[trespam]

I've been reading Douglas Reynolds compilation of papers entitled "Scatiry and Growth Considering Oil and Energy: An Alternative Neo-Classical View." The set of papers available in it can be read here [link]. In particular, many might take interest in his paper (Chapter 5) on Hubbert Curves and Reserve Production Ratios.

To be brief, this paper, along with similar work by Reynolds, confirms my opinion that the world is in store for a series of oil shocks, not a geological hubbert peak. The reasoning is simple:

1. The US has always maintained a reserve to production ratio of approximately ten. Lower ratios (higher production) damage fields. The US, as one would expect, tried to suck the oil out of the fields as quickly as possible.

2. OPEC countries have maintained much higher reserve production ratios. They've not invested. They've invested what was necessary to get oil moving out of the ground, and then used the income to solve other problems. They're not in the oil business. They're in the social welfare business (and line the pockets of the few business).

3. Hubbert curves as produced by most if not all are not geological in nature, they are geological/economic/political in nature. Using them to predict the future is not very useful.

4. World oil reserves have not been produced at anywhere near the rate that would have been possible if they had been developed as aggressively as those in the US.

5. The practical implication: consumption will soon run into production limits that are NOT GEOLOGICAL CONSTRAINTS but INVESTMENT CONSTRAINTS.

6. This does not imply that we're all in the clear. It means that the world is not producing oil as efficiently and quickly as it could, which will lead to much earlier shocks and much earlier economic dislocation.

In summary, Reynold's thesis is that the world is not producing oil as effectively as it could. That implies that shocks will come sooner than predicted by geological considerations. The shocks will push the restructing process and pain earlier that would occur if the world had produced along a true geological curve.

The work of Campbell et. al., as far as I can tell, does not take any of this into account. There is more investigation to be performed. But it all agrees with my general belief that we are headed for a long muddle.

And here's the problem:

1. It is still a problem. But

2. It may turn out to be more of a long muddle than a long emergency, and

3. We all know it's much easier to sell books called "The Long Emergency" than "The Long Muddle", particularly after that whole Y2K thing turned out to be a farce.

People have to make up their own minds. They can believe in conspiracy theories, determine ways in which the die off will occur, make plans to off people of a particular color or nationality, discuss the tradeoffs of fiat currencies versus fiat gold (the govt can, by fiat, take your gold, so give up on thinking it has stable value).

Or people can come up with practical steps to help the world deal with what very well may be a long muddle. The end of growth at some point. Decline at some point. Dislocation. Etc.

Again, the problem is: The latter takes real work. It's much more fun to mindless speculate in the former.

[marek]

I am writing my third paper with Prof. Reynolds and mine (and his) understanding is that Hubbert curves are geological/economic in nature, not purely geological. However, this does not change the fact that the peak is imminent. Prof. Reynolds suggests that the EIA peak in 2037 could be met if OPEC ramped up production to reach R/P ratios of 10, but due to risk aversion they won't, so a modified Hubbert curve shows a peak in 2005. Then again, OPEC's reserves are spurious, so geology, not politics, might be the problem if the R/P ratios are based on cooked numbers. It is not true that Prof. Reynolds believes that oil is not used efficiently due to OPEC's low levels of production. To the contrary, he favors conservation because he claims that oil is our most precious resource. He shows this argument in "The case for conserving oil resources: the fundamentals of supply and demand," published in OPEC review in 2000.

[trespam]

I am writing my third paper with Prof. Reynolds and mine (and his) understanding is that Hubbert curves are geological/economic in nature, not purely geological. However, this does not change the fact that the peak is imminent. Prof. Reynolds suggests that the EIA peak in 2037 could be met if OPEC ramped up production to reach R/P ratios of 10, but due to risk aversion they won't, so a modified Hubbert curve shows a peak in 2005. Then again, OPEC's reserves are spurious, so geology, not politics, might be the problem if the R/P ratios are based on cooked numbers. It is not true that Prof. Reynolds believes that oil is not used efficiently due to OPEC's low levels of production. To the contrary, he favors conservation because he claims that oil is our most precious resource. He shows this argument in "The case for conserving oil resources: the fundamentals of supply and demand," published in OPEC review in 2000.

Excellent. I've been impressed by his work. And please note that I didn't want to imply that he thought OPEC or the world was not producing as much oil as it SHOULD. As you point out, he believes that we should be conserving. What I had meant to say, thought not perhaps clearly, is that Reynolds believes it quite probably that, given appropriate investment, OPEC could be producing a lot more oil. E.g. Iraq could probably be producing more oil. And Saudi Arabia. But they've not made the investment, and we're the better for it. Because it extends the curve.

And Reynolds also notes the disservie of the EIA when it produces hubbert curves that the peak will arrive in 2030 or 2037 when in fact, because of economic and demand issues, we've probably arrived.

But as I've been arguing for a while on this board: all the better. Oil is a depletable resource. Let's hit maximum production and start dealing with it. Let's not put it off.

Again, I've been very impressed with the work of Reynolds et. al., including yourself, given that economic and geological issues are taken into account in a way that might just give us a better picture of what we are dealing with.

[MicroHydro]

It is absurd to talk about Saudi reserve/prodution ratios when estimates of their remaining reserves vary by a factor of ten.

[marek]

Trespam: I have followed your posts for a long time and was clear about your understanding of the situation. I just thought that not everyone might interpret your post the same way

[bobcousins]

Surely it is obvious that depletion curves are the product of economics, and very little to do with geology.

You can explain the Hubbert curve purely on the basis of investment activity.

[trespam]

I agree with the comment that OPEC reserves are unknown. And I think a good summary of the problems with modeling, in general, are summarized in the Conclusions section of "Oil Production in the Lower 48" by Kaufman and Cleveland [link] (starting on page 16).