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We Don't Think in Straight Lines Anymore
Posted by Phil Hart on August 9, 2013 - 5:22am
When Straight Lines Were Everything
In the early years of this site and my forays into peak oil analysis, it amazed me that the primary OECD energy forecasting agencies worked out their oil supply forecasts by simply extrapolating demand forward, working out what the Non-OPEC world could produce (with an optimistic set of assumptions) and then blatantly and explicitly assuming that OPEC would make up the difference. Working out this 'call on OPEC' was the crux of oil market forecasting in 2004.
That's how they came up with the green line in the chart above, $20 a barrel all the way. In 2004, everybody believed it and we were building roads, cars and airports to match.
Now you can make a weather forecast that is reasonably accurate on average by simply stating that tomorrow's weather will be much the same as today's. But of course the value in weather forecasts is providing advance notice of when conditions are going to change. Peak oil analysts, myself included, may not have got everything right, for which we can in part blame a lack of pretty basic data, which is still a concern. But we did anticipate an historic transition in oil production and the oil market. And while the energy agencies and other conventional economists forecast growth in oil supply to resume and prices to settle, we correctly saw that the problem was chronic.
Even greater economic heresy was committed by those who predicted the eventual failure of the credit driven economy, which eventually buckled as it had to under the weight of $140 oil. Yet despite our dire economic situation and the ongoing joy of credit deleveraging, we have become largely desensitized to triple digit oil prices, a phenomena that was unthinkable to most just ten years ago.
While it pains me to see others making mileage out of the decision to pull down the shutters on The Oil Drum, not even the most delighted and irrational of our detractors still believe that oil supplies are headed on up the ever increasing green line to the sky. There are mutterings about this being a 'demand driven peak' due to price, but of course that's how a resource peak has to play out. The debate has moved on a long way from where we were in 2004 and I'm proud of the little I contributed to The Oil Drum's role in that.
In terms of summarizing the situation as I see it now, I don't have a lot to add to my post Looking in the Rear View Mirror from 2011. Compared to our fears of how peak oil might unfold back in 2005, there are two fairly key explanations of why production is still holding up:
- Decline rates for existing fields are not as high as we feared.
- We under-estimated the extent to which unconventional oil would be extracted, and the price that we were willing to pay in local and global environmental impacts to get it.
I think the ASPO 2005 forecast in the top chart now represents a low case for future oil production (assuming hypothetically strong demand all the way). While the bumpy plateau may continue for awhile, even the International Energy Agency has come to accept that production is not likely to grow significantly beyond current levels. That leaves a pretty narrow range of dispute compared to our respective positions ten years ago. Without a sudden switch to greater data transparency across OPEC and other National Oil Companies, there's not really much more that can be said. Which is why I am both sad to see The Oil Drum come to a close but also symptomatic of not having any new analysis to bring to an audience that in the main now has other concerns.
A Motley Bunch with an Exit Strategy
While I may miss the heady days of the peak oil debate, I applaud the current stalwarts of The Oil Drum and the Institute for the Study of Energy and Our Future (ISEOF) for adapting to changing circumstances and continuing to adjust how The Oil Drum has been managed and delivered. A graceful exit is not an easy choice to make.
A few of The Oil Drum at ASPO 2012 in Vienna
Nate Hagens, Luís de Sousa, Phil Hart, Euan Mearns, Rembrandt Koppelaar
I've learned a lot from my colleagues at The Oil Drum, many of whom I've never met. In any setting, I value diversity, and that has certainly been true here and to my benefit. But it concerns me that as a group of ostensibly objective analysts without any significant financial or corporate influence (that I know of!), we couldn't even come close to agreement on some pretty fundamental topics; climate change and the role for renewable energy being just two that are close to my heart. Of course this is characteristic of many peak oil groups, not just at The Oil Drum. While an amicable agreement not to promote discussion and solutions where we held strongly diverging views (primarily climate change) was a reasonable compromise, without the strong unity of purpose which The Oil Drum once had, the days of keeping the venture afloat were always limited.
Personally I strongly support the solutions focussed work now done by groups such as Beyond Zero Emissions in Australia, for example on their 'Stationary Energy Plan'. But since we at The Oil Drum, a tribe with much in common, couldn't come to agreement on these issues, I fear for the ability of the vastly more complex world to find the right answers, whatever they are. Until then, the momentum of the system and its embedded power structures will carry us forward on the path of least resistance, however adverse that choice may be.
Farewell and thanks for reading!
Phil Hart
www.philhart.com
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Personally, I don't think you were that far off. The unconventional plays are, initially, providing some oil/gas but it's obvious that's not going to last at present levels. In the long run, they will be a, relatively, minor player. Decline estimates were off but decline rates are there and still are, largely, ignored. I still hear/read a whole lot of clueless people which puzzled me for a bit until I realized the educated and those who should know better are reacting to a very unpleasant future the same as the rest of us. The most aware person I've talked with was a janitor at a nearby government facility.
I believe, at present, we are living in a world of fantasy re alternatives. I fear that fantasy will only dissolve with the onslaught of nasty reality. Very often it reminds me of my own fantasies as a youthful drug user.
Thanks zeke. We weren't too far off and our future would for sure benefit from more people listening. But even though I was trying to be conservative, I still made some clear predictions that have proven wrong. I did a more specific review of those in 'Looking in the Rear View Mirror': http://www.theoildrum.com/node/7909
You get held to account for hard predictions and they in turn maybe acted upon as proof of invalidating an entire premise. I suppose the lesson is get your caveats intertwined with your predictive statements in such a way so future quoting doesn't invalidate them. lol
I think the plateau is here to stay for some considerable time but it effectively means a declining per capita utility even before we start looking at the declining return of unconventional oil which the big graph does so little to shed light. Despite not seeing a cliff I am rather more doomerish than I have been because I feel that this squeeze on living standards is going to have some big knock ons socially politically and obviously economic. In some ways a plateau or even a shallow growth in all liquids is very dangerous from a geo-political POV
but that is all have to go on with some of predictive stuff, feel.
you done good but we all didn't do well enough yet.
Phil, as a longtime lurker/avid TOD reader, I would say "the jury is still out" on your projection graphs.
We are still in peak production mode now, and I think we have to wait another 5 - 10 years and then see how the 2005 projections line up.
I also think that this is obvious Peak. Sure, up a bit due to unconventionals and drop in demand, but the Plateau is quite obvious if eyes are open. This is a grace period for individuals to prepare the best they can, both mentally and in living situation. It matters not one whit if today or some obscure date in the past or future is/was the absolute peak in trajectory of production. I have used this analogy often; a ball tossed upward starts to slow and pause at the top of the arc. This is a Pause in all ways.
Will there be some sudden collapse? Perhaps a rattled financial market will be in the decline, for surely this nutso stock market is also on a limited trajectory.....much like the Peak Oil ball. The rest is simply change that we have to deal with the best that we can.
I remember my neighbour many years ago accosting me in my driveway saying that "today, oil hit $60.00. Imagine". For him this was a benchmark of unimaginable heights. He is the ultimate doom and gloomer and much to his surprise we are still here living quite well, with regular at $1.41/litre. I am still going fishing when the wind drops.
If this is the Peak, then perhaps it is the absolute best time for TOD to close. Discussion and conjecture, over. It is time to discuss other topics. If the decline in production starts 2013 or 2017, what difference does it make? We all know that if the prices drop it is merely demand destruction, and a lousy economy won't be anything to crow about for those who predict lower prices. It is more than obvious we will not have a good economy and low prices....those days are long gone.
Advice? Don't go into debt for a plug-in-hybrid or ev, folks. If this 'hedonistic splurging debt fuelled recent past' tells us anything it is not to make the same mistakes going forward.
Good job Phil Hart. Excellent world oil production forecast chart. Smoothe that blue line in a couple of years and you'll see you were damn near bang on.
regards....Paulo
"If the decline in production starts 2013 or 2017, what difference does it make?"
Well, the longer, the worse.
*The Bigger They Come The Harder They Fall*
Instead of accepting that the decline in oil production is going to happen, and mitigate it, we just do everything to deny it so that we can continue to live the life of luxury and glamour that comes with cheap energy. Like Dick Cheney once said: “The American way of life is non-negotiable”. The glamour will exist longer on Beverly Hills than we can afford, but it has to. Who cares about debt and oil, we just need to deny it and everything will be fine. At least thats the impression I get from most peoples minds. So when it does happen, and we're bigger in debt, bigger in population, bigger in everything, the fall is going to be harder and its going to be more difficult to accept. Just think of all those billions of people around the world that demand a good middleclass life, and the militaries that get ever stronger to protect these middle classes. China, Japan, Indonesia, Philippines, Saudi Arabia, Malaysia, Australia, Brazil... The fight for keeping up appearances will be vicious and violent. Chinas government won't last a day if their economy crashes. They know this, thats why the invest more in internal security than on their military. The US population is also not too impressed with its own government. Obama was a fraud that kept up, or even intensified the policies of Bush.
Basic plan is to figure out how to increase production and claim we could produce this much there is no problem.
Clearly neither the peakists nor the IEA/EIA/CERA types got it right. But the peakists were closer to the actual production number. However, peak crowd did not sufficiently appreciate the growth of a new unconventional oil industry that is able to pressure wash oil stained dirt to obtain oil (tar sands), hydrofracture shale to eak out oil, and drill in ultradeepwater when oil prices rose up past $60 to $70 per barrel. So score one for the economists.
And this raises a question that I think someone should explore. Is there a new oil resource that will be tapped at the $140/barrel range when the shale oil resources are unable to continue to satisfy demand? I don't think oil shale will yet become commercial at that price. Perhaps tar sands extraction will increase, shale fracturing in foreign countries will start . . . what else?
The Arctic is already the next frontier for hydrocarbon extraction. Also, the technology to extract methyl hydrates appears to be approaching commercial viability.
Methane hydrates aren't petrol, and the arctic is a harsh mistress. As always the question that should be getting asked when talking about these is not "Can we?" by "Why do you have to?" Why is it that we're having to go to the ends of the Earth, to the harshest environments, to the dirtiest and most destructive methods? It's because the easy stuff is gone.
Don't ignore the effect of "double counting." Just as with ethanol these new methods are consuming a lot of energy in the production process. The numbers may not be wrong but they may also be deceptive. If it originally took 1 in to make 4 out and now it takes 2 in to get 3 out....the final number may still say "5 total" but that "5" won't get you as far.
This is an economic structure that for the past few hundred years at least has expected constant increase. For such a structure even flat production manifests as a shortfall. Imagine if you have enough grain to feed 5 people, and gain 2 more people but no more grain - you've got a problem.
Along with the environmental degradation there are just too many chinks appearing in the armor to ignore any more. Unfortunately history is replete with scapegoating, so the root problem is likely to be ignored as those scapegoats are systematically conjured.
Hi Phil, many thanks for this thoughtful "Exit Post". It has been a great pleasure for me to be on the same team as you. You shouldn't be concerned by the disagreements but more by claims made that everyone agrees. My experience of controversies in the past is that both sides are often partly right. Your chart up top illustrates this perfectly. Reality will likely fall between the end point models and both sides will do well to update their world views accordingly. One thing I learned from you and others on the TOD team is the benefit of civil discourse.
Best
CW
Thanks Euan :-)
Hi Phil,
I agree with Euan's sentiments above - in many ways i enjoyed the internal editorial debates in the early years even though the disagreements about climate science (in particular) drove many of us crazy - but we did learn a lot about civil discourse :-)
It was a lot of fun working with you over the years - when can we expect to see iHitch released on the market ?
Cheers,
Gav.
Thanks Gav. I'll need to get a smartphone before I can start work on iHitch. I'm sure somebody is almost there.
It's no overstatement to say that the whole Oil Drum experience has been life changing for me.. the outlook on the world that I gained here has affected plenty of big 'life' decisions along the way and still does.
Thank you everybody for this site - I learned incredibly much about peak oil and the whole oil business. I would not have imagined how interesting all that stuff could be. What about another look in the rearview-mirror in, say, 2015?
If yes, how and where? On The Oil Drum 2.0 maybe?
Nice photo by the way - I only knew how Jeffrey Brown looks like ;)
Thank you for all the fish and may the force be with you!
Thank you everybody for this site - I learned incredibly much about peak oil and the whole oil business. I would not have imagined how interesting all that stuff can be. What about another look in the rearview-mirror in, say, 2015?
If yes, how and where? On The Oil Drum 2.0 maybe?
Nice photo by the way - I only knew how Jeffrey Brown looks like ;)
Thank you for all the fish and may the force be with you!
The blue line should be net energy not barrels so maybe there is no uptick.
In just under a month's time the Australian public will vote indirectly on the ideas proposed by Beyond Zero Emissions. My guess is the public wants to use the same amount of energy as always and doesn't want to pay any more for it, pretty much the opposite of what BZE proposes. OTOH my liking for nukes and preferentially gas powered transport doesn't have many friends either. I guess we'll just muddle along and wonder why things aren't getting better.
The Oil Drum will be sadly missed, as the most valuable discussion forum for Peak Oil, and indeed Peak Gas, Peak Coal etc. It's true that the problem is more widely understood now, but the urgency and implications are not.
As for whether fossil-fuelled climate change will end BAU, or whether fossil fuel exhaustion will end BAU before climate change gets disastrous, I don't see why the Oil Drum should need a consensus. The critical issue is that - one way or the other - BAU cannot continue forever.
Similarly with other contentious issues. Is drastic cutback of energy use the answer, or is rapid build-up of renewable energy the answer? Surely we need both.
One key Peak Oil issue has so far been almost ignored: i.e. that world Peak Oil per capita happened 30 years ago, with the average person's annual ration diminishing nearly 1% per annum ever since. Of course there have been relative changes between nations, but with a largely globalised economy this is less significant than it might once have been. So why has the average human being not suffered a 1% annual drop in standard of living? Can this be extrapolated indefinitely into the future? If we can cope with a 1% decline rate, can we cope with a 2% decline rate? 3%? 4%? I'd be interested to see the views of other TODsters, in these last weeks of our forum.
Vehicle fuel efficiency has also increased substantially during that time, so any per capita decline (and 1% per annum over 30 years seems to be a gross exaggeration, unless your definition of average person is wildly different to mine) hasn't been noticed as the average person's fuel consumption has also been dropping...
Vehicle efficiency has increased, sure, but so have vehicle-kilometres. And aircraft-kilometres!
The "average person" is 19% Chinese, 17% Indian, 14% African, 8% Latin American, but only 4% US, 1% British and 0.3% Australian. What we observe in our own countries isn't necessarily representative of the world in general...
http://www.bbc.co.uk/news/business-23655605
Right on queue. And these are largely nominal measurements rather than effort [man hours per unit utility]
Perverse incentives to cut wages. In the US we let the employer underpay the employee and then give the employees help (like foodstamps, medicaid) - the best example of this being WalMart.
That is quite the drop! The problem that stands out the most is that the houses and cars and infrastructure has been built with a certain income structure built in so when income drops, the cost of maintenance as a percentage of income increases - catching people in a bit of a poverty trap. Can't maintain what you have, can't buy new that reduces that maintenance burden.
One of the quirks if not ironies of The PO debate is how many articles there are about it now. Most dealing with how peak oil theory is wrong. That aside the current volume is kinda of odd. I think the effects of C and C peaking out back in the 2005 day [when ever choose your metric bias] are now becoming visible just at the time there is a wide call that peak oil as an idea is a bust.
the subtle arguments about net energy return etc are obscuring and confusing to the market searching for simpler headline numbers. It makes the entire situation complex and dangerous. Even when the sky falls no one can see it for what it is. Even and I really mean even the popes of doom who inhabit this subject often don't get it.
Price, price, price! The deniers have taken the strategy of saying "Peak oil is wrong because oil production increased." but this completely ignores the price. Oil went from $20/barrel in 2000 to over $100/barrel today. That is much MUCH faster than the rate of inflation. Just point out that the ONLY REASON why oil production was able to increase was the massive price increase allowing previously uneconomic oil to now be economic. And this increase of price of the base energy supply that powers our economy is the reason why are in a permanent economic slow-down.
this increase of price of the base energy supply that powers our economy is the reason why are in a permanent economic slow-down.
Why would we think this is the case? Inflation is low. If oil prices were the cause of the slowdown, it would be because rising oil prices were causing inflation, thus forcing central bankers to tighten credit. But, that's not happening.
Some of the other effects of high oil prices: transfer of income from oil importers to oil exporters (but this is a zero-sum game); a reduction of very low value activities that are not worth the price of the oil needed; more investment in R&D of alternatives, which reduces investment in other things, thus hurting long-term growth economic growth slightly (until oil is phased out, of course).
None of these are strong enough to make oil the primary cause of permanent economic slowdown.
Is our economy dependent on cheap energy?
No.
First, both the US and other developed countries got that way with "moderately expensive" energy, not cheap energy. Oil and electricity have been cheap in the US in the post-WWII period, but energy was rather higher in years before that: coal and electricity cost much more, adjusted for inflation. The US, and other countries, succeeded quite well in growing strongly even when energy was much more expensive, whether it was coal or oil.
Wind power is quite affordable (if perhaps not quite as dirt cheap as US post-WWII oil and electricity prices), scalable, high-E-ROI, etc, etc. So are nuclear, and solar even if they aren't quite as cheap at the moment (coal is also plentiful and cheap, unfortunately), so I see no reason to expect energy to ever be more than "moderately expensive".
The fact that energy pre-WWII was a much higher portion of GDP means that it was a much heavier burden on the economy. If wind and solar are a little more expensive, that means that the wind/solar sector has to be a little larger than otherwise to power the rest of the economy. This analysis suggests that this is not a big deal: that sector would still be a much smaller portion of the economy than pre-WWII.
Second, fossil fuels aren't nearly as cheap as they seem. Pollution is an unrecognized, external cost. So are the military costs we're seeing currently of roughly $500B per year. Those pollution costs aren't sustainable (especially CO2), but unfortunately the military costs probably are (in fact, many corporate interests are quite comfortable with them...). Moving away from oil and other fossil fuels will actually be much cheaper in the long-run than BAU.
Finally, let's assume that Business As Usual involved spending about 5% of our economic activity (perhaps measured by GDP) acquiring energy. If the cost of acquiring energy doubles, then we have to dedicate another 5% to that activity. GDP might go down by 5% quickly, in case we'd have a deep recession. Or, it might happen over time - if it took 10 years, then we'd see a reduction in economic growth of .5% per year, for 10 years. After that transition was complete, economic growth would continue. So, a reduction in "net energy" has a significant impact, but it's not TEOTWAWKI.
Does unusually strong growth since 1945 show the value of cheap energy in that period?
No, US growth was faster before 1945, using moderately expensive, non-oil energy:
1800-1900: 4.13%
1900-1945: 3.53%
1945-2000: 3.17%
(source in separate comment, to mitigate moderation)
Source for data above:
"real GDP" at http://www.measuringworth.com/growth/index.php
"So why has the average human being not suffered a 1% annual drop in standard of living?"
Are you sure they haven't? If there is extreme concentration of wealth among the top 10%, the average can rise while the bottom half is falling. Add in trillions in insta-money quantitative easing that goes to the already rich and the average becomes entirely misleading.
Also, just as oil extraction is consuming larger amounts of financial capital, it is also consuming more natural capital, eg. fracking consumes more farmland & aquifers & stable climate, and only some of those show on any balance sheet.
Looking further beyond numbers, declines in education, community, & environmental quality have all been occurring as various types of commons are liquidated as per neoliberal dogma. The privatisation of aged care for example may show as an increase in SOL in $ terms but in meatspace reality, it is a major loss for many old & young individuals. The commodification of surface water may show imporved economic efficiency but likely poorer access to that water by the majority. What is the SOL price of never paddling a canoe, or not knowing your grandparents?
This notion is not just some vaguely intuitive idea embedded in externalities in the developing world
The harsh truth is spending power has collapsed here in the UK and yet it has not been recognised. The problem is a disconnect between the inflationary effects on price and the amount one earns a hour. especially evident in the rental and property market. Rental costs in london has measured by the number of work hours required to pay the rent have for lower to mid end manual and service workers has risen over 600% over the last 30 years. astonishing hit. As a confirmed man-child without responsibilities I was capable of holding down a skilled manual labour job and jaunt off at the weekend for a spot of skydiving. This lifestyle for a similar trade now is completely inaccessible. Staff in an identical trade of the current younger generation working in london[where the jobs are] have as little as as £50 a MONTH discretionary income. You couldn't buy the train fare out of town to the skydiving center never pay for board lodging and skydives!
this of course has necessitated the credit based system that has encumbered the developed economies turning the citizens of these economies into individual microcosms of the former relation between the industrialised world and the third world.
One reason this effect is often unseen is because anecdotally people accumulate capital and wealth, increase their wage via their career ladder etc and the perception is one of growing living standards but these individuals lack a comparative position that reveals how their growth curve is rising less steeply than equivalent individuals from a previous generation. If one is in a dead end job you have only become poorer. If you are in some middle tier job you are not becoming richer as fast as previous generations[post war]. Those in the top tier are stomping away with the loot. I am going to call this, quite a claim, but don't be too surprised if they really are rounded up one day and shot in the back of the head. because the penny will drop.
There is and has been a massive decline in living standards and a growing realisation from the powers that be there is a massive inability to service the debt. After a recent discussion I was involved in one idea came to light that the "plan" is that the generation that benefited from the hedge funds dismantling the technostructure hand down there wealth on death to this generation who by virtue of youth will entrepreneur the world out of trouble.
YMMV but your children are going to be worse off unless they make the cut
Agreed. Here in Aus. the decline in living standards is less severe but quite apparent in housing costs vs. income. At least a decade ago many of my x-gen peers recognised that they couldn't afford to buy housing without assistance from parents. Some got that assistance, but now find they can't/can only just keep up mortgage repayments, even with record-low interest rates, due to casualised workforces, rising living costs & stagnant wages. Those who are still renting are SOL and frequently too busy earning tomorrows dinner for kids. There will come an intergenerational reckoning, and i pity those old folks who have invested all their eggs in the financial basket. To any fellow x-gens, my advice is downshift Now & get thee to the regions!
For those fond of straight lines, there is still the EIA: