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Michael Lynch: Has Production Peaked?

Michael Lynch: Has Production Peaked? thumbnail

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”.Oil prices over the moon

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.

Forbes



22 Comments on "Michael Lynch: Has Production Peaked?"

  1. Plantagenet on Fri, 27th Jun 2014 11:54 am 

    The data is pretty clear—-oil production from CONVENTIONAL oil has already peaked. All the production gains we are seeing today are from UNCONVENTIONAL oil—biofuels, NGL liquids, fracking etc.

    These will also inevitably peak.

  2. byronwalter on Fri, 27th Jun 2014 12:01 pm 

    ” …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… ”

    He has a good point. Only issue is that coffee, pork, and oranges only need a year or two to recover whereas the oil ‘crop’ needs a little longer, maybe 75 million years or so to turn over.

    And the growth he mentions is almost exclusively from NA. That, combined with around a 2 MMbpd demand drop in the US, has allowed for the current global production of around 91 MMbpd to exist at current prices.

    Frankly the NA shale revolution caught most of us by surprise (and a good one) but I see it as not as a stay of execution from peak oil but a temporary delay.

  3. Satori on Fri, 27th Jun 2014 12:05 pm 

    Lynch has a great job

    write crap all day

    and get paid big $$$

    sweet

    can I get on that gravy train ?

  4. Pops on Fri, 27th Jun 2014 12:09 pm 

    10 years after the OPEC repricing of oil there was a lot more oil.

    10 years after the peak in conventional oil there is a lot more …

    nat gas, coal, condensate, bitumen, kerogen, ethanol and unrest in oil producing countries.

    not a lot more oil tho.

    Them’s the facts.

    Spin it however you like, the avg price of “oil” is higher, longer, than at any time in the history of oil, 3 years running now. Exactly as the peakers said and exactly the opposite of what Lynch, and the other boosters said.

  5. Jerry McManus on Fri, 27th Jun 2014 12:30 pm 

    My favorite brand of dish soap is a liquid, can we make jet fuel out of that?

    Anyway, more FUD from Lynch. The “price, taxes, politics, and technology” that sit atop the altar at which he worships are all made possible by consumption of prodigious quantities of energy.

    Last time I looked some 80% or so of that energy is provided by burning fossil fuels, and the data clearly shows those are not getting any cheaper or easier to extract.

    Just a coincidence that the rising environmental, economic, and net energy costs of fossil fuels corresponds to recent economic depressions? Think again Mr. Lynch.

  6. keith on Fri, 27th Jun 2014 12:30 pm 

    I think PO arrives for different classes at different times. It arrives to the poor first, which it did years ago. It is arriving to the Middle class now. When it arrives to the rich in their ivory towers, then they will be screaming, not about PO, but about the unruly filth below them. Ten cent rise here, twenty cent rise there does not appear on the radar of the rich at a personal level. Only total chaos will appear on their radar. By then, they will explain it away as something else, and not PO. The Arab spring is an example, it wasn’t food costs, but after thousands of years of Monarch rule, they suddenly craved democracy because they had access to social media on the net. Even the Scientific method can be bastardized to suit the purposes of any given slant on reality. I determine reality by looking outside my door.

  7. westexas on Fri, 27th Jun 2014 12:56 pm 

    Lynch continues to try to convince people not to trust their “Lying eyes” about high oil prices, as he attempts to disguise the fact that actual global crude oil production (45 or lower API gravity crude) has probably peaked, but global natural gas and associated liquids (NGL’s and condensates) have so far continued to increase.

    He has to argue that high prices don’t matter, because oil prices have not been at the low levels that he has erroneously predicted, for years, that we would see.

    Michael C. Lynch (August, 2009:
    Peak Oil’ Is a Waste of Energy
    http://www.nytimes.com/2009/08/25/opinion/25lynch.html?pagewanted=all&_r=0

    Excerpt:

    Oil remains abundant, and the price will likely come down closer to the historical level of $30 a barrel as new supplies come forward in the deep waters off West Africa and Latin America, in East Africa, and perhaps in the Bakken oil shale fields of Montana and North Dakota. But that may not keep the Chicken Littles from convincing policymakers in Washington and elsewhere that oil, being finite, must increase in price.

  8. westexas on Fri, 27th Jun 2014 1:01 pm 

    As I have periodically noted, when we ask for the price of oil, we get the price of 45 or lower API gravity crude oil, but when we ask for the volume of oil, we get some combination of crude oil + condensate + NGL (Natural Gas Liquids) + biofuels + refinery gains.

    Shouldn’t the price of an item relate to the quantity of the item being priced, and not the quantity of the item + the quantity of (partial) substitutes?

  9. Davy, Hermann, MO on Fri, 27th Jun 2014 1:33 pm 

    WT, it is the classic “you can’t eat your cake and have it (too)”

    http://www.cyclopaedia.info/wiki/You-can,-t-have-your-cake-and-eat-it-too
    The proverb literally means “you cannot both possess your cake and eat it”. It can be used to say that one cannot or should not have or want more than one deserves or can handle, or that one cannot or should not try to have two incompatible things. The proverb’s meaning is similar to the phrases “you can’t have it both ways” and “you can’t have the best of both worlds.” Conversely, in the positive sense, it refers to “having it both ways” or “having the best of both worlds.”
    Having to choose whether to have or eat your cake illustrates the concept of trade-offs or opportunity cost.

  10. MD on Fri, 27th Jun 2014 2:57 pm 

    He started off by making an analogy that oil production was similar to orange juice. I stopped right there…

  11. byronwalter on Fri, 27th Jun 2014 3:59 pm 

    “He started off by making an analogy that oil production was similar to orange juice. I stopped right there…”

    You shouldn’t have. Orange juice is good for you and it tastes better than oil.

    And perhaps Lynch should spend more time writing about OJ and less on oil.

  12. westexas on Fri, 27th Jun 2014 4:10 pm 

    Normalized global gas, NGL and C+C production from 2002 to 2012 (2005 values = 100%):

    http://i1095.photobucket.com/albums/i475/westexas/Slide1_zps45f11d98.jpg

    Estimated* normalized global condensate and crude oil production from 2002 to 2012 (2005 values = 100%):

    http://i1095.photobucket.com/albums/i475/westexas/Slide2_zpse294f080.jpg

    *I’m assuming that the global Condensate/(C+C) Ratio was about 10% for 2002 to 2005 (versus 11% for Texas in 2005), and then I (conservatively) assume that condensate increased at the same rate as global gas production from 2005 to 2012, which is a much lower rate of increase in condensate (relative to the increase in gas production) than what we saw in Texas from 2005 to 2012.

  13. SilentRunning on Fri, 27th Jun 2014 4:58 pm 

    The vestiges of the Cornicopian community – deep in denial of the reality before them – have now gone beyond “Crude+Condensate” definition of oil to considering “propane” and other gasses to be oil.

    True, we will never run out of “oil” if we redefine oil to mean all kinds of non-oil things. It’s just like I will never run out of money, so long as I redefine money to mean whatever shreds of paper I have lying around + leaves in the forest.

  14. Makati1 on Fri, 27th Jun 2014 7:23 pm 

    BTW: Someone doubted my comment about the coming North American Union and Amero a few days ago. You might want to read the ultra-con article that talks about it, obliquely.

    “Former general and CIA chief David Petraeus (shown), a key figure in the globalist Council on Foreign Relations and the shadowy Bilderberg network, boasted at a recent conference that the United States of America is set to be merged into the continental regime being erected under the North American Free Trade Agreement (NAFTA). … Petraeus again cited the “four revolutions” underpinning his dubious theories about “North America,” but as usual, failed to mention the fact that all of the “integration” is proceeding quietly and under the radar. Indeed, as Americans and Canadians discover what is happening, the opposition to the “North America” scheming continues to grow like wildfire. Still, the process of regionalization and sovereignty destruction is accelerating, too — all over the world, but especially in North America. … The North American Union (NAU), of course, has been a top goal of senior globalists in all three countries for over a decade….”

    http://www.thenewamerican.com/world-news/north-america/item/18585-after-america-comes-north-america-gen-petraeus-boasts

  15. redpill on Fri, 27th Jun 2014 8:06 pm 

    Hadn’t heard of this Lynch guy till the 1st posting here around a week ago. Saw that beer and a few others commented on that first piece and the only rebuttals seemed to come from Lynch himself.

    Just wondering if Lynch has regularly pounded the table this way or if it’s more recent, i.e. has the “trouble” in Iraq got some folks feeling they need their pundits to speak more loudly about how all is well?

  16. Nony on Fri, 27th Jun 2014 8:33 pm 

    I think the price of oil is a huge point on the peakers side (and that is coming from an anti-peaker). You all should bang that drum hard. It really does support you all.

    Conversely the petroleum 3R estimates approaches of Deffeyes, Campbell, Ace, Rune, Picollo…and yes even Saint Hubbard have been routinely underestimating total production. Very flawed. and even resistant to admitting flawed.

    P.s. I do wonder if there is some aspect of the amounts of oil being in Arabia leading to effective cartel control. If all of that oil were in a non cartel situation (let’s say 100s of US producers), than I think price would be much lower. But it is what it is. If my grandma had wheels she’d be a motorbike.

    So really…push the price argument. Good advice from your enemy.

  17. Makati1 on Fri, 27th Jun 2014 9:00 pm 

    Nony, they have not been underestimating total petroleum recovery. That has been going down since at least 2005. The faux ‘oil’ (biofuels, liquid condensate, etc.) numbers are added to make it appear that nothing is wrong. Actually, NET energy has been declining for decades. THAT is the really important fact. Not price or how much moonshine was added to the mix.

  18. Jerry McManus on Fri, 27th Jun 2014 9:18 pm 

    @redpill

    Lynch has a long history of ranting against the peak oil crowd, and a handful of his favorite whipping boys in particular such as Colin Campbell. He was relatively quiet for a few years after his predictions of $30 per barrel oil flopped, but now he seems to be back with a vengeance. Perhaps he has been emboldened by the short lived shale bubble and its spawn, the blizzard of happy talk propaganda.

    The refrain is always the same, ad hominem attacks on the peak oil prognosticators as “unscientific” while conspicuously failing to provide any data driven analysis of his own.

  19. Meld on Sat, 28th Jun 2014 3:25 am 

    I put orange juice in my car this morning. Substitution just like the government inflation numbers. See we can all be stupid If we try, but it’s only the very very dense that get to write about it for a high powered propaganda outlet.

  20. rollin on Sat, 28th Jun 2014 12:10 pm 

    oh boy, gasoline prices went from $2 a gallon in 1972 to $3.50 a gallon in 2014. Whoopdedoo. And a good part of that is taxes.
    I wish everything else had only risen by that much.
    Gasoline is not expensive. Everything else (except maybe electronics) is expensive.
    Sure it is getting harder to find oil and more expensive (unless you take into account the real inflation numbers).
    It’s not oil that killing the economy, it’s the economy killing the economy. Inflation has eaten our dollar down to a few cents and is still going at it. Too many people taking too much profit combined with government debt pushing inflation.

    If you can’t afford gas for your car look at what you are spending on everything else. I bet most families communication and entertainment bill is bigger than their gasoline bill. How about that $300 shopping cart of food for the week for a family.
    You can easily spend more in tolls than you do in gasoline.

  21. mack on Sat, 28th Jun 2014 4:37 pm 

    I think when he is comparing oil to orange juice he is saying that oil is just another commodity like orange juice. Like orange juice it is subject to ups and downs in price but in the end we will always grow oranges and we will always have orange juice. I’m not well schooled in economics but I think this is main stream Neo-Liberal economics. This is probably why he is completely mystified by people who think that any resource can peak and then go into decline. He believes that all resources are easily substitutable. If we don’t have orange juice then we’ll just drink grape juice. If you ask him what would happen if we had no oil, he would just smile and shake his head at such an ignorant question from someone who doesn’t understand economics and say we will substitute something else because with innovation any problem can be solved. Of course he doesn’t concern himself with the challenge of what would substitute for oil, the priesthood of economics doesn’t concern itself will such minor details. The priesthood of engineers will certainly take care of that.

  22. Isaiah on Sun, 29th Jun 2014 6:06 pm 

    Are there any good articles out there responding to the new sources + new technology = no peak arguments? They seem to making the rounds and are rather insiduous.

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