while I feel like we won’t see the sharp declines in Saudi production right away, I still don’t like being dependent upon Saudi (or Venezuela) for U.S. crude supplies. I would rather see us proceeding with a plan that discounts their future production. Even if production doesn’t decline sharply, I think Chinese demand will keep pressure on prices, and therefore it would be a good idea if we seriously try to wean ourselves away from oil.

January 3, 2010 Posted by | hubbert linearization, hubbert peak, Matt Simmons, Saudi Arabia | Comments Off on Reflections on the Saudi Wars

Experts Split on Peak Oil

Note: I am traveling to Seattle on Monday, returning Wednesday. No updates during that time, and responses to e-mails will be delayed.

Per a story in today’s Austin American Statesman:

Is oil at its peak? Experts split

A sampling of the opinions cited:

‘As much as you’re uncomfortable with today’s oil prices, these are going to be the good old days. We’re talking about pain here that is unimaginable. There’s no question in my mind that we’re likely to see oil production go into decline somewhere between 2010 and 2012.’

Robert Hirsch, oil expert and author of the Hirsch Report

‘For the past three years, global oil production has remained constant at roughly 85 million barrels per day. OPEC production has remained largely flat while non-OPEC supply growth has been well below levels seen just four years ago. … If there are no additional supplies of oil, for every 1 percent increase in demand, we would expect a 20 percent increase in price to balance the market.’

Samuel Bodman, U.S. Energy secretary, at a June 22 oil summit in Saudi Arabia

‘Political factors, barriers to entry and high taxes all play a role here. In other words, when it comes to producing more oil, the problems are aboveground, not below it. They are not geological, but political.’

Tony Hayward, BP CEO, during a June 11 presentation on BP’s annual world energy report

‘The imminent peak in global oil production has been predicted for a century – but incorrectly; it has not occurred. This does not mean that it will not occur ever. … But we need to be aware that some of the very arguments we are hearing today have been heard before – and have, in retrospect, been scaremongering.’

Peter Davies, BP’s special economic adviser, in January 16 speech to a peak oil group in London

‘The global economy is facing the third great oil shock of recent decades. … We are becoming increasingly aware of the technical, financial and political barriers to the production of more oil.’

Gordon Brown, prime minister of Britain, in a May 28 commentary published in the Guardian

‘There is enough oil and gas in the ground, but the access is what’s impeding production. So we could have a squeeze in the years ahead if we don’t get after increasing our supplies.’

David O’Reilly, Chevron Corp. chairman and chief executive, CNN, June 17

‘It’s supply and demand. … We don’t have excess (production) capacity in the world anymore. That’s why you’re seeing the oil prices.’

Warren Buffet, CNBC, June 25

‘The consensus view is that oil above $100 a barrel is going to be with us for some time. So we have two choices. One, continue exporting our wealth overseas … and hope that American consumers can outbid the Chinese and Indians in the world oil market; or two, we can commit to blazing a new path, one that frees our country from the shackles of oil.’

Rep. Edward Markey, D-Mass., at June 11 congressional hearing

Of course this is the same confused Markey who thinks we need to tap the SPR to bring prices down:

Rep. Edward Markey, the Massachusetts Democrat who chairs a special energy panel in the House, told reporters he will be introducing the legislation if President George W. Bush continues to oppose any withdrawals of oil from the Strategic Petroleum Reserve. Markey said that the bill will call for replenishing the SPR through government purchases of heavy crude oil over five years.

“I am going to introduce legislation that will require the president to sell 500,000 barrels of oil a day for a six-month period and to require that he put together a plan to repurchase heavy crude over a five-year period in order to replenish the oil,” Markey told reporters.

Yes, let’s refill the SPR with oil that many refineries can’t use. I presume someone told Markey that heavy crude is cheaper than light crude, so he figured this is a good way to raise money. Maybe next he can seek to understand why heavy crude is cheaper. One also wonders how this is supposed to help us ‘free our country from the shackles of oil.’ (If it seems like I am picking on Markey, I am. I think he has historically proven himself to be one of the biggest oil demagogues, right up there with Chuck Schumer).

My own view remains that I think there is a 90% probability that we will peak within 5 years. I think there is a 10% chance that we have already peaked.

July 27, 2008 Posted by | Ed Markey, Hirsch Report, hubbert peak, Peak Oil, Robert Hirsch | 36 Comments

Book Review: World Made by Hand

World Made by Hand by James Howard Kunstler

When I read James Howard Kunstler’s (JHK) book The Long Emergency, it had a profound impact on me. I had been aware for many years that “running out of oil” was a serious matter. After all, I mentioned the challenge of peak oil in my graduate thesis in 1995. But my focus was more on finding a source that could replace oil as it ran out. Reading The Long Emergency was the first time it really hit me that I was missing a lot of key pieces of the picture.

The book’s impact wasn’t because I thought his vision of the future was necessarily correct, but it made me think about possibilities. It caused me to look at the suburbs in a new light, and to really appreciate how vulnerable the U.S. is to oil shocks. It made me realize that problems will start to crop up – not when we run out of oil – but simply when supplies can’t meet demand. In the U.S., we built a society based on cheap oil, in which one can live 40 miles from work and drive a gas guzzler to and from work each day. As I read his book, it really sank in that this model was likely to come to an end sooner rather than later. And just as soon as I finished reading it, I got a copy of Matt Simmons’ Twilight in the Desert and read it. Those two books helped me decide that I needed to start trying to educate people about energy issues.

In JHK’s latest book – World Made by Hand – he shares his vision of life after oil. It’s a far cry from the future I imagined as a child; a future in which man was conquering the galaxy and we were all flying around like the Jetsons. The future JHK evokes resembles the Wild West of 150 years ago – except with a few modern touches surviving.

The book is set in upstate New York (JHK’s home state) in the fictional town of Union Grove. In this world, life is very hard. There are no cars, electricity is rarely on, wars have wiped out major U.S. cities (Washington D.C. was wiped out on my birthday, 12/21), religion has made a resurgence, warlords carve out territory, and lawlessness is rampant. But communities are much tighter, the food is healthier, neighbors lend a helping hand, and people have to be a lot more self sufficient. I believe these latter aspects of the future world represents the future that JHK would like to see.

As with his previous book, this one caused me to think about possibilities I had not previously considered. I spent a lot of my time pausing to evaluate whether I felt like a particular scenario was likely. I think if you accept the key premise – that no more oil is available – then the future he envisions is probably pretty close to the mark. Oil provides all kinds of conveniences that we take for granted, and I doubt the average person can appreciate how different their world would be if the taps dried up. Yet that is the world that JHK has produced in this novel.

But that’s not the way I think things will play out. If you read between the lines, the book is set no more than 15 years into the future. The date is never given, but there is a mention of a woman in her 90’s who was a nurse in WWII. Assuming 20 as a minimum age, then the setting of the book is some time between now and maybe 2025 at the latest. I simply don’t believe we will lose our mechanized transport options in that time frame.

On my recent trip to India, I saw a lot of people who were using very little fuel, but were still getting around by motorized transport. We have such a tremendous amount of fat that we can cut from our fuel consumption. It may be that by 2020 we do have a lot less oil available, but oil will still be available. And some countries – Brazil for instance – are not likely to run into supply issues for decades. It is hard to envision a world in which the U.S. has no more access to oil, but Brazil is motoring happily along. Even though there isn’t much mention about the rest of the world – mainly because there is little communication with the rest of the world – I couldn’t help but imagine that in JHK’s world there were a lot of countries that would have been able to maintain their fuel supplies.

The book touched upon a lot of themes that I have thought about over the years. Long before I was involved in writing about energy, I was a student of evolutionary biology. One of the things that my studies made me appreciate is that modern medicine has allowed many people to contribute genes to the gene pool that centuries ago would have been cruelly weeded out by evolution. What that means is that most of us are carrying around genes that are only mildly deleterious in the age of modern medicine, but could quickly shorten our life spans without modern medicine. And in this book, JHK pulled modern medicine out from under the population. The result is as I would expect – vast numbers of people died out. I have speculated before that without modern medicine, more than 90% of the population would likely be dead within 10 years from conditions that today don’t trouble us too much.

Consider your own health. Have you been hospitalized for appendicitis? How many times have you required antibiotics to treat something common like strep throat? Have you required surgery? These are all things that can kill without modern medicine. So I have a great appreciation for modern medicine. When I go to a developing country like India that’s one of the first things I think about: Do the people have access to modern medicine?

Another theme that I have thought a lot about – and that JHK tackled in the book – was mining of the municipal dumps. I have often thought about the amount of metals, useful plastics, and just various odds and ends that would be of enormous benefit in a resource-depleted world. I have no doubt that regardless of how the future plays out, there will come a time that we are mining the dumps regularly.

One thing that I haven’t discussed yet is the story itself. I really didn’t expect much from the story. The real story for me was what a world without oil might look like. But the underlying story was actually pretty good. The characters are really interesting, he makes the relationships interesting, and he throws a few surprises into the mix. I have to hand it to JHK – he tells a good tale. Some of the characters (and names) seemed a bit over the top, but otherwise I found myself wanting to know what was going to happen next. So I got a bonus in that aspect.

If you are like me, and you enjoy thinking about possibilities (good or bad), then this book is definitely food for thought. If you want to remain oblivious to the threat of peak oil, or are otherwise convinced that technology will enable the status quo to remain, then you probably won’t care for it (although again the book is worth a read for the story itself).

Note: If you are curious about JHK’s views, the current issue of Business Week has an extensive interview with him:

Good-Bye, Cheap Oil. So Long, Suburbia?

April 25, 2008 Posted by | book review, evolution, hubbert peak, Jim Kunstler, Matt Simmons, Peak Oil | 42 Comments

Book Review: World Made by Hand

World Made by Hand by James Howard Kunstler

When I read James Howard Kunstler’s (JHK) book The Long Emergency, it had a profound impact on me. I had been aware for many years that “running out of oil” was a serious matter. After all, I mentioned the challenge of peak oil in my graduate thesis in 1995. But my focus was more on finding a source that could replace oil as it ran out. Reading The Long Emergency was the first time it really hit me that I was missing a lot of key pieces of the picture.

The book’s impact wasn’t because I thought his vision of the future was necessarily correct, but it made me think about possibilities. It caused me to look at the suburbs in a new light, and to really appreciate how vulnerable the U.S. is to oil shocks. It made me realize that problems will start to crop up – not when we run out of oil – but simply when supplies can’t meet demand. In the U.S., we built a society based on cheap oil, in which one can live 40 miles from work and drive a gas guzzler to and from work each day. As I read his book, it really sank in that this model was likely to come to an end sooner rather than later. And just as soon as I finished reading it, I got a copy of Matt Simmons’ Twilight in the Desert and read it. Those two books helped me decide that I needed to start trying to educate people about energy issues.

In JHK’s latest book – World Made by Hand – he shares his vision of life after oil. It’s a far cry from the future I imagined as a child; a future in which man was conquering the galaxy and we were all flying around like the Jetsons. The future JHK evokes resembles the Wild West of 150 years ago – except with a few modern touches surviving.

The book is set in upstate New York (JHK’s home state) in the fictional town of Union Grove. In this world, life is very hard. There are no cars, electricity is rarely on, wars have wiped out major U.S. cities (Washington D.C. was wiped out on my birthday, 12/21), religion has made a resurgence, warlords carve out territory, and lawlessness is rampant. But communities are much tighter, the food is healthier, neighbors lend a helping hand, and people have to be a lot more self sufficient. I believe these latter aspects of the future world represents the future that JHK would like to see.

As with his previous book, this one caused me to think about possibilities I had not previously considered. I spent a lot of my time pausing to evaluate whether I felt like a particular scenario was likely. I think if you accept the key premise – that no more oil is available – then the future he envisions is probably pretty close to the mark. Oil provides all kinds of conveniences that we take for granted, and I doubt the average person can appreciate how different their world would be if the taps dried up. Yet that is the world that JHK has produced in this novel.

But that’s not the way I think things will play out. If you read between the lines, the book is set no more than 15 years into the future. The date is never given, but there is a mention of a woman in her 90’s who was a nurse in WWII. Assuming 20 as a minimum age, then the setting of the book is some time between now and maybe 2025 at the latest. I simply don’t believe we will lose our mechanized transport options in that time frame.

On my recent trip to India, I saw a lot of people who were using very little fuel, but were still getting around by motorized transport. We have such a tremendous amount of fat that we can cut from our fuel consumption. It may be that by 2020 we do have a lot less oil available, but oil will still be available. And some countries – Brazil for instance – are not likely to run into supply issues for decades. It is hard to envision a world in which the U.S. has no more access to oil, but Brazil is motoring happily along. Even though there isn’t much mention about the rest of the world – mainly because there is little communication with the rest of the world – I couldn’t help but imagine that in JHK’s world there were a lot of countries that would have been able to maintain their fuel supplies.

The book touched upon a lot of themes that I have thought about over the years. Long before I was involved in writing about energy, I was a student of evolutionary biology. One of the things that my studies made me appreciate is that modern medicine has allowed many people to contribute genes to the gene pool that centuries ago would have been cruelly weeded out by evolution. What that means is that most of us are carrying around genes that are only mildly deleterious in the age of modern medicine, but could quickly shorten our life spans without modern medicine. And in this book, JHK pulled modern medicine out from under the population. The result is as I would expect – vast numbers of people died out. I have speculated before that without modern medicine, more than 90% of the population would likely be dead within 10 years from conditions that today don’t trouble us too much.

Consider your own health. Have you been hospitalized for appendicitis? How many times have you required antibiotics to treat something common like strep throat? Have you required surgery? These are all things that can kill without modern medicine. So I have a great appreciation for modern medicine. When I go to a developing country like India that’s one of the first things I think about: Do the people have access to modern medicine?

Another theme that I have thought a lot about – and that JHK tackled in the book – was mining of the municipal dumps. I have often thought about the amount of metals, useful plastics, and just various odds and ends that would be of enormous benefit in a resource-depleted world. I have no doubt that regardless of how the future plays out, there will come a time that we are mining the dumps regularly.

One thing that I haven’t discussed yet is the story itself. I really didn’t expect much from the story. The real story for me was what a world without oil might look like. But the underlying story was actually pretty good. The characters are really interesting, he makes the relationships interesting, and he throws a few surprises into the mix. I have to hand it to JHK – he tells a good tale. Some of the characters (and names) seemed a bit over the top, but otherwise I found myself wanting to know what was going to happen next. So I got a bonus in that aspect.

If you are like me, and you enjoy thinking about possibilities (good or bad), then this book is definitely food for thought. If you want to remain oblivious to the threat of peak oil, or are otherwise convinced that technology will enable the status quo to remain, then you probably won’t care for it (although again the book is worth a read for the story itself).

Note: If you are curious about JHK’s views, the current issue of Business Week has an extensive interview with him:

Good-Bye, Cheap Oil. So Long, Suburbia?

April 25, 2008 Posted by | book review, evolution, hubbert peak, Jim Kunstler, Matt Simmons, Peak Oil | Comments Off on Book Review: World Made by Hand

Book Review: World Made by Hand

World Made by Hand by James Howard Kunstler

When I read James Howard Kunstler’s (JHK) book The Long Emergency, it had a profound impact on me. I had been aware for many years that “running out of oil” was a serious matter. After all, I mentioned the challenge of peak oil in my graduate thesis in 1995. But my focus was more on finding a source that could replace oil as it ran out. Reading The Long Emergency was the first time it really hit me that I was missing a lot of key pieces of the picture.

The book’s impact wasn’t because I thought his vision of the future was necessarily correct, but it made me think about possibilities. It caused me to look at the suburbs in a new light, and to really appreciate how vulnerable the U.S. is to oil shocks. It made me realize that problems will start to crop up – not when we run out of oil – but simply when supplies can’t meet demand. In the U.S., we built a society based on cheap oil, in which one can live 40 miles from work and drive a gas guzzler to and from work each day. As I read his book, it really sank in that this model was likely to come to an end sooner rather than later. And just as soon as I finished reading it, I got a copy of Matt Simmons’ Twilight in the Desert and read it. Those two books helped me decide that I needed to start trying to educate people about energy issues.

In JHK’s latest book – World Made by Hand – he shares his vision of life after oil. It’s a far cry from the future I imagined as a child; a future in which man was conquering the galaxy and we were all flying around like the Jetsons. The future JHK evokes resembles the Wild West of 150 years ago – except with a few modern touches surviving.

The book is set in upstate New York (JHK’s home state) in the fictional town of Union Grove. In this world, life is very hard. There are no cars, electricity is rarely on, wars have wiped out major U.S. cities (Washington D.C. was wiped out on my birthday, 12/21), religion has made a resurgence, warlords carve out territory, and lawlessness is rampant. But communities are much tighter, the food is healthier, neighbors lend a helping hand, and people have to be a lot more self sufficient. I believe these latter aspects of the future world represents the future that JHK would like to see.

As with his previous book, this one caused me to think about possibilities I had not previously considered. I spent a lot of my time pausing to evaluate whether I felt like a particular scenario was likely. I think if you accept the key premise – that no more oil is available – then the future he envisions is probably pretty close to the mark. Oil provides all kinds of conveniences that we take for granted, and I doubt the average person can appreciate how different their world would be if the taps dried up. Yet that is the world that JHK has produced in this novel.

But that’s not the way I think things will play out. If you read between the lines, the book is set no more than 15 years into the future. The date is never given, but there is a mention of a woman in her 90’s who was a nurse in WWII. Assuming 20 as a minimum age, then the setting of the book is some time between now and maybe 2025 at the latest. I simply don’t believe we will lose our mechanized transport options in that time frame.

On my recent trip to India, I saw a lot of people who were using very little fuel, but were still getting around by motorized transport. We have such a tremendous amount of fat that we can cut from our fuel consumption. It may be that by 2020 we do have a lot less oil available, but oil will still be available. And some countries – Brazil for instance – are not likely to run into supply issues for decades. It is hard to envision a world in which the U.S. has no more access to oil, but Brazil is motoring happily along. Even though there isn’t much mention about the rest of the world – mainly because there is little communication with the rest of the world – I couldn’t help but imagine that in JHK’s world there were a lot of countries that would have been able to maintain their fuel supplies.

The book touched upon a lot of themes that I have thought about over the years. Long before I was involved in writing about energy, I was a student of evolutionary biology. One of the things that my studies made me appreciate is that modern medicine has allowed many people to contribute genes to the gene pool that centuries ago would have been cruelly weeded out by evolution. What that means is that most of us are carrying around genes that are only mildly deleterious in the age of modern medicine, but could quickly shorten our life spans without modern medicine. And in this book, JHK pulled modern medicine out from under the population. The result is as I would expect – vast numbers of people died out. I have speculated before that without modern medicine, more than 90% of the population would likely be dead within 10 years from conditions that today don’t trouble us too much.

Consider your own health. Have you been hospitalized for appendicitis? How many times have you required antibiotics to treat something common like strep throat? Have you required surgery? These are all things that can kill without modern medicine. So I have a great appreciation for modern medicine. When I go to a developing country like India that’s one of the first things I think about: Do the people have access to modern medicine?

Another theme that I have thought a lot about – and that JHK tackled in the book – was mining of the municipal dumps. I have often thought about the amount of metals, useful plastics, and just various odds and ends that would be of enormous benefit in a resource-depleted world. I have no doubt that regardless of how the future plays out, there will come a time that we are mining the dumps regularly.

One thing that I haven’t discussed yet is the story itself. I really didn’t expect much from the story. The real story for me was what a world without oil might look like. But the underlying story was actually pretty good. The characters are really interesting, he makes the relationships interesting, and he throws a few surprises into the mix. I have to hand it to JHK – he tells a good tale. Some of the characters (and names) seemed a bit over the top, but otherwise I found myself wanting to know what was going to happen next. So I got a bonus in that aspect.

If you are like me, and you enjoy thinking about possibilities (good or bad), then this book is definitely food for thought. If you want to remain oblivious to the threat of peak oil, or are otherwise convinced that technology will enable the status quo to remain, then you probably won’t care for it (although again the book is worth a read for the story itself).

Note: If you are curious about JHK’s views, the current issue of Business Week has an extensive interview with him:

Good-Bye, Cheap Oil. So Long, Suburbia?

April 25, 2008 Posted by | book review, evolution, hubbert peak, Jim Kunstler, Matt Simmons, Peak Oil | 42 Comments

New Crude Plus Condensate Peak

Per the latest International Petroleum Monthly (Excel download), world crude plus condensate production for January was 74,466,000 million bpd. The previous record in May 2005 was 74,298,000 bpd. The number is subject to revision, but I have been firm since 2005 that I did not believe that peak would stand. My feeling remains that we could grow another 3-5 million bpd, but that we will not be able to grow any sort of cushion, hence Peak Lite and continued high prices.

If I had to guess – and these are just guesses – I would say 50% probability of peak within 3 years, 70% probability within 5 years, and >90% probability within 10 years.

April 11, 2008 Posted by | hubbert peak, oil production, Peak Lite, Peak Oil | 95 Comments

A New Peak?

In what must be an imminent Doomer’s worst nightmare, the IEA has signaled that October 2007 was the highest ever oil production month on record. After reporting that September production came in at 85.1 million barrels per day, the IEA is reporting for October:

World oil supply saw a monthly gain of 1.4 mb/d in October, as non-OPEC outages receded and OPEC volumes increased. Recovery in China and Azerbaijan plus rising Russian output boosted non-OPEC supplies. Continued outages in the OECD see non-OPEC supply levelling off in November before resuming growth in December.

The previous all-time high in July 2006 – which Doomers had pointed at for over a year now as “Peak Oil in the rearview mirror” – had been 85.467 million barrels per day. If the September number is not revised down (which it certainly could be), and the October number stands, the previous record will be shattered by over a million barrels a day.

So, what do you think people are going to think about those who confidently predicted that 2005, and then later 2006 was the peak? “They are crying wolf again.” This is exactly why I have urged caution with people when they are confidently proclaiming that oil production has peaked. The evidence was not strong enough to make such confident proclamations, and credibility is being lost each time a new production record is set. Meanwhile, we still have a pending energy crisis, and lost credibility won’t help us win any arguments.

Other news from the report:

Global demand for 4Q07 is revised down by 0.5 mb/d given high prices, weaker-than-expected data from the US and FSU, and delays to European heating oil restocking. Coupled with lower GDP growth, these revisions extend to the 2008 forecast, which has been adjusted down by 0.3 mb/d.

So, let’s review. We have an apparent all time high oil supply in October, and at the same time demand is being revised downward. Is it any wonder that oil is quickly back-pedaling from $100? The speculators have taken some big losses this week, and are in serious danger of steeper losses by Friday. I expect the chorus of voices who were justifying $100 oil a couple of weeks ago to start dying down, and the analysts to quickly develop amnesia about those forecasts.

November 13, 2007 Posted by | hubbert peak, Peak Oil | 17 Comments

When Will Saudi Arabian Oil Production Peak?

The eventual decline of oil production in Saudi Arabia will likely have a profound impact on all of our lives. This event will result in energy shortages around the world, and depleting oil supplies will be bid up to higher and higher levels. Poor countries will no longer be able to compete, and they will be the first casualties of oil depletion. The richer countries will bid against each other for the remaining supplies, and if the depletion rate is high enough we will be in for some very tough times. The Saudis say they have plenty of oil. However, there are a lot of skeptics.

So, I am very interested in understanding what’s going on inside Saudi Arabia. One thing is certain: Over the past year their oil production has declined. I think up until now the reasons they have given for reducing oil production – which they say is entirely voluntary – have been consistent with what the market was calling for. So, I believe that their decline over the past year has been voluntary.

Other researchers disagree. Books have been written calling into question the claims of Saudi reserves. Matt Simmon’s book Twilight in the Desert was devoted to this subject. Many people have come up with models for attempting to predict the demise of Saudi oil production. This essay, also posted to The Oil Drum, takes a close look at one popular model that is often used as evidence pointing to an imminent peak for Saudi, as well as world oil production.

In Part I, I take a look at the model by feeding it historical Texas oil production data and observing the predictions. In Part II, I will feed it historical Saudi oil production data and observe the results.

Part I – Texas Myths

Like Cindy Crawford, I have done quite a bit of modeling in my career. However, mine has been in front of a computer. There are various types of models. They can be empirical, such that you curve fit data without having a clear explanation of the underlying mechanisms. Or they can be theoretical, in which the system is modeled according to the governing scientific principles and mathematical equations.

However, one thing is critical to keep in mind. If you are going to use the model for forecasting, the model must be tested. Testing the model is called “validation”, or sometimes “back-casting.” This involves feeding the model real data, and observing how well the predictions match up with the observations. If the predictions match up on a consistent basis, and any large variations are explainable, you have the makings of a predictive model. If you have not validated your model, or if you have attempted to validate it and found that the predictions were inconsistent, the model should be used with caution (if at all). In this essay I have done some back-casts on the Hubbert Linearization (HL) model and attempted to use it to make predictions using historical data.

The background of the technique is outside the scope of this essay, but Stuart Staniford has provided details here. The HL model is a hybrid model with empirical parts and theoretical parts. Jumping past the differential equations involved, a basic explanation of the modeling technique is as follows: If one plots the cumulative oil production of a region (Q), versus the yearly production (P) divided by the cumulative production (P/Q), a plot can be made to extrapolate and find the ultimate recoverable reserves (URR) for the region (Qt). You can see a number of HL examples in Stuart’s essays When Does Hubbert Linearization Work? and Extrapolating World Production.

Qt and Peak Production

I am unaware of a case in which a country has completely run out of recoverable oil and had Qt verified by the HL method. However, there are plenty of examples in which a region’s production profile follows the expected path determined by the HL. There are also many examples showing that a region’s production peaked at very close to 50% of Qt. Quoting from an article by oil geologist Jeffrey Brown and “Khebab”:

With time, a HL data set starts to show a linear progression, and one can extrapolate the data down to where P is effectively zero, which gives one Qt, or ultimate recoverable reserves for the region. Based on the assumption that production tends to peak at about 50% of Qt, one can generate a predicted production profile for the region. The Lower 48 peaked at 48.5% of Qt.

Some areas have tended to peak at a higher % Qt than others. It is commonly claimed that Texas production, for example, peaked in 1972 at 57% of Qt (the reason for the qualifier will become apparent later in the essay). The fact that Texas peaked later than most regions is sometimes explained by the fact that prior to 1972 Texas was the swing producer, and production was regulated. This situation is similar to that of Saudi Arabia, so Texas is often used as an analog for predicting Saudi Arabia’s peak. So far, so good. But the astute reader may wonder “Can the value of Qt change significantly over time?” If the answer is “yes”, then the inevitable follow-up is “Then how can I be confident in using the HL to predict a peak?” I will attempt to answer these key questions by looking at the evolution of the HL for Texas over time.

Evolution of the Texas HL

I have retrieved historical Texas oil production records and modeled a series of HLs at various time periods. According to a 1956 Hubbert paper, (1) Texas had extracted approximately 4 billion barrels of oil prior to 1935. Beginning in 1935, we have annual production statistics that take us through the end of 2006. (2) Therefore, we can construct a series of HL curves. To avoid any bias on my part, I had Excel extrapolate the line and make the forecast once there was a relatively smooth trend. Let’s take a snapshot from 1960:


Figure 1. HL of Texas Oil Production Using Data Available in 1960.

As you can see, we have a nice trend. In fact, the latest 10 points are reminiscent of today’s HL of Saudi Arabia. The points have settled down and are staying pretty close to the line. So, what could we say in 1960? Qt as determined in 1960 from the intercept above is 42.5 billion barrels (Gbl). Texas crossed 50% of Qt in 1957, and by 1960 was at 56% of Qt – almost the same value as today. Surely peak was imminent. In fact, if you look at the data, Texas clearly peaked in 1956 at 1.079 MM bbl/day. By 1960, Texas was down to 892,000 bbl/day. It had undergone an annual decline of 5.5% for 4 years, and was well past 50% of Qt.

In 1960, we could have said “Texas oil production peaked in 1956, as predicted by the HL method.” But as we know, that’s not at all what happened. That would have been forecasting the peak 16 years too early. So let’s fast-forward to 1970:

Figure 2. HL of Texas Oil Production Using Data Available in 1970.

Well, that’s not very helpful. Our Texas HL in 1970 is much more muddled than in 1960. The 1956 record was broken in 1968 – twelve years after the 1960 analysis indicated a peak. We are starting to see some points rise above the line and extend Qt out further than was implied in 1960. The trend line that Excel drew is now forecasting 46.25 Gbl as our URR. That puts production in 1970 at 73% of Qt. The last 14 years had been spent well above 50% of Qt. But, the last 4 points – starting in 1967 – seem to indicate that Qt may end up being even further out than we thought. Now remember, it’s 1970. What exactly about this curve would indicate that we are 2 years from peaking?

Let’s jump forward now to 1980:


Figure 3. HL of Texas Oil Production Using Data Available in 1980.

Qt continues to grow. Excel is now forecasting Qt at 55.5 Gbl. The trend toward a higher URR is evident. The last few points imply that the forecast will grow to 57 Gbl. If so, our 1980 HL would put Texas’ 1972 peak at 63% of Qt. So, not only do we see Qt growing with time, we see that the % of Qt when the 1972 peak occurred is getting smaller. So, can we forecast the 1972 peak by 1980? No. We have already seen a case where the 1956 production record wasn’t broken for 12 years. The % Qt during that time was well over 50%. The % Qt in 1970 had climbed to 73%. Yet that still didn’t enable us to call peak. On what basis could we have done so in 1980? We have now gone through 24 years in which we could say “peak might be here.” To suggest that we could have made any other forecast at that time is wishful thinking.

So let’s skip to present day – end of 2006:

Figure 4. HL of Texas Oil Production Using Data Available in 2006.

Qt is now at 62 Gbl, but look at those last few points. They are once again pointing to a higher Qt. Some time in the 1980’s, as production continued to fall, we could have finally said “1972 was the peak.” But the % of Qt for the 1972 peak is still a moving target. Today, the 1972 peak clocks in at 58.3% of Qt – not far from the value in 1960. In 1980 it was 63% of Qt, and in 1970 it was 73% of Qt. Therefore, claims of “no examples of large producing regions showing sustained, steady increases in production past the 60% of Qt mark” are clearly wrong. Texas showed steady production increases past the 60% mark of Qt, because it reached that level in the early 1960’s. Texas even showed production increases past 70% Qt, as it reached 73% two years prior to the production peak.

Implications for Saudi

So, is Saudi like Texas in 1956, or is Saudi like Texas in 1972? Or is it like neither? The HL can’t tell us that. This essay should make clear that confidently predicting a Saudi peak on the basis of the Texas HL is nothing more than an exercise in faith-based forecasting. The only reason that the Texas HL looks as it does is because we have decades of data points following the Texas peak. But what is missed is that the HL has changed greatly from the time Texas actually peaked. So the Texas HL at its peak looked nothing like the Saudi HL of today.

It is invalid to use three decades of hindsight for refining the Texas forecast, because we clearly don’t have the same option with Saudi Arabia. Yet some argue that the Saudi peak can be forecast with confidence using the knowledge obtained from the case of Texas – a region in which the uncertainty of the method spanned almost 3 decades.

So, the HL has shown that it is good at forecasting the past, but can be very unreliable for predicting the future. In Part II, we will examine the evolution of the Saudi HL over time.

Notes

For those who may be unfamiliar with my position, this argument in no way diminishes my belief that we need to take action right now concerning oil depletion. I am merely evaluating one of the tools that is used to forecast peak, and trying to determine whether that tool can give us any precision on forecasting a peak in Saudi Arabia. My conclusion is that it can’t, but we will look at the specific case of Saudi Arabia in Part II.

I believe that by summer (barring recession) we should know one way or another, because the market looks to be undersupplied at the moment. I think Saudi will be called upon to open the taps by summer. If they can’t, look out.

References

1. Hubbert, M. King. Nuclear Energy and the Fossil Fuels. Paper presented at an American Petroleum Institute meeting in San Antonio, Texas. March 7-9, 1956 p. 10.

2. Oil Production and Well Counts in Texas 1935-2005, Railroad Commission of Texas, Accessed March 2007

March 14, 2007 Posted by | hubbert linearization, hubbert peak, Peak Oil, Saudi Arabia, texas | Comments Off on When Will Saudi Arabian Oil Production Peak?

When Will Saudi Arabian Oil Production Peak?

The eventual decline of oil production in Saudi Arabia will likely have a profound impact on all of our lives. This event will result in energy shortages around the world, and depleting oil supplies will be bid up to higher and higher levels. Poor countries will no longer be able to compete, and they will be the first casualties of oil depletion. The richer countries will bid against each other for the remaining supplies, and if the depletion rate is high enough we will be in for some very tough times. The Saudis say they have plenty of oil. However, there are a lot of skeptics.

So, I am very interested in understanding what’s going on inside Saudi Arabia. One thing is certain: Over the past year their oil production has declined. I think up until now the reasons they have given for reducing oil production – which they say is entirely voluntary – have been consistent with what the market was calling for. So, I believe that their decline over the past year has been voluntary.

Other researchers disagree. Books have been written calling into question the claims of Saudi reserves. Matt Simmon’s book Twilight in the Desert was devoted to this subject. Many people have come up with models for attempting to predict the demise of Saudi oil production. This essay, also posted to The Oil Drum, takes a close look at one popular model that is often used as evidence pointing to an imminent peak for Saudi, as well as world oil production.

In Part I, I take a look at the model by feeding it historical Texas oil production data and observing the predictions. In Part II, I will feed it historical Saudi oil production data and observe the results.

Part I – Texas Myths

Like Cindy Crawford, I have done quite a bit of modeling in my career. However, mine has been in front of a computer. There are various types of models. They can be empirical, such that you curve fit data without having a clear explanation of the underlying mechanisms. Or they can be theoretical, in which the system is modeled according to the governing scientific principles and mathematical equations.

However, one thing is critical to keep in mind. If you are going to use the model for forecasting, the model must be tested. Testing the model is called “validation”, or sometimes “back-casting.” This involves feeding the model real data, and observing how well the predictions match up with the observations. If the predictions match up on a consistent basis, and any large variations are explainable, you have the makings of a predictive model. If you have not validated your model, or if you have attempted to validate it and found that the predictions were inconsistent, the model should be used with caution (if at all). In this essay I have done some back-casts on the Hubbert Linearization (HL) model and attempted to use it to make predictions using historical data.

The background of the technique is outside the scope of this essay, but Stuart Staniford has provided details here. The HL model is a hybrid model with empirical parts and theoretical parts. Jumping past the differential equations involved, a basic explanation of the modeling technique is as follows: If one plots the cumulative oil production of a region (Q), versus the yearly production (P) divided by the cumulative production (P/Q), a plot can be made to extrapolate and find the ultimate recoverable reserves (URR) for the region (Qt). You can see a number of HL examples in Stuart’s essays When Does Hubbert Linearization Work? and Extrapolating World Production.

Qt and Peak Production

I am unaware of a case in which a country has completely run out of recoverable oil and had Qt verified by the HL method. However, there are plenty of examples in which a region’s production profile follows the expected path determined by the HL. There are also many examples showing that a region’s production peaked at very close to 50% of Qt. Quoting from an article by oil geologist Jeffrey Brown and “Khebab”:

With time, a HL data set starts to show a linear progression, and one can extrapolate the data down to where P is effectively zero, which gives one Qt, or ultimate recoverable reserves for the region. Based on the assumption that production tends to peak at about 50% of Qt, one can generate a predicted production profile for the region. The Lower 48 peaked at 48.5% of Qt.

Some areas have tended to peak at a higher % Qt than others. It is commonly claimed that Texas production, for example, peaked in 1972 at 57% of Qt (the reason for the qualifier will become apparent later in the essay). The fact that Texas peaked later than most regions is sometimes explained by the fact that prior to 1972 Texas was the swing producer, and production was regulated. This situation is similar to that of Saudi Arabia, so Texas is often used as an analog for predicting Saudi Arabia’s peak. So far, so good. But the astute reader may wonder “Can the value of Qt change significantly over time?” If the answer is “yes”, then the inevitable follow-up is “Then how can I be confident in using the HL to predict a peak?” I will attempt to answer these key questions by looking at the evolution of the HL for Texas over time.

Evolution of the Texas HL

I have retrieved historical Texas oil production records and modeled a series of HLs at various time periods. According to a 1956 Hubbert paper, (1) Texas had extracted approximately 4 billion barrels of oil prior to 1935. Beginning in 1935, we have annual production statistics that take us through the end of 2006. (2) Therefore, we can construct a series of HL curves. To avoid any bias on my part, I had Excel extrapolate the line and make the forecast once there was a relatively smooth trend. Let’s take a snapshot from 1960:


Figure 1. HL of Texas Oil Production Using Data Available in 1960.

As you can see, we have a nice trend. In fact, the latest 10 points are reminiscent of today’s HL of Saudi Arabia. The points have settled down and are staying pretty close to the line. So, what could we say in 1960? Qt as determined in 1960 from the intercept above is 42.5 billion barrels (Gbl). Texas crossed 50% of Qt in 1957, and by 1960 was at 56% of Qt – almost the same value as today. Surely peak was imminent. In fact, if you look at the data, Texas clearly peaked in 1956 at 1.079 MM bbl/day. By 1960, Texas was down to 892,000 bbl/day. It had undergone an annual decline of 5.5% for 4 years, and was well past 50% of Qt.

In 1960, we could have said “Texas oil production peaked in 1956, as predicted by the HL method.” But as we know, that’s not at all what happened. That would have been forecasting the peak 16 years too early. So let’s fast-forward to 1970:

Figure 2. HL of Texas Oil Production Using Data Available in 1970.

Well, that’s not very helpful. Our Texas HL in 1970 is much more muddled than in 1960. The 1956 record was broken in 1968 – twelve years after the 1960 analysis indicated a peak. We are starting to see some points rise above the line and extend Qt out further than was implied in 1960. The trend line that Excel drew is now forecasting 46.25 Gbl as our URR. That puts production in 1970 at 73% of Qt. The last 14 years had been spent well above 50% of Qt. But, the last 4 points – starting in 1967 – seem to indicate that Qt may end up being even further out than we thought. Now remember, it’s 1970. What exactly about this curve would indicate that we are 2 years from peaking?

Let’s jump forward now to 1980:


Figure 3. HL of Texas Oil Production Using Data Available in 1980.

Qt continues to grow. Excel is now forecasting Qt at 55.5 Gbl. The trend toward a higher URR is evident. The last few points imply that the forecast will grow to 57 Gbl. If so, our 1980 HL would put Texas’ 1972 peak at 63% of Qt. So, not only do we see Qt growing with time, we see that the % of Qt when the 1972 peak occurred is getting smaller. So, can we forecast the 1972 peak by 1980? No. We have already seen a case where the 1956 production record wasn’t broken for 12 years. The % Qt during that time was well over 50%. The % Qt in 1970 had climbed to 73%. Yet that still didn’t enable us to call peak. On what basis could we have done so in 1980? We have now gone through 24 years in which we could say “peak might be here.” To suggest that we could have made any other forecast at that time is wishful thinking.

So let’s skip to present day – end of 2006:

Figure 4. HL of Texas Oil Production Using Data Available in 2006.

Qt is now at 62 Gbl, but look at those last few points. They are once again pointing to a higher Qt. Some time in the 1980’s, as production continued to fall, we could have finally said “1972 was the peak.” But the % of Qt for the 1972 peak is still a moving target. Today, the 1972 peak clocks in at 58.3% of Qt – not far from the value in 1960. In 1980 it was 63% of Qt, and in 1970 it was 73% of Qt. Therefore, claims of “no examples of large producing regions showing sustained, steady increases in production past the 60% of Qt mark” are clearly wrong. Texas showed steady production increases past the 60% mark of Qt, because it reached that level in the early 1960’s. Texas even showed production increases past 70% Qt, as it reached 73% two years prior to the production peak.

Implications for Saudi

So, is Saudi like Texas in 1956, or is Saudi like Texas in 1972? Or is it like neither? The HL can’t tell us that. This essay should make clear that confidently predicting a Saudi peak on the basis of the Texas HL is nothing more than an exercise in faith-based forecasting. The only reason that the Texas HL looks as it does is because we have decades of data points following the Texas peak. But what is missed is that the HL has changed greatly from the time Texas actually peaked. So the Texas HL at its peak looked nothing like the Saudi HL of today.

It is invalid to use three decades of hindsight for refining the Texas forecast, because we clearly don’t have the same option with Saudi Arabia. Yet some argue that the Saudi peak can be forecast with confidence using the knowledge obtained from the case of Texas – a region in which the uncertainty of the method spanned almost 3 decades.

So, the HL has shown that it is good at forecasting the past, but can be very unreliable for predicting the future. In Part II, we will examine the evolution of the Saudi HL over time.

Notes

For those who may be unfamiliar with my position, this argument in no way diminishes my belief that we need to take action right now concerning oil depletion. I am merely evaluating one of the tools that is used to forecast peak, and trying to determine whether that tool can give us any precision on forecasting a peak in Saudi Arabia. My conclusion is that it can’t, but we will look at the specific case of Saudi Arabia in Part II.

I believe that by summer (barring recession) we should know one way or another, because the market looks to be undersupplied at the moment. I think Saudi will be called upon to open the taps by summer. If they can’t, look out.

References

1. Hubbert, M. King. Nuclear Energy and the Fossil Fuels. Paper presented at an American Petroleum Institute meeting in San Antonio, Texas. March 7-9, 1956 p. 10.

2. Oil Production and Well Counts in Texas 1935-2005, Railroad Commission of Texas, Accessed March 2007

March 14, 2007 Posted by | hubbert linearization, hubbert peak, Peak Oil, Saudi Arabia, texas | 4 Comments

When Will Saudi Arabian Oil Production Peak?

The eventual decline of oil production in Saudi Arabia will likely have a profound impact on all of our lives. This event will result in energy shortages around the world, and depleting oil supplies will be bid up to higher and higher levels. Poor countries will no longer be able to compete, and they will be the first casualties of oil depletion. The richer countries will bid against each other for the remaining supplies, and if the depletion rate is high enough we will be in for some very tough times. The Saudis say they have plenty of oil. However, there are a lot of skeptics.

So, I am very interested in understanding what’s going on inside Saudi Arabia. One thing is certain: Over the past year their oil production has declined. I think up until now the reasons they have given for reducing oil production – which they say is entirely voluntary – have been consistent with what the market was calling for. So, I believe that their decline over the past year has been voluntary.

Other researchers disagree. Books have been written calling into question the claims of Saudi reserves. Matt Simmon’s book Twilight in the Desert was devoted to this subject. Many people have come up with models for attempting to predict the demise of Saudi oil production. This essay, also posted to The Oil Drum, takes a close look at one popular model that is often used as evidence pointing to an imminent peak for Saudi, as well as world oil production.

In Part I, I take a look at the model by feeding it historical Texas oil production data and observing the predictions. In Part II, I will feed it historical Saudi oil production data and observe the results.

Part I – Texas Myths

Like Cindy Crawford, I have done quite a bit of modeling in my career. However, mine has been in front of a computer. There are various types of models. They can be empirical, such that you curve fit data without having a clear explanation of the underlying mechanisms. Or they can be theoretical, in which the system is modeled according to the governing scientific principles and mathematical equations.

However, one thing is critical to keep in mind. If you are going to use the model for forecasting, the model must be tested. Testing the model is called “validation”, or sometimes “back-casting.” This involves feeding the model real data, and observing how well the predictions match up with the observations. If the predictions match up on a consistent basis, and any large variations are explainable, you have the makings of a predictive model. If you have not validated your model, or if you have attempted to validate it and found that the predictions were inconsistent, the model should be used with caution (if at all). In this essay I have done some back-casts on the Hubbert Linearization (HL) model and attempted to use it to make predictions using historical data.

The background of the technique is outside the scope of this essay, but Stuart Staniford has provided details here. The HL model is a hybrid model with empirical parts and theoretical parts. Jumping past the differential equations involved, a basic explanation of the modeling technique is as follows: If one plots the cumulative oil production of a region (Q), versus the yearly production (P) divided by the cumulative production (P/Q), a plot can be made to extrapolate and find the ultimate recoverable reserves (URR) for the region (Qt). You can see a number of HL examples in Stuart’s essays When Does Hubbert Linearization Work? and Extrapolating World Production.

Qt and Peak Production

I am unaware of a case in which a country has completely run out of recoverable oil and had Qt verified by the HL method. However, there are plenty of examples in which a region’s production profile follows the expected path determined by the HL. There are also many examples showing that a region’s production peaked at very close to 50% of Qt. Quoting from an article by oil geologist Jeffrey Brown and “Khebab”:

With time, a HL data set starts to show a linear progression, and one can extrapolate the data down to where P is effectively zero, which gives one Qt, or ultimate recoverable reserves for the region. Based on the assumption that production tends to peak at about 50% of Qt, one can generate a predicted production profile for the region. The Lower 48 peaked at 48.5% of Qt.

Some areas have tended to peak at a higher % Qt than others. It is commonly claimed that Texas production, for example, peaked in 1972 at 57% of Qt (the reason for the qualifier will become apparent later in the essay). The fact that Texas peaked later than most regions is sometimes explained by the fact that prior to 1972 Texas was the swing producer, and production was regulated. This situation is similar to that of Saudi Arabia, so Texas is often used as an analog for predicting Saudi Arabia’s peak. So far, so good. But the astute reader may wonder “Can the value of Qt change significantly over time?” If the answer is “yes”, then the inevitable follow-up is “Then how can I be confident in using the HL to predict a peak?” I will attempt to answer these key questions by looking at the evolution of the HL for Texas over time.

Evolution of the Texas HL

I have retrieved historical Texas oil production records and modeled a series of HLs at various time periods. According to a 1956 Hubbert paper, (1) Texas had extracted approximately 4 billion barrels of oil prior to 1935. Beginning in 1935, we have annual production statistics that take us through the end of 2006. (2) Therefore, we can construct a series of HL curves. To avoid any bias on my part, I had Excel extrapolate the line and make the forecast once there was a relatively smooth trend. Let’s take a snapshot from 1960:


Figure 1. HL of Texas Oil Production Using Data Available in 1960.

As you can see, we have a nice trend. In fact, the latest 10 points are reminiscent of today’s HL of Saudi Arabia. The points have settled down and are staying pretty close to the line. So, what could we say in 1960? Qt as determined in 1960 from the intercept above is 42.5 billion barrels (Gbl). Texas crossed 50% of Qt in 1957, and by 1960 was at 56% of Qt – almost the same value as today. Surely peak was imminent. In fact, if you look at the data, Texas clearly peaked in 1956 at 1.079 MM bbl/day. By 1960, Texas was down to 892,000 bbl/day. It had undergone an annual decline of 5.5% for 4 years, and was well past 50% of Qt.

In 1960, we could have said “Texas oil production peaked in 1956, as predicted by the HL method.” But as we know, that’s not at all what happened. That would have been forecasting the peak 16 years too early. So let’s fast-forward to 1970:

Figure 2. HL of Texas Oil Production Using Data Available in 1970.

Well, that’s not very helpful. Our Texas HL in 1970 is much more muddled than in 1960. The 1956 record was broken in 1968 – twelve years after the 1960 analysis indicated a peak. We are starting to see some points rise above the line and extend Qt out further than was implied in 1960. The trend line that Excel drew is now forecasting 46.25 Gbl as our URR. That puts production in 1970 at 73% of Qt. The last 14 years had been spent well above 50% of Qt. But, the last 4 points – starting in 1967 – seem to indicate that Qt may end up being even further out than we thought. Now remember, it’s 1970. What exactly about this curve would indicate that we are 2 years from peaking?

Let’s jump forward now to 1980:


Figure 3. HL of Texas Oil Production Using Data Available in 1980.

Qt continues to grow. Excel is now forecasting Qt at 55.5 Gbl. The trend toward a higher URR is evident. The last few points imply that the forecast will grow to 57 Gbl. If so, our 1980 HL would put Texas’ 1972 peak at 63% of Qt. So, not only do we see Qt growing with time, we see that the % of Qt when the 1972 peak occurred is getting smaller. So, can we forecast the 1972 peak by 1980? No. We have already seen a case where the 1956 production record wasn’t broken for 12 years. The % Qt during that time was well over 50%. The % Qt in 1970 had climbed to 73%. Yet that still didn’t enable us to call peak. On what basis could we have done so in 1980? We have now gone through 24 years in which we could say “peak might be here.” To suggest that we could have made any other forecast at that time is wishful thinking.

So let’s skip to present day – end of 2006:

Figure 4. HL of Texas Oil Production Using Data Available in 2006.

Qt is now at 62 Gbl, but look at those last few points. They are once again pointing to a higher Qt. Some time in the 1980’s, as production continued to fall, we could have finally said “1972 was the peak.” But the % of Qt for the 1972 peak is still a moving target. Today, the 1972 peak clocks in at 58.3% of Qt – not far from the value in 1960. In 1980 it was 63% of Qt, and in 1970 it was 73% of Qt. Therefore, claims of “no examples of large producing regions showing sustained, steady increases in production past the 60% of Qt mark” are clearly wrong. Texas showed steady production increases past the 60% mark of Qt, because it reached that level in the early 1960’s. Texas even showed production increases past 70% Qt, as it reached 73% two years prior to the production peak.

Implications for Saudi

So, is Saudi like Texas in 1956, or is Saudi like Texas in 1972? Or is it like neither? The HL can’t tell us that. This essay should make clear that confidently predicting a Saudi peak on the basis of the Texas HL is nothing more than an exercise in faith-based forecasting. The only reason that the Texas HL looks as it does is because we have decades of data points following the Texas peak. But what is missed is that the HL has changed greatly from the time Texas actually peaked. So the Texas HL at its peak looked nothing like the Saudi HL of today.

It is invalid to use three decades of hindsight for refining the Texas forecast, because we clearly don’t have the same option with Saudi Arabia. Yet some argue that the Saudi peak can be forecast with confidence using the knowledge obtained from the case of Texas – a region in which the uncertainty of the method spanned almost 3 decades.

So, the HL has shown that it is good at forecasting the past, but can be very unreliable for predicting the future. In Part II, we will examine the evolution of the Saudi HL over time.

Notes

For those who may be unfamiliar with my position, this argument in no way diminishes my belief that we need to take action right now concerning oil depletion. I am merely evaluating one of the tools that is used to forecast peak, and trying to determine whether that tool can give us any precision on forecasting a peak in Saudi Arabia. My conclusion is that it can’t, but we will look at the specific case of Saudi Arabia in Part II.

I believe that by summer (barring recession) we should know one way or another, because the market looks to be undersupplied at the moment. I think Saudi will be called upon to open the taps by summer. If they can’t, look out.

References

1. Hubbert, M. King. Nuclear Energy and the Fossil Fuels. Paper presented at an American Petroleum Institute meeting in San Antonio, Texas. March 7-9, 1956 p. 10.

2. Oil Production and Well Counts in Texas 1935-2005, Railroad Commission of Texas, Accessed March 2007

March 14, 2007 Posted by | hubbert linearization, hubbert peak, Peak Oil, Saudi Arabia, texas | 9 Comments