Weak points on Lynch -

(1) admits he is not up to date on natural gas issues, and in fact, misread the Sempra Energy chart showing natural gas depletion in North America. When admitting he was wrong, he says, without any support, he just disagrees with it;

(2) Says the market controls the price of gas and that speculators are driving the current price of high oil, when every other pundit says its not speculation and is simply oil and demand issues. Further, if it was speculation, the recent attacks in Saudi Arabia targeting oil infrastructure would have sent the price skyrocketing. The attacks did not effect the price of oil. The current high price of oil is related to fundamentals and not speculation as argued by Lynch. Further evidence its not speculation driven is the fact the world is at maximum refinery capacity, which Saudi Arabia and OPEC claim are the cause of high oil. So, why does Lynch keep saying speculation? Not a credible argument.

(3) Lynch has been wrong in his predictions, just as Campbell. Last year, he said oil would drop to the low $30 barrel range by summer of 2005. He couldn't have been more wrong. If it is the market driving the price of oil, how was this economist so wrong? He was wrong bc it is fundamentals driving the price of oil, not speculation. Boone Pickens has been right the last 12 months, not Lynch. Lynch dismisses those like Pickens, but the score board for the last 12 months favors Pickens and even Simmons over Lynch.

(4) Lynch believes the world won't peak until 2030 or later; however, he has yet to answer my questions to him to provide a forecast how he arrives at that conclusion. For example, he has yet to provide an analysis of how much oil the world will be consuming in 2030, how much of that will have to come from OPEC, how much of that will have to come from SA, Russia, and unconventional oils (Canada has said they aren't the answer to peak). Its easy to have an optimistic belief, but so far, its only an opinion not based on any data, which is meaningless. His optimistic opinion apparently doesn't consider the recent statement from OPEC that it will not be able to meet IEA projections for OPEC production past the next 10-15 years. He overlooks this summer's announcement by Saudi Arabia that they are beginning to invest in Solar. Why would SA do invest in solar and not invest in all that undiscovered oil they supposedly have? SA investing in solar doesn't make any sense under Lynch's theory, but it does under Simmons theory.

(5) When asked on this forum about the Hirsh report to the DOE in February of 2005, he hadn't read it. Again, this loses credibility with me. For an expert, he needs to get back in the fold and update himself on the issue of depletion. I would like to know what he thinks of the astronomical and unforeseen depletion rates in the North Sea, Norway, Mexico. I guess they are anomolies, but how will we make up for them?
Further, Hirsh says the United States needs at least 20 years to make a transition to another energy source. So, even if Lynch is right about 2030, we have to start right now. However, Lynch has never answered my question what the next energy source will be, when it will come on line, how much it will cost to implement it, will government have to take the lead or will private industry make the transition on its own, and, at what price will oil have to be to drive the transition to another energy source. With Katrina, we are see demand destruction at $70 per barrel, yet we don't have a transition to another source - no coal liquefication, no fusion, no solar, in fact, every oil company says oil will continue to be the leading source of energy for the foreseeable future. There seems to be a fallacy then in his assumption that the high price of oil will lead to the next transition, bc its not happening.

(6) For the last 12 months, Saudi Arabia has continually stated they have 1.5 million barrel spare capacity, yet it has never been produced. Why not if its there? Again, Husseini in Oil and Gas Journal said the investments SA made in late 2004 were intended to make up for normal depletion. Could it be then that Simmons is right? Interestingly, when specifically asked if Lynch had access to any data on Saudi Arabia that Simmons or others did not have, he did not. He just disagrees with their pessimistic opinions of it.

So, Lynch has been wrong, he's not up on natural gas, he refuses to admit the obvious that NG is in depletion, he has no model for us to review and actually evaluate his assumptions regarding peak oil, the data he does look at is the same data we are all looking at, demand destruction is not leading to a new energy source, he refuses to acknowledge the many false assumptions regarding optimistic oil production by the IEA and EIA, yet, he believes, somehow, that the world oil production won't peak until 2030 or later, even though many other reputable sources, including PFC Energy, state that isn't the case.

So is speculation is not considered part of the market?

So here we have people saying that the market will respond to price signals, then when price signals rear their ugly head, they say, not they're not price signals, that's market speculation.

So what is the point?

Roger,

I'm not sure I'm following you. But, Lynch is arguing that the "speculation" driving the market are interests like hedge funds or others simply playing the market. He disagrees that the high price of oil is driven by fundamental reasons related to demand exceeding supply.

I think the market is responding to the price signals. For example, we are seeing demand destruction in the U.S., airlines getting ready to file bankruptcy, hybrids selling, SUVs not selling, and third world countries like Indonesia have electrical shut downs bc they can't afford the oil to run their generation stations. So, the market is signalling, but people like Lynch continue to believe, somehow, that the oil is really there, that the blackouts and other market signals just mentioned aren't real.

Interestingly, Campbell long ago predicted that market speculator would drive up the price of oil once they got wind depletion was setting in. Just like every other disaster, including Katrina, there are always greedy price gougers out there to take advantage of a bad situation. This is exactly the type of conduct that doesn't help and what makes people like Simmons, Michael Klare, and Kunstler worry about the future.

Hey, I learned here that oil production has actually been on an upsurge these last two years. That Campbell has made these peak oil predictions so many times before. It's always good to consider all sides of the argument. As long as each side has some facts to back it up. I'm still waiting for Mike to tell me why he thinks the whole world will eventually drill oil wells as densely as the USA, and why this means the peak is not coming soon. I also learned that by one of our member's analysis we probably won't hit peak for another 6 years.

Which, if we are on the front side of the curve, would be the case. Or, maybe the Saudis have been releasing oil from reserves, and not from the oil wells themselves.


Relying on the logic of "he was incorrect before, so he'll be incorrect again" is dangerous. Use with caution. How many incorrect assumptons and predictions did Thomas Edison make before inventing a working light bulb? Campbell, Simmons, and all the other gurus have to be right only once.


Which is still not enough time.

Ah, the broken watch theory at it's finest.
They may only have to be right once, but if they are wrong 10X beforehand, at some point everybody is going to stop listening to them.
Not that I'd want their job, but without Saudi data it's almost a fools errand.

I think if the price stays at $50, shale oil plants (pilot projects). At $40, research will accelerate. At $30, the current situation will continue.
Mike Lynch

It has to do with public goods. Since government control of fishing fleets is usually much less than government control of oil lands, I'm not sure how good the analogy is.
But I think it primarily breaks down in the consumption to resource comparison. There's a lot more oil compared to consumption than fish, but fish is renewalbe (if you don't overfish).
Mike Lynch

You can't argue that the market balance is getting worse if inventories are going up, that's my point. And the futures market reflects the perceptions of traders and speculators, that's all. So when there is 'sufficient' oil in inventory, people are more likely to short hte market in the near months.

If inventories are higher now than last year, why would oil prices be higher?
Mike Lynch

That we've never 'run out' doesn't mean we won't, but it provides great support to the theory of resource behavior that economists hold. And that the peak oil theorists keep predicting a peak that doesn't occur (in 1989, Campbell published an article claiming that oil would peak that year, for example).

When you examine the data, it suggests that there is ample supply left. Saying you can't see the resource and assume it isn't there is like sailors who thought there was nothing beyond the horizon. There have been enough seismic studies, etc., done to have a general idea, which is all that anyone is claiming, of the potential existence of oil in the unexplored areas. You don't know that any given well (or basin) will have oil, but you know on average that many will.
Mike Lynch

Boy, now that's bragging! He's good on a geological scale. Of course, he's been worse than everybody else.
Your claim is that, after the fact, behavior is obvious. Explain what dots you are connecting: production? And you are arguing that, once a trend has been established, you can see the trend. How do you explain that the trends change?
Mike Lynch

Mike, is there any price that you would consider that oil has become expensive?

no i feel this contradicts your previous position which excuses the lack of data because we can not look for political reasons... you can not have it
both ways

i think we are going round in circles a bit.. it may be my fault to a degree


your well density argument is a better one if we think recovery via stripper wells is yet to happen in the ME but really a massive increase in well count is a sign of resource stress (AIUI) but if we conclude well count increases are offset by technical improvements that stabilize costs in a economic sense then detecting "stress" by virtue of internal cost would seem to be two strands of your argument that contradict

the issue here is timing

to my third party view both you and campbell are both peak oil theorists!

its more just the nature of depletion and time-scale that sets you apart..

i am quite open to believe that production could exceed 100mbd yet simultaneously believe that over half the oil in place was depleted at lot sooner than reaching this production point.. or not

I could believe in a symmetrical and asymmetrical scenarios but what i am really unclear about is the mechanism that shifts the economy to new sources on the scale required..

if your right what mechanism does this? a drop in oil price?

i see no parallel with the examples you give in the fishing industry. no pre-emptive market action that allowed fish stocks in the north sea to recover for instance.. the substitute for cod is eat something else.

2030 doesn't sound that far away to me... if the european powers had instituted a sustainable policy on fishing in the 1920s.. 60 years ago would the decline in the UK fishing fleet have taken place in the 1970s 50yrs after peak fish?

even if your completely correct the conclusion to do nothing but let market forces (whatever they be?) seems decidedly odd especially if you are sure of some peak date... surley the market exposed to transparent data which affirms your projection will cause investment on a long term scale now for 2030 and beyond... if not why not?

strangely i foresee a gradual convergence between your position and ASPOs

Boris
London

Nope, if we are near the peak, we wouldn't expect the oil supply to 'surge' up. We would expect the rate of increase to slow down and slow down...
Yeah the Saudis may be just pumping reserves



Well you have to decide on one guy or the other based on SOME criterion, don't you? Looking back to see who made the more accurate supply predictions before seems as good a criterion as any? (note that I said 'supply' prediction; Lynch was wrong about the price prediction but so far not the supply prediction.



Indeed