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Energy Insights: Energy News: Peak Oil 3: Has Production Peaked?

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Peak Oil 3: Has Production Peaked?


Peak Oil 1: What Is Peak Oil?


Peak Oil 3: Has Production Peaked?

The remnants of the peak oil community cling avidly to the belief that oil production has already peaked and that high prices prove this. “Look at the data” seems to have become a catechism amongst them, and it can be hard to dissuade them otherwise, especially by considering more than one variable as explaining oil supply and price.

Most anyone can understand that high oil prices are no more an indicator of resource scarcity than the occasional spike in coffee, pork or orange juice prices. Things happen that can cause prices to rise for a period before supply and demand can re-equilibrate, with oil particularly vulnerable to political disruptions–witness developments in Iraq, Iran, Libya, Nigeria to name the primary ones.

The funny thing is that high prices in the late 1970s were also considered evidence that “the oil and gas we rely on are simply running out,” as a president said. The vast majority of the expert community believed prices would continue rising in the 1980s and 1990s because “oil was different” and the drop in 1986 to long-term mean prices came as quite a shock to nearly everyone. (M. A. Adelman was a notable exception.)

Because of that, in part, most experts did not rush to attribute the higher prices post-2002 to resource scarcity, instead of to above-ground problems such as the invasion/liberation of Iraq and the strike and mass firings at Petroleos de Venezuela. Higher costs certainly suggest to some that “the cheap oil is gone” but many others, such as myself, consider them cyclically inflated, rather than reflecting exhaustion of the so-called “easy oil”.

The second problem with the claims of a production peak are that they usually are confined to crude and condensate, rather than total petroleum liquids, which includes natural gas liquids like propane and biofuels like ethanol. While total liquids production has increased by 5.7 mb/d since May 2005 (the putative peak), crude and condensate have “only” grown by 2.4 mb/d.

But wait, there’s more! Peak oil advocates insist that only conventional oil should be considered because, well, no one’s every really explained why it matters. Excluding shale oil production does, indeed, make it appear as if “oil” production may have peaked in May 2005, but what’s the point? If you only looked at onshore production, you might conclude oil had peaked in 1970; or only looking at oil produced by private companies, production peaked in the mid-1970s; and you could probably exclude oil produced by guys named Dave and come up with a different number, and one just as meaningful.

Oil comes in a wide variety of qualities and types, but petroleum products like gasoline and jet fuel are relatively homogenous because refineries make them so. They use a mix of crude oil, conventional and otherwise, plus other liquids, including natural gas liquids and biofuels, to generate a final product. This is why, aside from peak oil advocates, almost no attention is paid to production trends for the subcategory “conventional” oil or “crude plus condensate”.

But the final error in these claims is the most symptomatic of the flawed “peak oil” school of thought, namely, the fact that they are simply extrapolating or curve-fitting. Price, taxes, politics, and technology are all largely ignored in their influence on production trends, implicitly so when they argue that production once peaked cannot recover. This ignores not only the fact that production has peaked before and recovered, at the national and global level, but the odd coincident that the slow production periods tend to coincide with periods of weak economic growth, like the early 1980s or the Depression or–ta da–post 2008!

So to all those who say, “look at the data” if you don’t believe oil production has already peaked, I would advise them to look at the data more carefully

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