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Michael Lynch: The Curious Incident Of The Oil Supply That Didn’t Decline

Production

Interestingly, there are still peak oil advocates who think that we’ve reached peak oil now, despite the fact that shale oil production is still growing, OPEC+ has about 1.5 mb/d of production shut-in due to weak prices, while Venezuela, Libya, Iran and Nigeria are all experiencing difficulties that have closed down temporarily 3 mb/d or more, much of which is likely to return to market in the next few years.

Still Ron Patterson asks, “Was 2018 the peak for crude oil production?” and Gail Tverberg says, “Given the nearly worldwide problem of falling affordability of goods by non-elite workers, we should not be surprised if the peaks in oil production in October and November 2018 ultimately prove to be the maximum production ever recorded.” The former is merely looking at recent production trends, the latter believes that consumers can’t afford the prices producers need to invest in new capacity. Neither argument impresses me.

More seriously, the IEA’s new five year forecast predicts that the “call on OPEC,” roughly world demand minus non-OPEC production, will drop for a year or two, then rise by 2 mb/d over four years. For old-timers, this is reminiscent of the “hockey-stick” forecasts seen for many years for oil prices, electricity demand, etc., wherein the forecaster could see weakness in the near-term, but further out expected strength. Most times, reality proved to be different.

IEA Forecast of “Call on OPEC”The author from IEA data.

To a degree, this is an example of what could be called the horizon effect, that is, assuming different behavior beyond the clearly visible future. Usually it means that the forecaster has a bias or underlying theory that drives their forecast beyond the point at which real world behavior can be seen. In the case of oil supply, this is an example where much of what is happening cannot be seen, but a pessimistic bias leads to pessimism in the forecast.

I first commented on this back in 1987, in a conference paper titled, “The Underprojection of Non-OPEC Third World Oil Production,” which noted that nearly every forecast for oil production from non-OECD, non-OPEC countries showed a short-term increase, then a peak and decline. (The figure below shows DOE forecasts for this region from 1980 to 1994.) This puzzled me, since the level of exploitation in those countries was trivial and most needed oil revenue, which led me to conclude that this was result of neo-Malthusian bias, something I later noted began after the Iranian Oil Crisis, which caused many to conclude that oil was geologically scarce. James Schlesinger, for example, thought world oil production would never surpass 65 mb/d (it’s 100 now.)

DOE Forecasts of Non-OPEC Third World Oil Supply 1980-1994The author from DOE data

There’s a real there, there, so to speak. Early supply forecasting relied on elasticities, that is, if prices went up, so would supply by an amount to be determined empirically. This failed to work because higher prices led to both higher costs and more resource nationalism.

On the other hand, simply adding up production plans from large companies or announced field developments didn’t work very well either, because there was a large amount of small scale work, mostly in existing fields, that added to oil supply but wasn’t very visible. No one has successfully modeled that to my knowledge, and many forecasters tend towards conservatism:  if you can’t see it explicitly, assume it’s not there. This is most relevant beyond the immediate future, so that the horizon effect often means a hockey stock project: near-term increases followed by a decline.

Examining the latest five year forecast from the IEA, some of this is obvious. While the forecast for non-OPEC supply has for years shown a rising trend, it has been regularly revised upwards, as the figure shows, primarily as U.S. shale production has outperformed expectations.

IEA Forecasts of Non-OPEC SupplyThe author from IEA data

However, it is also worthy of note that the Former Soviet Union has continued to produce increasing amounts of oil, and more than projected. Indeed, this follows the hockey-stick pattern more than the total for non-OPEC production, which is telling because the Russian upstream especially is less transparent than many others. Which implies that perhaps the IEA forecasters are subject to Malthusian bias when they predict oil supply, or are simply conservative when information is of poor quality.

IEA Forecasts of FSU Oil ProductionThe author from IEA data

Needless to say there are many things that can cause future production to be below expectations, including heightened resource nationalism in countries like Mexico and Brazil, more technical problems in Kashagan, and of course, lower oil prices.  But it is worth keeping in mind that predictions of declining oil supply are often driven by assumptions which can prove mistaken. If FSU production does not decline as the IEA expects, the challenge for OPEC+ will be significantly greater.

Forbes



73 Comments on "Michael Lynch: The Curious Incident Of The Oil Supply That Didn’t Decline"

  1. JuanO is the cause of the noise on Thu, 21st Mar 2019 5:18 pm 

    This is JuanO bullshit:
    “See everything in this entire thread. And every other thread where More Davy Sock puppetry and Socks has shared his nuttery”

    JuanO has made his whole time here dedicated to trolling Davy with no concern for others. This is an ego thing not an intellectual thing nor a concern for others. JuanO is a pathological liar and should be banned.

  2. majece majece on Fri, 22nd Mar 2019 6:15 am 

    Advices from https://college-homework-help.org/blog/research-essay might be really useful for college students. Here you can learn more about writing your research essay

  3. Michael Lynch on Fri, 22nd Mar 2019 7:33 am 

    Thanks, Sissyfuss. It’s a shame that the weight of comments on this site makes it more peaktroll than peakoil.

  4. Davy on Fri, 22nd Mar 2019 7:41 am 

    Mike, this site is about gone. It is now about extremist spamming this or that personal agenda and petty personality battles. Yea I am part of it but would rather not be. It is an unmoderated site that needs a minimum of “auto” moderations. Things like amount of postings and identity protection. I don’t care anymore I am here to shoot down obvious lies and fight my own censorship by a lunatic JuanP. I am all for a change but I think the owner don’t care about the Wild West side of PO dot com. PO has become largely irrelevant in the public’s eyes even though the dynamics of it are still relevant. The original doom that Peaker professed is wrong. MOB is case in point. He is the board joke spamming the same old references daily and mostly empty without support. This forum is now a joke also and I am surprised you even bothered to visit.

  5. Antius on Fri, 22nd Mar 2019 7:46 am 

    Tesla 3 costs more to charge than a gasoline car (in the US at least).

    https://seekingalpha.com/article/4160351-tesla-model-3-costs-charge-gasoline-car

    This raises the question as to why anyone would buy a Tesla, given it’s higher purchase costs, battery replacement cost and no real advantage in terms of fuel costs.

    Instead of finding new ways to power cars, we should be finding new ways to live without them.

  6. Davy on Fri, 22nd Mar 2019 7:51 am 

    BTW Mike. In all honesty I started all the shit here many years ago. I have been asked numerous times by many different folks over the years to keep it civil, but I have refused.

    Payback is a bitch Mike. I deserve everything coming my way and much much more.

  7. wildbourgman on Fri, 22nd Mar 2019 8:24 am 

    I love the honesty Davy. Take is from a retired forum fighter once your completely intellectually honest on a forum/blog/message board and if you really just want honest discussion or even debate its hard to find these days.

  8. Sunspot on Fri, 22nd Mar 2019 9:32 am 

    Peak Oil was always about conventional oil, not total liquid fuels. Conventional oil peaked in 2006. Nobody disputes that. I’m certain Michael Lynch knows this. Just more oil industry propaganda…

  9. Dredd on Fri, 22nd Mar 2019 9:34 am 

    When sea level rise, floods, storms, and global warming decline, we will know that Oil-Qaeda juice has declined (The Gravity of Sea Level Change – 5).

  10. This is a JuanP post Mike on Fri, 22nd Mar 2019 9:39 am 

    Davy on Fri, 22nd Mar 2019 7:51 am

    BTW Mike. In all honesty I started all the shit here many years ago. I have been asked numerous times by many different folks over the years to keep it civil, but I have refused.

    Payback is a bitch Mike. I deserve everything coming my way and much much more.

  11. Davy on Fri, 22nd Mar 2019 9:48 am 

    “wildbourgman on Fri, 22nd Mar 2019 8:24 am”
    “I love the honesty Davy. Take is from a retired forum fighter once your completely intellectually honest on a forum/blog/message board and if you really just want honest discussion or even debate its hard to find these days.”

    Well put wild! When I started going to forums back in 2012 or 2013 don’t remember exactly, times were different. I feel in a very short time these forums have become nesting spots for people who want to drop their personal emotional message regardless of the truth. I am not sure if unmoderated forums are legit anymore for quality discussions. They are now places to battle and a reflection of the world we live in.

  12. Antius on Fri, 22nd Mar 2019 9:54 am 

    “Peak Oil was always about conventional oil, not total liquid fuels. Conventional oil peaked in 2006. Nobody disputes that. I’m certain Michael Lynch knows this. Just more oil industry propaganda…”

    Indeed. The huge surge in shale (tight oil) production in the US was only made possible by zero interest rate policy, which has led to an economy dominated by zombie companies that could not function at normal interest rates. Policy makers literally burned the future in a vain attempt to keep present consumption increasing. Without ZIRP, global liquids production would already have peaked.

    But there’s another problem, less often talked about: not all oil is created equal. Since the early 2000s; the world’s new replacement oil production has been getting lighter: condensates, tight oil and natural gas liquids now dominate an increasing share of production. Unfortunately, light oils aren’t much use for American refiners and they produce too little diesel and fuel oil.

    https://srsroccoreport.com/has-peak-diesel-arrived-the-data-doesnt-look-good/

    These are the staples of the transport system; they power ships, planes, trucks and trains. Gasoline, the main product of shale refining, is used for small-scale private vehicles, but not much else.

    This leaves the global economy in a bit of a pickle. Now that Wall Street have finally realised that shale companies are cash burners, it is only a matter of time before total liquids production starts to decline. At this point, it will be impossible to deny reality any longer.

  13. Antius on Fri, 22nd Mar 2019 10:32 am 

    Probably the biggest piece of economic news today, or indeed the week: The yield curve has just inverted.

    https://tinyurl.com/y6d72tox

    This has preceded every single recession of the past 50 years and it strongly suggests that we are very close to the next one.

  14. Davy on Fri, 22nd Mar 2019 10:51 am 

    “This has preceded every single recession of the past 50 years and it strongly suggests that we are very close to the next one.“

    Main street and classes lower than 10%ers have been in a pseudo recession for years now. The recession now will likely focus on higher end globalized manufacturing and financial products and services. This will inevitably filter down to those already hurting driving social tensions even more. 2019 will likely be a economic phase change period. Who knows where this will go because we are in uncharted waters.

  15. Robert Inget on Fri, 22nd Mar 2019 11:15 am 

    Scientists responded angrily to President Donald Trump’s anti-renewable energy claim that people would have to turn off their TV sets if there wasn’t enough wind to power turbines.

    Addressing an audience at an Army tank factory in Lima, Ohio, on Wednesday afternoon, the president appeared to confuse windmills with wind turbines in his speech repeatedly. Taking on the persona of a man watching TV with his partner, Trump said, “When the wind doesn’t blow, just turn off the television darling, please. There’s no wind, please turn off the television quickly.”

    The president also joked “solar’s wonderful too, but it’s not strong enough, and it’s very very expensive.” He did not elaborate on what he meant by “strong.”

    Trump took a second swipe at wind power when he argued that building wind turbines near homes would affect property prices.

    This is the president’s latest attack on renewable energy. Last year, he claimed wind turbines “kill so many birds,” and he has fought to keep the structures away from his golf courses in Scotland.

    “Disgust” was the word Michael Mann, a professor of atmospheric science at Pennsylvania State University, used when asked by Newsweek for his initial reaction to Trump’s comments.

    “Trump is a clown, but a dangerous, evil clown. He would happily mortgage the future of our children and grandchildren for the short-term profit of the fossil fuel interests whose bidding he’s doing,” he told Newsweek.

    “There’s no evidence that being in sight of a windmill decreases property values,” Mann said.

    “But you know what does decrease property values?” asked the professor. “Unprecedented floods, wildfires and inundation by sea level rise and more ferocious tropical storms, all of which are exacerbated by human-caused climate change which, in turn, is caused by our reliance on fossil fuels.”

    Philip Eames, a professor of renewable energy at Loughborough University in the U.K., argued that Trump’s comments on renewable energy were in line with his questionable attitudes toward global warming.

    “The denial of man-made climate change, the attitude of ‘live for today and not care about tomorrow’ is a characteristic of all of Trump’s statements in relation to renewables. He only cares about money and votes today, and is not seeing the long-term risks in his policies for future generations,” he said.

    Ajay Gambhir, a senior research fellow with the Grantham Institute at Imperial College London, echoed Mann’s concerns. He told Newsweek, “The claims made by Trump are tired and out of date.”

    Gambhir pointed to the fact that almost half of Denmark’s electricity came from wind power, “much of it offshore and out of sight.” Denmark hopes to be powered exclusively by renewable energy sources such as wind by 2035.

    Addressing Trump’s claim that solar energy was expensive, Gambhir said that almost a decade ago, the U.S. Department of Energy concluded that solar power was relatively pricey. The body responded by launching measures to lower the cost of solar-generated electricity, including the SunShot initiative in 2011. This aimed to bring down the cost of solar-generated electricity to 6 cents per kilowatt-hour by 2020.

    The target was achieved in 2017, making solar power comparable to coal- and gas-fired electricity generation costs. The department said it hoped to cut costs by another 50 percent by 2030, making solar electricity cheaper than coal and gas.

    Trump promised to restore coal mining jobs during the 2016 presidential election. Gambhir suggested his anti-renewable energy rhetoric came from the intention to make “those whose livelihoods and interests are tied to the coal and fossil-fuel industries feel temporarily good.

    “But it’s not a useful tactic for the longer term. The economics of low-carbon technologies are improving too rapidly to ignore. The real question is how to accommodate, through support and retraining, those workers and communities that are highly reliant on coal and other fossil-fuel jobs and activities, so that when the large-scale replacement of fossil fuels happens, they have a stake in a low-carbon future.”

  16. Plantagenet on Fri, 22nd Mar 2019 11:22 am 

    File the article by Michael Lynch in the drawer labelled “Beating a Dead Horse.”

    Cheers!

  17. joe on Fri, 22nd Mar 2019 11:27 am 

    The more ‘educated’ people are the less they tend know. They become loyal to the narrative that their trusted superior professors have spun. Gaia theory, GW/CC whatever you call it presumes somthing so fundamental that it’s often overlooked. We presume that the earth has billions of years of living time left and we are somehow robbing the earth of those years. We assume that the earth has a right to those years. I like to think of it more like a tree. A tree has a long life and at the end it dies. Nobody worries that the bugs that ate out its core or the rot that set in led to its downfall, we call it nature. The earth made us. Evolution created us. Therefore we and everything we do is natural, even if you don’t like it. If we destroy the earth, thats natural too. Sorry if it’s during your life or your kids, but killing the earth might be our natural purpose.

  18. Plantagenet on Fri, 22nd Mar 2019 1:25 pm 

    joe, I am neither ‘educated’, and I dont have a fucking clue what I am talking about either. Need any proof, just take a look at any one of the shit comments I have ever posted. Any of them will do. Even my best comments are garbage. Sure I like to think I know about stuff, but really I dont.

    Cheers!

  19. Edwin on Fri, 22nd Mar 2019 5:07 pm 

    Joe:

    You have adopted this selfish philosophy as a rationalization for your actions. The truth of the matter, is you are a soulless cancer on the earth.

  20. Anonymous on Sat, 23rd Mar 2019 1:33 pm 

    The Internet is littered with the carcasses of failed Peak Oil predictions. The whole scene was always a little nutty. But when you see their failure to admit error it just shows their bias and irrationality. At the end of the day, Peak Oil (as hyped online) was not an honest hypothesis. It was a view of what the peakers wanted. As such, emotion rules. Not data.

  21. Nostradamus on Sat, 23rd Mar 2019 8:06 pm 

    Reality check: Shale Oil is finite.

  22. PeterEV on Sun, 24th Mar 2019 8:28 am 

    Agreed. Moderation would help a lot.

    When you search on “Exxon View to 2040”, there are a number of hits and PDF references. The 2018 PDF has two slides that are pertinent to this “discussion”. One of them has a bar graph with 1 Trillion (with a T) of “technically recoverable oil”. The previous slide depicts the peaking of world liquid supply around the year 2040 with the very important footnote written in a very fine font that says:”Continued investment is needed to mitigate decline and meet growing demand.” If you can find the report from 2016, you can also view a similar graph that shows that “Peak Oil” did occur for already drilled conventional wells; just like the petro-geologists predicted. However, they did not consider the junk bond issuances to develop the Bakken and Eagle Ford areas.

    Exxon appears to be saying is that we will need to find a way to finance the development of those 1 Trillion barrels of oil and they don’t think it is likely. This coupled with declines in the Saudi fields and other places, adds to what Exxon maybe trying to tell us. “Hey Wall Street: Can you find a way to finance all this?”

    The other aspect is that the 1 Trillion barrels of oil are located in Western Colorado and Utah; so says Exxon and the US Geological Survey. BUT it is not oil. It’s an array of various hydrocarbons of which Kerogen is the most prominent. It order to convert this Kerogen to a barrel of “oil”, a Shell project manager said you would need 2.5 to 3 barrels of water.

    Since this area is west of the Continental Divide and is classified as High Desert, water can not be obtained from the Colorado and other rivers. It needs to be brought in from east of the Continental Divide.

    To put this into perspective, if we needed 5 million barrels of oil from this region, we would need to pump in 15 million barrels of water from rivers such are the Missouri, Platte, etc. The Alaskan Pipeline, in its heyday, moved a little over 1.5 million barrels of oil per day. Therefore, we would need to build **10** Alaskan Pipelines from say the middle of the Dakotas over the Continental Divide and into at least western Colorado in order to pump out 5 million barrels of “oil” per day through 4 Alaskan Pipelines. That’s a lot of capital to raise.

    If the financiers were able to raise the capital, what would gasoline cost at the pumps? Exxon evidently does not think the world has enough financial resources to do this.

    I think we are looking toward using renewables and will likely use the remaining FF to develop and maintain these systems until they can either support themselves or we look for alternatives to them.

    Bottom line: This whole thing is just another skirmish in the ongoing Peak Oil “debates”.

    Meanwhile, EV, battery and renewable develops are picking up along with other possibly useful technology that might help mitigate our predicament.

  23. Davy on Sun, 24th Mar 2019 8:59 am 

    “I think we are looking toward using renewables and will likely use the remaining FF to develop and maintain these systems until they can either support themselves or we look for alternatives to them. Bottom line: This whole thing is just another skirmish in the ongoing Peak Oil “debates”.
    Let’s hope the economy holds out for both fossil fuels needed to bring renewables on and renewable production itself. Depending where the economy may go renewables are more at risk than fossil fuels. There is plenty of fossil fuels still available and systems already built out. A reduced economy could mean we will see less fossil fuel consumption and that could mean a supply glut. A supply glut and no money to build out much needed renewable systems is the worst of all worlds in regards to muddling through this mess.

    “Meanwhile, EV, battery and renewable develops are picking up along with other possibly useful technology that might help mitigate our predicament.”
    Yes, I am optimistic with hydrogen too but worried all this is a little too late and not enough to keep the complicated production engine we call globalism alive. We also have the social problem of pissed off people willing to take the system down for their own pet purposes from A-Z. The world is a mess at all levels so let’s hope we can limp through. I am less a doomer these days but not much more optimistic than for the possibility of some less painful times. Physics always points to consequences and we have been screwing with physics for decades acting like there are no consequences or those consequences are far off in the future. Those consequences are coming home to roost NOW!

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