Michael Lynch - Disputing Peak Oil

[Antimatter]

I need to pull out the IHS statistics but I am willing to bet average discovered pool sizes globally have been ever decreasing.

Page seven of this IHS presentation shows a graph of average discovery size over time: http://www.ihsenergy.com/news/presentations/seg_cairo.pdf

It was stable at ~250Mb from abotu 1955 to 1975 then fell quite sharply to roughly 50Mb (eyeballing the chart) by 1985, and has remained approximatly flat since. Interesting - does this suggest a cut back in exploration in the big Middle East producing countries after the oil shocks and demand crash may have been a significant factor as Mike Lynch suggests?

[EnergySpin]

Interesting - does this suggest a cut back in exploration in the big Middle East producing countries after the oil shocks and demand crash may have been a significant factor as Mike Lynch suggests?

What is the % of the earth surface that has been explored anyway ? (neglecting the ultra deep, ultra cold, areas unlikely to hold significant reserves due to geologic history?)
If almost all of it has, KYAGB

[JohnDenver]

I'm sorry but that is just dumb. Where are foreign oil companies completely shut out of now.......nowhere, not one single country in the world.

"While geographic preferences based on corporate presence or long-standing relationships are often factors, it is quality reserves with quality fiscal terms that the companies are after; it is that objective that ultimately guides them in targeting assets and allocating investment dollars. Of total global oil and gas reserves, only about 14% are fully open for IOGC competition, where governments regulate the activities of oil and gas companies, but do not themselves participate in the exploitation of reserves (largely in the US and the UK). A further 17% of global oil and gas reserves are held by Russian companies, both privatized and public, where the degree of openness, the nature of IOGC access and the competitive environments and terms are still evolving and basically still unclear.

Only 11% of global reserves where NOCs are present and governments own the resources are open for IOGC to have equity access to reserves. By far the largest portion of global reserves, 58%, are held by governments and NOCs where IOGCs do not yet have equity access; in part of this portion, IOGCs can have some limited involvement through service contracts or technical service agreements, but they cannot have equity access to reserves. In spite of this, out of some $180bn in capex spent in the global E&P sector in 2002, $140bn was spent by publicly traded companies. The situation is only slightly different if one considers only natural gas, where Russia becomes more dominant, holding about 31% of the global reserve base. Reserves with full IOC equity access amount to some 10% of world reserves, and only 8% of world natural gas reserves where NOC are present are open to IOGCs. When it comes to the remaining 51% of global gas reserves, IOGCs have only limited access, through service contracts, but no equity access."
http://www.mees.com/postedarticles/oped/a47n26d01.htm

In Saudi Arabia Russian and Chinese companies are now involved actively in gas/condensate exploration in the Rub Al Khali (although Saudis are making noises about not offering anything more),

The last bit illustrates my point.

in Iran there are still lots of opportunities...

So why are you complaining about the "paucity of good exploration opportunities"?

in Russian BP is still fairly active and the Russian government still is offering opportunities in places like the Urals to participation by foreign oil companies...

If Russia is so open, what was Yukos all about then?

Chavez may be making it difficult for foreign companies but he hasn't thrown them out...

That's consistent with slow-down tactics.

no on the contrary the world has never been a more open playing field from the perspective of oil and gas E&P.

IMO, the facts don't justify that statement.

Also why in the world would any NOC shoot themselves in the foot by not producing their own oil at maximum efficient rates?

Because it makes good economic sense to slow-down when the price is rising. Morgan Stanley and Goldman Sachs are hoarding oil (Source). If it makes sense for them, why wouldn't it make sense for the NOCs, who can hoard much more effectively simply by dragging their feet.

No I am afraid they are as capitalistic as anyone else, if not moreso given that they have a few decades of catching up to do.

Catch up to what? The American lifestyle? It would make no sense to spend the last dregs of natural oil to build an oil-dependent infrastructure.

[rockdoc123]

When they say 14% are fully open they are only speaking to places where there are no NOC's ....well of course the number is small but there are places such as Algeria and Libya and Egypt (and a plethora of others) which are fully open to foreign companies...the NOC's may compete with them or get back in rights but otherwise it is an open playing ground. The statement is quite misleading. When they speak about the amount of reserves held where foreign companies currently do not have access the statistical argument is abused given that much of those reserves are contained in Saudi Arabia.

So why are you complaining about the "paucity of good exploration opportunities"?

simply having access to these areas isn't good enough since oil companies are not in business to find oil to provide to consumers...they are there to make profits (ie. good exploration opportunities). Although there are lots of opportunities in Iran for gas and to a much lesser extent oil the profitability is not necessarily there for most.....larger companies need to do these projects to replace their huge dwindling resource base and NOCs need to pursue them to provide guaranteed access to energy for their home countries...their economics are different.

If Russia is so open, what was Yukos all about then?

well first off Yukos was a Russian oil company, very little different from Lukoil who have not had the same problems. Most see that Yukos President taking a political run at the heirarchy was a bad idea. Again Russia is open to foreign participation, it is just a difficult business environment.

That's consistent with slow-down tactics.

and what is your point here? If it's that he's trying to chase out foreign oil companies ....perhaps he is but it would be political and likely literal suicide.

IMO, the facts don't justify that statement.

well of course you are entitled to your opinion but in the time I have been involved in the industry (last 30 or so years) the following has happened:
-Algeria opened to foreign participation, now foreign production is catching up to Sonatrach production
-Venezuela was opened to foreign participation after the mid-seventies nationalization
-Libya was opened to foreign participation
-Russia was opened to foreign participation
-Saudia Arabia opened the doors for participation in gas/condensate acreage
-Iran was opened to participation after the long period following ousting of the Shah and nationalization
-Mexico has begun offering service contracts to foreigners
indeed I would think you would be hard pressed to state many countries where they do not invite foreign participation.

[spike]

Aha! We have a jargon problem. I presumed by "reserve growth" you were referring to the rate at which estimates of field sizes has grown. You are referring to the 'growth in reserves'.

It is important (I would argue) to avoid giving too much credence to short-term trends, up or down. The industry moves in very lumpy ways.
Mike Lynch

Welcome! It's good to have you on board!

There is no sign that reserve growth is dropping, reserve additions are replacing production

The world had 1,188.6 billion barrels of oil reserves at the end of 2004, compared to 1,188.3 billion at the end of 2003, BP, the world’s second largest oil firm by market capitalisation, said.

The 0.02 percent growth rate was the lowest since 1990 and compares with a 10-year average above 1.5 percent per annum.

src: BP says global oil reserves growth stalled in 2004

[spike]

Thanks for the kind words, I will do my best to respond to queries, comments, etc., but there are a lot more of you than me (and I am supposed to be working on 2 articles, 2 reports, 3 proposals and a book).

I would say that the current market price is responding primarily to the huge amount of money that has come from pension funds and others buying commodity indices. There are others arguing for a security premium, i.e. response to low OPEC surplus capacity and the potential for more supply disruptions, but I think if that were true, the market would not be in contango.
Matt Simmons and I used to disagree in a friendly way, but it's no longer friendly. His book describes the Saudi geology fairly well, but does not explain why he thinks they will be unable to cope with what he sees as rising difficulties.
3) I just got the Hirsh report, haven't looked at it, but it seems to just be literature review.
4) Bear in mind that since about 1982, the IEA (among others) has repeatedly said that nearly all new oil production would have to come from the Middle East. OPEC stopped putting too much credibility in that some time ago. (I just got the CD from the Kuwaiti IEA/OPEC meeting discussing this; the presentations might be on the IEA website.) I think OPEC could produce a lot more, but that they won't have to produce the levels that IEA, EIA/DOE, and others say.
5) I think US gas production has probably peaked. It might increase in the future due to unconventional gas, which is increasing, and there is a big question market about deep shelf gas (shallow waters, deep drilling). You'll probably get a fair slug of LNG supply, but whether it's enough to take prices back to $3 (or when) I don't know.
Mike Lynch

Mike,

I and everyone here appreciate your input. Its absolutely critical that you participate in this debate. I would hope and ask that you go the the experts forum and look at my challenge questions to you and answer them. Though my intro is too personally harsh, it was intended to get a response from you to answer the questions. Hopefully, you will do so. Also:
(1) what is the explanation for the high oil prices right now? Is it pure speculation? Or, is it as SA says a "down stream" problem which, if so, seems it would take several years to get the necessary refineries built and put into operation;
(2) What was your take on Simmons recent book "Twilight in the Desert"?
(3) I would like to hear your take on the Hirsch report to the DOE about mitigating the effects of peak oil (February 2005);
(4) Recently, SA was quoted in the news as saying OPEC would be unable to meet IEA oil production forecast after the next 10-15 years. Do you believe this is the case and if so, does or should this change the IEA's forecasted peak date for world oil?
(5) Also, your take on the American natural gas issue would be much appreciated. Is North American natural gas peaking? If so, what is the estimated date of peak and will LNG terminals be in place in time to remedy the situation.

Thanks for being here.

[BrownDog]

Mr. Lynch,

Thanks again for contributing here.

I have a question about statements you've made about the rising cost of oil leading to an increase in URR (recoverable, not oil in the ground). I understand the idea that as the oil becomes worth more, it will be financially worthwhile to extract it. What I haven't seen is your thoughts on either EROEI or to put it in economic terms, how the costs of extraction will rise along with the cost of oil and therefore mitigate the increas in URR.

It would seem to me that the response would vary by the type of resource, and the nature of the effort involved. By example, I mean that the balance would be different for tar sands vs. light crude in hard-to-reach places (like deep sea sources).

How do you weigh the idea that the cost of extraction rises along with the cost of oil?

Thanks.

[WebHubbleTelescope]

Morgan Stanley and Goldman Sachs are hoarding oil (Source).

Where? In their filing cabinets?

If you don't physically hoard something it goes to the highest bidder. How much more elementary do we have to make it for people to start understanding how the non-conpiratorial world works.

[JohnDenver]

Morgan Stanley and Goldman Sachs are hoarding oil (Source).

Where? In their filing cabinets?

If you don't physically hoard something it goes to the highest bidder. How much more elementary do we have to make it for people to start understanding how the non-conpiratorial world works.

Read the link dork.

A LARGE warehouse in Amsterdam may seem an unusual place to attract the City’s top traders and hedge funds. But, in the past few months, Morgan Stanley has been accumulating warehouse space in the Netherlands to store its hottest new property — oil.

[WebHubbleTelescope]

Thanks for the kind words, I will do my best to respond to queries, comments, etc., but there are a lot more of you than me (and I am supposed to be working on 2 articles, 2 reports, 3 proposals and a book).

Well, I am working on a full-time job unrelated to anything to do with oil depletion issues. I could care less how much of a hole you have gotten yourself into because of problems with a schedule.

Speaking for myself, I only want to find out how the world will dig itself out of the depletion hole.

close purge valve

[JohnDenver]

So why are you complaining about the "paucity of good exploration opportunities"?

simply having access to these areas isn't good enough since oil companies are not in business to find oil to provide to consumers...they are there to make profits (ie. good exploration opportunities). Although there are lots of opportunities in Iran for gas and to a much lesser extent oil the profitability is not necessarily there for most.....

Why isn't the profitability there?

indeed I would think you would be hard pressed to state many countries where they do not invite foreign participation.

So what's the problem then? Why are you and your colleagues so concerned about lack of opportunities in North America, the North Sea and Africa? You yourself said that there's lots of good opportunities in other countries, and they have never been more open to foreign participation.

That's consistent with slow-down tactics.

and what is your point here? If it's that he's trying to chase out foreign oil companies

No, my point is that he is making life hard for foreign oil companies by using passive-aggressive slow-down tactics. The idea is to undercut the U.S. -- wage economic warfare against it -- just not so overtly that you provoke a response. Yukos was a similar phenomenon. Putin could have just said: "We're nationalizing Yukos" and seized it, but he didn't. That would be too overt. He screwed the foreign oil companies, and the U.S. in particular but he took the roundabout route. The U.S. was looking to Yukos as a way to get a foothold in Russia, and the U.S. government at the highest levels was phoning Putin during the Yukos crisis, trying to get him to relent. But he didn't. He just pretended it was out of his hands, a tax issue he had no control over -- classic passive-aggressive tactics.

....perhaps he is but it would be political and likely literal suicide.

I don't think Chavez is afraid. The U.S. is a bluff. They can't fight all the Chavez's and Putins in the world at the same time. They've got too much on their plate, and they don't have the resources.

And anyway, why would it be in Chavez's interests to further the interests of people who are threatening to kill him? I'd definitely drag my feet in those circumstances. There's no reason for him to pump as fast as he can like a good capitalist; he hates capitalists.

[rockdoc123]

Why isn't the profitability there?

numerous reasons that add up to F&D is too high to meet most companies hurdles....large companies have other drivers such as reserve replacement.

So what's the problem then? Why are you and your colleagues so concerned about lack of opportunities in North America, the North Sea and Africa? You yourself said that there's lots of good opportunities in other countries, and they have never been more open to foreign participation.

Again our job is not to find oil for you to consume....our job is to make profits for our shareholders.

The U.S. was looking to Yukos as a way to get a foothold in Russia, and the U.S. government at the highest levels was phoning Putin during the Yukos crisis, trying to get him to relent. But he didn't. He just pretended it was out of his hands, a tax issue he had no control over -- classic passive-aggressive tactics.

well that's a fairly original view of what happened. Yukos was not an American company....the owner was one of the orginal Oligarchs or better put Russian mafioso who took particular advantage of the system when they were realing from the change form communism to semi-capitalism.
Regardless of how Putin did things I think pretty much everyone who is in the socio-political consulting game believes this was a politcal play...Putin was getting rid of someone who was challenging his political position...absolutely nothing more. By the way US companies have been in Russia for quite awhile...Conoco was involved in White Nights as an example.

And anyway, why would it be in Chavez's interests to further the interests of people who are threatening to kill him? I'd definitely drag my feet in those circumstances. There's no reason for him to pump as fast as he can like a good capitalist; he hates capitalists.

well I think you missed my point from earlier posts....if he kicks out the foreigners (no foreign companies have threatened to kill him....only his own party and most of the unions in Venezuela) then he suddenly has to come up with about 3 times as much capital as he is currently sinking into oil and gas E&P just to keep production flat....that takes more money away from the populace and pretty much assures more dissent and a quick exit to live with his new friend and hero Fidel. And if he decides to cut production that means less money to be distributed amoungst everyone...less employment for local oil workers, who will spend less money in the shops....again Fidel better have his summer house ready for occupancy.

[JohnDenver]

Mr. Lynch,
Thank you for corresponding with us.
The peak oilers appear to be morphing into a fascist movement whose immediate goals are authoritarian government and mass murder. What do you think about Colin Campbell publishing this material in the most recent ASPO newsletter:

To those sentimentalists who cannot understand the need to reduce UK population from 60 million to about 2 million over 150 years, and who are outraged at the proposed replacement of human rights by cold logic, I would say “You have had your day, in which your woolly thinking has messed up not just the Western world but the whole planet, which could, if Homo sapiens had been truly intelligent, have supported a small population enjoying a wonderful quality of life almost for ever. You have thrown away that opportunity.”

The Darwinian approach, in this planned population reduction scenario, is to maximise the well-being of the UK as a nation-state. Individual citizens, and aliens, must expect to be seriously inconvenienced by the single-minded drive to reduce population ahead of resource shortage. The consolation is that the alternative, letting Nature take its course, would be so much worse.

The scenario is: Immigration is banned. Unauthorised arrives are treated as criminals. Every woman is entitled to raise one healthy child. No religious or cultural exceptions can be made, but entitlements can be traded. Abortion or infanticide is compulsory if the fetus or baby proves to be handicapped (Darwinian selection weeds out the unfit). When, through old age, accident or disease, an individual becomes more of a burden than a benefit to society, his or her life is humanely ended. Voluntary euthanasia is legal and made easy. Imprisonment is rare, replaced by corporal punishment for lesser offences and painless capital punishment for greater.

http://www.peakoil.ie/newsletters/588

[FatherOfTwo]

Mr. Lynch,
Thank you for corresponding with us.
The peak oilers appear to be morphing into a fascist movement whose immediate goals are authoritarian government and mass murder. What do you think about Colin Campbell publishing this material in the most recent ASPO newsletter:[snip]

Bloody hell JD! How is that going to help?? What Campbell did was stupid, plain and simple. I was shocked too and he’s done ENORMOUS injustice to those who are trying to get people to wake up. I'm hoping it was just his attempt to shock people and get them to wake up. Bad choice. But Jesus, it’s an ad hominem attack and only makes it more difficult to have people wake up to the issue of peak oil.
You clearly now want to destroy (what's left of) Campbell’s credibility - and this is helping how exactly?

What are you trying to accomplish?

[avo]

Please Mr. Lynch convince me that we are not running out of cheap oil. I'm waiting.

Me too. I've read everything I can find by Lynch, hoping to be convinced that Campbell, Simmons, Deffeyes, etc, are wrong. But while he sometimes has cogent criticism of the methodology of others, I have not been able to find any clean exposition of his own methodology that supports his claims that the world will be able to produce far more oil per year than it does currently.

Avo

[JohnDenver]

What Campbell did was stupid, plain and simple. I was shocked too and he’s done ENORMOUS injustice to those who are trying to get people to wake up.

Colin Campbell was given an opportunity to disavow Stanton's proposals. Ms. Caryl Johnson wrote to Colin Campbell on July 8, 2005:

My second reason for writing is to express certain questions and concerns about the article printed in the July 2005 ASPO Newsletter, "Oil and People," by William Stanton. The step from Peak Oil to radical population control may not seem to be such a great one. But I think it is a huge, and unwarranted, step, and I would fear to have your name associated with it. You are too wonderful a man to risk the distortion of your realism by the "chilling logic" of lesser men, who might indeed use such convenient distortions to commit mass murder – by whatever euphemism for such deeds that might occur to them. For this reason alone I urge you to make a clear disavowal of Mr. Stanton’s prescriptions – and urgently, in the next Newsletter.

In response to this, Colin Campbell wrote the following in an e-mail dated July 18,2005:

So far as the Newsletter is concerned, I think it is probably best to let the matter rest for the time being.

That's it. No apologies, no disavowal.

I would turn the question back to you Father. What good can come from supporting a person who is publishing fascist screeds, and refusing to renounce them? Is furthering the agenda of fascists the price we have to pay for "getting the word out"?

[pstarr]

What Campbell did was stupid, plain and simple. I was shocked too and he’s done ENORMOUS injustice to those who are trying to get people to wake up.

Colin Campbell was given an opportunity to disavow Stanton's proposals. Ms. Caryl Johnson wrote to Colin Campbell on July 8, 2005:

My second reason for writing is to express certain questions and concerns about the article printed in the July 2005 ASPO Newsletter, "Oil and People," by William Stanton. The step from Peak Oil to radical population control may not seem to be such a great one. But I think it is a huge, and unwarranted, step, and I would fear to have your name associated with it. You are too wonderful a man to risk the distortion of your realism by the "chilling logic" of lesser men, who might indeed use such convenient distortions to commit mass murder – by whatever euphemism for such deeds that might occur to them. For this reason alone I urge you to make a clear disavowal of Mr. Stanton’s prescriptions – and urgently, in the next Newsletter.

In response to this, Colin Campbell wrote the following in an e-mail dated July 18,2005:

So far as the Newsletter is concerned, I think it is probably best to let the matter rest for the time being.

That's it. No apologies, no disavowal.

I would turn the question back to you Father. What good can come from supporting a person who is publishing fascist screeds, and refusing to renounce them? Is furthering the agenda of fascists the price we have to pay for "getting the word out"?

why JD are you turning this into an exercise in Campbell-bashing when you have your own Priest of Anti-Doomer Methodology right here in the same room. You need to ask Mr. Lynch, before he leaves in disgust, some very very important questions. Now! Don't ruin this for the other cornucopians.

[khebab]

Back to the original subject:

We can criticize Lynch, but so far his predictions were far more accurate than those from Campbell:




Of course, the more contentious prediction is the following one:



src: CRYING WOLF: Warnings about oil supply

[CalgaryEng]

First, a quick note on cry wolf. When I was a child I was told a story about a child who cried wolf just to get a reaction out of people. Eventually the people ignored the child. Then, the wolf actually came and there was a bit of a disaster. My point is that in the story I was told, the wolf did eventually arrive.

My understanding is that the geophysical processes that create fossil fuels do so at a rate that is very small compared to the rate at which we consume them. Correct me if I am wrong.

We are consuming fossil fuel resources that were created over a period of many millions of years. Correct me if I am wrong.

This means that in the long run the production of fossil fuel resources MUST eventually drop to an average level that corresponds to the rate at which they are being produced by the earth. Correct me if I am wrong.

This means that a curve that represents fossil fuel production as a function of time that is currently way above the earth's rate of production must eventually go down.

If this is too difficult to understand allow me a simple example. You have a cage with some mice. You put in a one-time lump of five pounds of food. You then add 0.1 pounds of food each day. My contention is that the mice will feast and multiply on the five pound lump and then, as time passes, adjust their numbers and eating habits to consume 0.1 pounds per day. A graph of daily consumption would rise and then fall.

Now look at the last graph presented by Khebab forcasting World Oil production. Campbell's curve goes up and then down. This basically fits reality as mathematicians and engineers know it. Look at Lynch's curve. It just goes up. That is preposterous. Surely a Ph.D. from MIT can understand basic concepts like finite, consumption, rate of replenishment, etc. The curve has to come down. The wolf will come.

I am sitting in an office right now in Fort McMurray, Canada. I am trying to get my share of the tens of billions of dollars being invested right now in the oil sands all around me. What is amazing is that the tens of billions of dollars needed for this development will only produce a relative trickle of a few million barrels per day. The quantity of natural gas required for the production is enormous. The investors in these projects are betting that the age of cheap oil is over. I am betting that too and I am willingly risking my time and money on that forecast.

[FatherOfTwo]

In Lynch's defense, I do not think he says there will be no peak. He probably just adheres to the more optimistic predictions that are post 2020 (and thus not on the graph.)

PS
Off topic, but CalgaryEng don't forget, there are other fuel stocks (different forms of the bitumen itself - MSAR, or THAI) that can be used to seperate the oil and for upgrading) Only THAI has the ability to significantly increase production rates, but it's still in its pilot phase.