Oil depletion a myth?
There exists a strong camp of skeptics about resource depletion problems and environmental problems in general. They’ve been around as a counterpoint for at least as long as Paul Erlich and the Club of Rome. Their essential economics argument says that new resources will always be found as the market will continuously adjust to allow for expanded research, exploration, and recovery of previously inaccessible resources. Global climate change is another one of the issues ripe for this skeptical ridicule. The skeptics are unconvinced that there is any concrete evidence linking human activity with climate change in any direction.
I’ll grant this to the camp of skeptics on environmental problems: The horizon we choose to look or are able to see over has a strong influence on our ability to interpret the reality of the planetary situation. Certainly there are some examples of premature alarm over data or apparent conditions that turn out to be hoaky, potentially creating enormous unnecessary costs. Likewise, I believe there are innumerable errors of policy that have occurred over the decades because obvious need for environmental regulation could not be bothered with in the face of opportunity for enormous profits. Either way, the cost to society has been significant.
Debate over Saudi oil production
But let’s set aside the general situation and have a look at a recent minor eruption in the debate over world oil depletion. Deep Blade was quick to carry a posting about a New York Times Business Section article that supposedly “laid bare the fiction” of Saudi ability to double oil production.
Of course there are two sides to this debate. Deep Blade is not really in a position to say exactly what the truth is. I received commentary last week suggesting, “The NYT articles about the Saudi fields are extremely poor reporting and riddled with inaccuracies; they did not even talk to anyone who knows the Saudi fields.”
So given this debate, it is highly worthwhile to download and read every word in the 50-page transcript of the remarks of energy investment banker Matthew Simmons, President, Simmons and Company International; Mahmoud Abdul-Baqi, Vice President, Exploration, Saudi Aramco; and Nansen Saleri, Manager, Reservoir Management, Saudi Aramco at the February 24, 2004 conference called, Global Oil Supply: Are We Running Out?: Experts to Analyze Saudi Arabia’s Energy Future, hosted by the Center for Strategic and International Studies (CSIS) in Washington, DC.
Suggestions that Saudi Arabia may not be able to invest enough and get the oil valve opened wide enough for the future planetary needs seems to be deeply offensive in certain quarters. The Lebanon-based Arab/Middle East news service Dar Al Hayat carried a story, “Campaign Against Saudi Oil”, on its English language website:
“Matthew Simmons claimed that Saudi Arabia is incapable of maintaining and developing its oil reserve on the long run, due to the decreasing capacity of its production fields.
“These claims triggered the suspicions of famous New York oil dealer linked to Zionists, Ed Morris [sic: the author means Ed Morse, an energy analyst also associated with CSIS], concerning the Saudi production power. It is known for all reliable oil markets, that in case Venezuelan oil is once again interrupted due to the political situation in the country, or Nigerian oil is interrupted, or something prevents the Basra ports from exporting, only Saudi Arabia would be capable of making up for the international oil shortage….
“With a clever strategy, Aramco officials uncovered information made public for the first time. During a conference in Washington, they affirmed that Aramco is capable of producing 51 [sic: 15] million barrels per day, based on the current Saudi reserve, and according to a production scenario covering 51 years. They assured that the company maintains its excessive power, currently between 1 and 1,5 million barrels per day, in order to use it in sustaining oil prices case of emergency. Aramco officials showed that the highest level in the Saudi fields flow does not exceed its average of 2%, while the average in American fields, North Sea, and others, varies between 2,4 and 6,9% from their production power.
“However, American neo-conservatives and the Zionist lobby wish to ignite a campaign against Saudi Arabia. Oil experts around the world know that Saudi Arabia was capable, thanks to the speed of its production, and its use of the Sheba mine, which provides light oil and has large revenues, of making the Saudi oil greatly available.”
Aside from the transposition of “1″ and “5″, this is an accurate summary of the capability of Saudi Aramco to increase and sustain crude oil production, as stated by its own officials in the transcript cited above.
Is there some sober middle ground between the pessimistic and emphatically optimistic assessments (emphatic enough to invoke ethnic derision)?
The Daily Star, also Lebanon-based, carried today (March 6) this more reflective analysis by energy economist Herman Franssen, “Saudi Arabia’s spare capacity guarantees world petroleum security”:
“For the past quarter of a century Saudi Arabia has played an extraordinary role as guarantor of world oil security. Saudi Arabia has maintained spare capacity whenever there were supply disruptions….
“Rising oil prices have implications for growth and lifestyles. The countries of the OECD developed after World War II on an ocean of cheap Middle East oil. That era may be coming to an end. Most automotive transportation experts say alternatives to oil products for transportation are uncertain and at best decades away from large-scale commercialization. At stake is the ability of developing economies like China, India and others to develop their economies and a road transportation system at reasonable prices.
“In the OECD, higher oil prices will speed up the introduction of hybrid gasoline and hybrid diesel fueled cars, with savings of up to 30 percent. The search for alternatives to oil crude will gain momentum. In the Middle East, a new era of higher oil (and natural gas) income will help finance health and educational services. The extra money will buy time to implement economic diversification.
“For the first time since the 1970s, Matt Simmons has raised questions about Saudi Arabia’s future ability to meet a jump in oil demand from developing economies. Increasing transparency in the numbers is crucial to maintain oil prices at a reasonable level.”
Resources on world oil: balanced perspectives
The additional references below offer a range of perspectives on the outlook for world oil. Here are two conclusions I think may be reached from reading this material–(1) No serious person believes that the world is about to run out of oil right now, or that oil will ever run out completely; and (2) No serious person thinks that the world oil extraction rate can grow indefinitely.
Some of the economists don’t think that last point is very important. They think that by the time oil depletion causes a significant strain in the world’s ability to produce oil, the economics of alternative energy sources will be so attractive that oil smoothly will be replaced. I’m not ready to grant this point–I think a lot of very painful disruption could accompany total trust in a pure market economic approach to the oil future.
For now, I will not draw any conclusions about who is most correct about the oil situation. But I think that enough common threads emerge from even the most diametrically opposed viewpoints that the population of this planet better take notice of the debate and start planning those oil alternatives now, even if the significant strains are still decades away.
Here are the links to the articles, with my notes in italics:
This article is a sober analysis of the situation. It is not hysterical doomsaying. It addresses the important issue of why collapsing oil prices and oversupply, rather than shortage, have been the bigger problems during about the last two decades, and why that should not lead us to think glut is a permanent condition:
Oil: The illusion of plenty; by Alfred Cavallo
The Bulletin of the Atomic Scientists; Jan/Feb 2004
http://www.thebulletin.org/issues/2004/jf04/jf04cavallo.html
“Predictions of the exhaustion of oil reserves seem to have lost all credibility…. pessimists have cried wolf too often. Forecasts of imminent shortages of oil, food, and other natural resources are confounded by the enormous display of material goods that envelops consumers in the West. For most people, the market price of any commodity is what signals shortage or plenty. Time and again, collapsing oil prices have succeeded rising oil prices, leading to the belief that oil will always become cheap again.”
This next piece is a reproduction of a classic on oil depletion by two of the most important scientists studying the issue on the “pessimistic” side of the spectrum:
The End of Cheap Oil: Global production of conventional oil will begin to decline sooner than most people think, probably within 10 years; by Colin J. Campbell and Jean H. Laherr¿re
Scientific American; March 1998
http://dieoff.com/page140.pdf
Here is a counterpoint from Campbell’s chief tormentor:
Crying Wolf: Warnings about oil supply; by Michael C. Lynch
http://sepwww.stanford.edu/sep/jon/world-oil.dir/lynch/worldoil.html
“…an examination of the history of forecasts performed by these gentlemen is in order. First, the company Petroconsultants, which both men have been associated with in the past and which published Campbell’s 1997 book, published a nearly identical forecast in 1986, which showed regional production to 1995, at $25/barrel (equal to about $35/bbl in 1997$). The forecast incorrectly put non-OPEC, non-Communist production at 20 mb/d in 1995 and dropping, when in reality it was 28 mb/d and rising.”
Lynch is a critic of logistic-function depletion models first developed by M. King Hubbert and used by Campbell, et al:
The New Pessimism about Petroleum Resources: Debunking the Hubbert Model (and Hubbert Modelers); by Michael C. Lynch
http://www.energyseer.com/NewPessimism.pdf
An interesting response to criticisms by Lynch appears in the October 2003 issue of the monthly newsletter of the Association for the Study of Peak Oil (ASPO), the group led by Colin Campbell:
Article 259: A Reply by John Attarian [to Michael Lynch]
ASPO Newsletter No. 34
“Michael Lynch’s article in the July 14 issue of the Oil & Gas Journal is a peevish exercise in intellectual dishonesty. He sneers at Colin Campbell, Jean Laherrere, et al. as erroneous, lacking in rigor, etc. His own performance strikingly demonstrates these flaws. The depletion school, Lynch says, notes that most estimates put ultimately recoverable resource (URR) at roughly 2 trillion bbl. True, but he defines URR as “the amount of oil thought to be recoverable, given existing technology and economics (price and cost). It includes estimates of undiscovered oil but is only a fraction of the total resource.” (note 1) But the qualifier ‘given existing technology and economics’ applies to reserves, not resources–and Campbell et al. are talking about resources, not reserves! So much for Lynch as watchdog of rigor.”
Here are two more interesting references from the optimistic camp:
Are We Out of Gas Yet?: The continuing “oil crisis” crisis; by Ronald Bailey
Reason Online; February 18, 2004
http://www.reason.com/rb/rb021804.shtml
Comments on Hubbert’s Peak, Letter to Editor, OGJ; Jul.22.2003
http://www.sepp.org/NewSEPP/DebatePeak-OilBoiling.html