ExxonMobil Says No to Subsidies

Last week I participated in a conference call with ExxonMobil that was hosted by the American Petroleum Institute (API). It is the first API blogger call I have joined in a very long time, but my schedule was open and I was interested in the subject matter. ExxonMobil would be talking about proposed tax policy changes and how that might impact the oil industry and the economy as a whole. The transcript and audio recording of the call are both available at:
Blogger Conference Call: ExxonMobil Discusses Energy Taxes

I asked several questions, which I will get into below, but first I want to make my position on subsidies clear. My position is not that I am anti-subsidy. I think there are times that subsidies may be warranted. For example, I don’t want to see the U.S. lose our ability to produce our own food because we can’t compete with cheap imports. Thus, I favor policies that help keep farming and rural communities intact. If it required subsidies in order to accomplish that, this is more along the lines of the kind of subsidy I could support. (It obviously depends on the particulars, what the subsidy is actually achieving, and whether there are negative consequences as a result).

Kenneth P. Cohen, Vice President Public Affairs for ExxonMobil, told me that his company would not mind seeing the Volumetric Ethanol Excise Tax Credit expire "as long as it’s uniform and applies across the board and doesn’t create the distortion of only being eliminated for a few large blenders."

But, I don’t think taxpayers should subsidize the oil industry. I would imagine that is the same way most people feel. I don’t think we should subsidize consumption of any depleting resource. To the contrary, we should promote policies that discourage excess consumption to slow down the depletion of the resource.

But some of the tax deductions that are being characterized as subsidies are only being done so with respect to the oil industry. For instance, businesses are allowed to deduct the salaries of their employees when they are figuring taxes. Would people normally consider such a tax deduction a subsidy? What if the government decided to deny this “subsidy” to the oil industry and nobody else? That is the nature of some of the “subsidies” we are talking about here. That isn’t to say that there aren’t some legitimate subsidies that the oil industry receives, but some of the things being called subsidies for the oil industry aren’t called subsidies when another industry receives the same treatment.

This was part of what was discussed on the call. Internal Revenue Code Section 199 gives a tax break to a wide range of businesses operating in the U.S. Despite the credit being broadly available to main industries, Section 199 is often called a “Big Oil subsidy.” Over the past few years, the energy industry has been singled out for disqualification from receiving the tax break. Perhaps “energy industry” is too broad, because ethanol companies, for example, would continue to receive the tax break. (Have you ever heard anyone list Section 199 as an ethanol subsidy?) Coal companies would also be allowed to keep the tax break, while natural gas companies would not. Most recently Senator Bill Nelson had put forth an amendment to Section 199 that would rescind the deduction for the oil industry, but the amendment did not get enough votes.

Another tax issue discussed on the call was that of double-taxation of foreign earnings. Currently, oil companies that earn money overseas have those earnings taxed by the host governments. Various proposals have been floated to eliminate a foreign tax credit, which would mean that the earnings would be taxed by the foreign government and then again by the U.S. government. So, as an example let’s say ConocoPhillips earns money from their operations in the North Sea (where I previously worked), they would pay taxes to the UK government, and then pay taxes again to the U.S. government without receiving a tax credit for taxes they had already paid on the income. BP, across the street, only has to pay for taxes on their earnings to the UK government, thus putting U.S. companies operating overseas at a competitive disadvantage. That is also something that I don’t think we should do — pass policies that put our domestic industries at a competitive disadvantage to foreign competitors.

After an opening statement in which some of these issues were described, the floor was opened to questions. I asked several questions, such as whether the administration understood the possible implications or whether they simply disagreed with them, and the estimated impact on jobs. Eventually the topic turned to ethanol, and then to the subject of the Volumetric Ethanol Excise Tax Credit (VEETC) — the $0.45 per gallon tax credit gasoline blenders get for putting ethanol into gasoline.

Since the gasoline blender receives this credit, it has often been painted as an oil company subsidy, or some have claimed that it benefits the oil industry by helping them pay for ethanol blending equipment. In fact, the ethanol industry has painted it as an oil company subsidy. Vinod Khosla, in his Google TechTalk Biofuels: Think Outside The Barrel characterized it as an oil company subsidy:

Vinod Khosla: Ethanol has a subsidy, but the farmer doesn’t get any of that. What I heard, is that well past midnight when this was being debated in the conference committee, the oil companies inserted 2 words into the language, calling this subsidy a blender’s credit. So the person who is blending it with gasoline gets it. All $2 billion of it last year was collected by the oil companies. Like they needed more money. It’s unfortunate, but that’s the way the system works. I talked to one of the senator’s aides who was in the conference room, and he said they got to 1 a.m., and were still negotiating, and oil guys were willing to stay there.

So, I was interested to hear ExxonMobil’s take on this subsidy, given that they actually collect the money. Here is the exchange:

43:17 MR. RAPIER: I’ve written quite a bit about that actually, the redundant nature of the blenders’ credit with the mandate. But I’m curious as to your view on that. The industry often paints that as an oil industry subsidy since the oil industry or the gasoline blender receives the blender’s credit.

What is your position then on the expiration of the credit at the end of the year? You know it’s scheduled to expire. Do you object to that expiring? Would you be happy to see that expire? What’s your view?

43:49 MR. SPELLINGS:I think we would be content for it to expire. We do not see ourselves as the beneficiary of that subsidy. We think in the marketplace today, that subsidy probably flows through to the consumer. We do not see how it’s a subsidy that benefits us or a subsidy that benefits ethanol refiners or farmers that produce the corn, although some folks continue to think that this is a subsidy that benefits either ethanol producers or corn producers.

We have a hard time seeing how in a world where you have a mandate, that the subsidy ends up flowing through to those folks.

44:39 MR. RAPIER: I agree with that.

44:41 MR. SPELLINGS: It sounds like you’ve reached the same conclusion.

44:43 MR. RAPIER: Yeah, I’ve been writing about that since they put the mandate in place. It’s completely redundant. So the headline here is “ExxonMobil Ready to Give Up Subsidies.” They will allow the blender’s credit to expire without protesting it.

44:59 MR. COHEN: As long as it’s uniform and applies across the board and doesn’t create the distortion of only being eliminated for a few large blenders. There’s enough distortion in the market. This is Ken speaking. As long as it’s a rational, across the board, industry-wide –

45:20 MR. SPELLINGS: And the one thing – this is Jaime. The one thing I’d want to add is I’d want to make sure the headline did not characterize this as our subsidy because in a pre-mandate world, I would have seen this as a subsidy that flowed through to corn producers or ethanol producers.

In a post-mandate world, I would say it flowed – probably flows through to consumers. But in neither one of those worlds was it a subsidy that actually benefited the oil and gas refiners who were buying the ethanol to blend into gasoline.

So there you have it. This subsidy which has been sometimes portrayed as an oil industry subsidy — and which the oil industry does indeed collect — is one that they would be happy to give up provided it is eliminated across the industry. So the next time you hear someone call the blender’s credit an oil industry subsidy, just point out that this is one that will be easy to eliminate.

Thanks, Robert!

Taxation is always a difficult subject. We don't really understand our own taxes, much less those of big corporations.

I think the competitiveness with foreign corporations is a bigger issue than we think about. Do we really want to give BP an advantage over US based companies, such as ConocoPhilips?

There is also the issue of taxes on coal vs. natural gas. As I understand it, one amendment that did not get through would have raised the taxes on natural gas, but left them the same on coal--something which is strange, if CO2 is a concern.

“ExxonMobil Ready to Give Up Subsidies.” or "Exxon Mobil Says No to Subsidies"??!

Would you be happy to see that expire? What’s your view?--R^2

MR. SPELLINGS:I think we would be content for it to expire.

MR. COHEN: As long as it’s uniform and applies across the board and doesn’t create the distortion of only being eliminated for a few large blenders.

Some funny stuff here, R^2.

Exxon doesn't want the blender's credit!
You can keep your dirty money, Washington!
We give it all to the consumers anyways!
Down with subsidies!
Hell yah!

(Oh brother!)

Next time you teleconference ask Exxon if they will pledge not to accept any of Washington's dirty subsidy money.


Your faux-populism always brings a smile here.

They would be fools to unilaterally give it up while their competition continued to receive it.

Of course, this would make them immensely popular with some people while everyone else simply went to whichever station was charging less today...

They would be fools to unilaterally give it up while their competition continued to receive it.

Exactly. That's why they say "Sure, we will give it up as long as all the oil companies give it up."

Your faux-populism always brings a smile here.

As do your hand-waves that completely avoid the subject. The point here is that they believe they receive zero benefit from the subsidy and thus don't care if it expires. Since so many have painted it as an oil company subsidy, and the oil company says they don't need it, then the point is that 1). We can let it expire; or 2). Admit that it isn't really an oil company subsidy and that those who suggest that it is are being disingenuous.

Of course some of us have known this all along. After all, it isn't the oil companies who are spending millions to get the tax credit extended; it is chief ethanol lobbyist Bob Dinneen, the RFA, and the America Coalition for Ethanol (especially ironic since ACE has called it an oil company subsidy). That is of course your real concern here; that ethanol might be cast in a bad light.

But it IS money the government pays Exxon to add the required ethanol--it's a gratuity. The government is fully justified in telling Exxon to eat their loss(eh..they say they have none) after all we add oxygenates to reduce urban air pollution and that's what should have been done.
But that's not the political way to get consensus--instead we bribe giant Exxon.
Why subsidize any fossil fuel production--aren't fossil fuels depleting?
(Duh--because fossil fuel interests are politically well-connected?)
But I actually agree with you---get rid of the blenders credit
and add a carbon tax.
If that happens you'll get a stampede to ethanol(particularly cellulosic).

after all we add oxygenates to reduce urban air pollution

Umm, no. Oxygenates were added to help get the clean air act (of 1990) supported by the farm lobby (in a rather brilliant political maneuver to create an alliance), though it ended up passing with large support overall.

Reformulated gasoline reduces emissions, with or without the oxygenate. On a semi-modern engine (i.e. a car that doesn't use a carburetor), most studies have found no net benefit to air pollution from gasoline with or without an oxygenate. The only conclusive documented benefits I've seen are from studies that included pre-fuel injection vehicles. However, if you're still driving a 1970's car, yes, the oxygenate does reduce carbon monoxide emissions...

But back on the blender's credit, absolutely agree with abolishing it -- it is a waste of taxpayer money.

Then why do European add oxygenates?
Have they been bribed by 'X'?

Towards the end of the 1990s, new environmental regulations started to limit the aromatic content of gasoline. A convenient replacement for aromatics was MTBE, a high octane, easy-to-blend, reasonable cost oxygenate, which was essentially a drop-in blending component for the refiner.


Are you sure you are a Che?
Shouldn't you know about this already?

EFOA, the European Fuel Oxygenates Association, was founded in 1985 by European producers of MTBE, the most widely used fuel oxygenate. EFOA comprises companies having their own production of fuel oxygenates

Yes, I realize that oxygenate producers favor the use of oxygenates.

Try an independent agent... like the California Air Review board, hardly a fan of oil companies.


Figure 1: Ethanol no statistically significant difference on TWC/AL (fuel injection vehicles) on Hydrocarbon emissions
Figure 2: Ethanol no statistically significant difference on CO emissions with fuel injection technology
Figure 3: Ethanol no statistically significant difference on NOx emissions with fuel injection technology
Table 3: Only statistically significant impact from Ethanol on TWC/AL (fuel injection) was +29% acetaldehyde in emissions, ozone +5% wasn't significant

But if go to pre-fuel injection and particularly pre-catalytic converter vehicles, there are benefits from oxygenates.

Air quality is not a good argument for mandating use of oxygenates in gasoline in a modern engine. Not to say there aren't benefits, just air quality isn't one of them.

(If the ethanol can be produced in energy-efficient method, reducing dependence & use of oil is potentially a very good argument for using ethanol).

Help me out here, since I am not well versed in international corporate tax laws.

Mr. Rapier is claiming that levying a tax on overseas earnings by US-based oil companies would put them at a disadvantage to companies like BP. The questions are:

1) Are US taxes levied against the earnings of BP's US subsidiaries?
2) Are those same earnings taxed by the UK government if/when the earnings are repatriated into the UK?

If so, there is no 'advantage' given to BP in this case. In fact, the US companies would currently be enjoying an advantage.

I agree with the others that tax-avoidance is a major occupation of all large corporations, and anytime you here a large corporation saying they wouldn't care if there was a change that on the surface looks detrimental, underneath it all they have a spreadsheet showing a corporate benefit. Tat is Capitalism.

2) Are those same earnings taxed by the UK government if/when the earnings are repatriated into the UK?

I think that this is exactly the case; that the UK government provides tax credits against taxes that UK companies paid for U.S.-based earnings.

If so, there is no 'advantage' given to BP in this case.

Actually, even if your contention were true, it would depend entirely on the level of operations that each company had in the other country. In many cases, foreign operators have zero operations in the U.S. (What will really happen here is the U.S. companies simply won't repatriate the earnings).

anytime you here a large corporation saying they wouldn't care if there was a change that on the surface looks detrimental, underneath it all they have a spreadsheet showing a corporate benefit

Or they believe they get smeared for a subsidy that they think is actually of no benefit to them. That is what I have been saying for three years: Take the subsidy away and it won't make any difference since the Renewable Fuel Standard still dictates the amounts that they must blend.

Since they are REQUIRED TO BLEND the ethanol into the gasoline they sell, refiners WILL buy enough to raise the price to a point that the ethanol is produced with no need for the additional bueracracy which produces nothing useful.

The oil companies are in an excellent position to pass along the costs, in the form of slightly higher gasoline prices-we get the money "back" in a slightly lower tax bill.

I personally doubt if the oil companiews recieve any significant net benefit from the subsidy, as the refining and selling of gasoline is still a somewhat competitive business;lower a cost, and it will be reflected in a lower selling price, on average;raise a cost, and it will likewise be reflected , on average,over time, by a higher price.

The per gallon ethanol subsidy , applying to ethanol blended at ten percent, amounts to so little per gallon of finished gasoline that any price change will be lost in the noise as far as everybody except the paper shuffling parasites are concerned.It will hit them hard unless they find new paper to shuffle.

Anytime I have ever seen this subsidy defended by a businessman, that man turned out to be a person with skin in the ethanol production game , one way or another- corn grower, farm machinery dealer, corn state promoter,, distillery owner, politician............

This subsidy elimination would be good policy because it will serve to modestly reward those who don't drive at the expense of those who do, and tend to slightly cut the use of motor fuels.

We need to make sure that the people who are working are working at something at least marginally useful-more paper shufflers we definitely do not need.

We need to make sure that the people who are working are working at something at least marginally useful-more paper shufflers we definitely do not need.

Hey, this country has some of the most accomplished and productive paper shufflers in whole the world!

1) Are US taxes levied against the earnings of BP's US subsidiaries?
2) Are those same earnings taxed by the UK government if/when the earnings are repatriated into the UK?

1) Yes
2) No

US/UK have reciprocal tax treaty. A UK company (or individual) only pays the US taxes on profits earned inside the US. A US company only pays the UK taxes on profits earned in the UK. And neither country double-taxes the profits in either direction.

This is unlike the US with most countries, say China, where if you are a US company, the US will tax you at the full US rate on any profits you earn in China (and if you're lucky they'll allow a partial deduction for the amount of taxes already paid to China). Thus companies end up setting up overseas affiliates with no tax presence in the US, to avoid the double taxation.

How does the depletion allowance work? I have a difficult time understanding why an oil company (or any other resource "producer") gets to claim as a tax writoff the value of the years reduction in resource in the ground due to the years production (if that's how it works). In a world of diminishing resources, we shouldn't need to be providing companies financial incentives to discover and produce the little remaining, I think. The market should take care of that.

How does the depletion allowance work?

I don't know enough about the depletion allowance to understand if there is a defensible reason for keeping it in place. As I said in the essay, I don't support oil company subsidies that would help prop up prices and encourage consumption. (I have long been on record saying I would favor much higher oil prices to discourage consumption). This might fall into that category, but I am simply not well-versed enough in this area to say one way or another with confidence.

This is in Oil and Gas Glossary (dot com)

A reduction in us taxes for owners of an economic interest in minerals in place to compensate for the exhaustion of an irreplaceable capital asset. this economic interest includes mineral interest, working interest in a lease, royalty, overriding royalty, production payment interest, and net profits interest.

It seems to me like a process to reward reaource producers financially for having found and produced the resource. And don't get me wrong, I can see that there may be justifications for doing so. (In a period approaching possibly catastrophic shortages, we clearly need to think clearly about any steps to remove incentives for producers to produce the product under shortage).

I realize it would be practically impossible to modify this system now, because any change would need to be co-ordinated worldwide to avoid a sloshing about of equipment and skilled persons, even if the market were capable of compensating the producers for the lost revenues, which IMHO they should be.

My problem with this (and any other subsidy to the petroleum industry) is that it spreads the unit cost of consumption out across the entire society (according to how more or less progressive the tax structure may be) rather than placing the direct cost of consumption of the dwindling resource directly onto the final consumer. At the customer level it's a counter-incentive to the activity (conservation, reduction in usage activity) which society requires. Should be gradually done away with.

My problem with this (and any other subsidy to the petroleum industry) is that it spreads the unit cost of consumption out across the entire society

So we're now defining any business that gets to deduct costs from revenue as receiving a subsidy?

Actually I wouldn't necessarily be opposed to changing the tax code to follow this logic to remove all subsidies... that is, change the tax code to be on a simple gross sales basis rather than a net income basis, with no deductions allowed at all. Much simpler to file & monitor tax returns, no need to track cost basis of anything, but it would be a very different tax world than the current tax code, and the rates would have to be adjusted accordingly.

However with every transaction becoming a taxable event, would put far too much value into massive vertically integrated companies, which would in turn destroy a lot of the current competition and specialization in today's economy, with probably far too high of a transition cost to make it practical.

Well, there have been developed several viable solutions. Most OECD countries charge a fixed-rate Value Added Tax (VAT). Here in Canada it's typically a 5% remit to federal level plus an 8% remit to provincial level, based on difference between selling price and provably paid costs of sales, levied on absolutely every transaction from groceries to dentist bills, industrial construction to homes. Alternatively some agitation in Canada to switch the complex income tax system to a "flat tax", where every dollar of net income is automatically taxed at a fixed rate, no exceptions allowed. It would apparently enable a lot less tax dodging by the wealthy and therefor collect more revenue being set at a lower percentage than typical middle income overall rate percentages paid at present, but encounters strong opposition from a) tax laywers and b) advocates for the poor who fear it might increase the tax burden there.

The way I understand depletion allowance, the more oil the companies produced the less tax they paid. The incentive would keep them drilling for oil. With the lack of places to drill the depletion allowance probably needs to be revisited.

Depletion allowance simple example:

I buy an interest in an oil well for $1 million
I estimate that my share of the interest in the well will ultimately produce 25,000 barrels
I sell 5,000 barrels in the first year from the well

I get to take a "depletion allowance" of 5,000/25,000 or 20% of the $1 million cost as a "depletion allowance" as a deduction from taxable income in the first year.

Depletion is a method of allocating the cost over the total estimated recoverable volume. The cumulative tax deduction over time can never exceed the original cost ($1 million in this case).

This is just like depreciating any capital asset with a limited useful life, except instead of using a fixed depreciation schedule, it is substituting the "actual" amount of the asset used up.

At what price per bushel for corn does ethanol become uneconomic?

There are news stories out that indicate that it is unlikely that corn will go back below $5 / bu. Corn surpluses are almost certainly a thing of the past as the world approaches Peak Food.

Global food risk from China-Russia pincer

World food supplies are caught in a pincer as China becomes a net importer of corn for the first time in modern history and Russia's drought inflicts even more damage than expected, raising the risk of a global grain shock in 2011.
Ominously, a corn crunch is also creeping up on the world. Global stocks are at their lowest level for 37 years, at a stock to use ratio of 13pc. "This is getting extremely tight," said Mr Chandler, questioning whether the US should divert 36pc of its corn crop into ethanol for fuel.
Corn prices have jumped 40pc since June, reaching $5 a bushel. This was first blamed on lower US crop yields due to bad weather, but China has since revealed that it imported a record 432,000 tonnes in August.
Sudakshina Unnikrishnan from Barclays Capital said China may soon become a "structural" corn importer. While it imported corn in 1994, that was due to bad harvests. This time the cause is a permanent shift towards meat-based diets. This has led to a steady rise in the use of corn for animal feed. More than 70pc of China's corn is now used in feed. It takes about seven kilos of grain to produce one kilo of beef.

There are news stories out that indicate that it is unlikely that corn will go back below $5 / bu.

This is the theme of a post I have been thinking about writing; about the volatility that is introduced when fuel is based on a food commodity like corn. I tried to warn certain people that when ethanol prices recently fell, that this wouldn't likely be a permanent situation. All some of them could focus on was that idea that in some place ethanol was now cheaper than gasoline (on a BTU basis) and they thought that downward trend would just continue.

Ahead to the past?

Before engines were applied to transportation food was fuel, so I expect the historical record would be useful.

It appears that $5 / bushel corn is about break even with $75 / barrel oil given the current subsidy regime. See The Plight of Ethanol Plants.

Were it not for the subsidies, it would probably be cheaper to synthesize the amount of ethanol needed as an oxygenator and octane enhancer additive from ethylene derived from crude oil or natural gas. Which may be what Exxon would do if the subsidies did not exist.

I disagree. That's what Exxon would do if the legal MANDATES weren't in place. However, having the mandates obsolete's the necessity for subsidy incentives.

Talk is cheap. Action is entirely different. Why doesnt Exxon pay back the subsidies with interest to the American taxpayers. I mean put your money where your mouth is.

It is amazing they thieved the Ethanol subsidies and then they talk about ethanol being a major problem out of the other side of their mouths. Typical.

I doubt the tax policies will change. They never significantly do change. The insane thing about the ethanol subsidy is that people that are not major consumers end up subsidizing the fuel purchases of those the drive more, which is basically theft in and of itself.

Why doesnt Exxon pay back the subsidies with interest to the American taxpayers.

Read further up the page, where this is discussed. They don't because that puts them at a disadvantage relative to other oil companies. If Exxon doesn't take it and BP does, then the shareholders would demand the CEO's head. What they said was, "We don't need it, provided you eliminate it for everyone." I think that's a reasonable position.

The insane thing about the ethanol subsidy is that people that are not major consumers end up subsidizing the fuel purchases of those the drive more, which is basically theft in and of itself.

I have noted that before. Under the current system, the guy who bikes to work subsidizes the guy who drives a Hummer.

Under the current system, the guy who bikes to work subsidizes the guy who drives a Hummer.

And the guy who doesn't smoke subsidizes the guy with a 3 pack a day habit (in healtcare costs). For that matter, the guy with no waistline who exercises regularly subsidizes the fat slob with chronic diabetes, heart disease and vascular disorders. In point of fact, Orlov is correct that our society is hopelessly confused about doing things "right".

As to the rest of your article Robert, I appreciate you spending the time and helping out with the API meeting. Too many in our society are like the person you courteously replied to, overemotional and prejudicial about a subject they are notoriously uniformed concerning. I for one have given up arguing the point of depletion allowances (as an example) with folks who are both clueless and intend to remain so. The saddest was the argument with a prominent developer who couldn't comprehend the identical nature of the depreciation deduction he got on his real estate with the depletion allowance. But of course, developers aren't in the same category (yet) of evil corporate villains that oil companies are, so we aren't hearing about developer (and homeowners for that matter) "subsidies".


I know Exxon is at an economic disadvantage, but I would personally applaud them for paying back the American taxpayers for these subsidies and making a real Coast-to-Coast appeal to Americans that subsidies subsidize bad economic practices. Pressure Congress to end the nonsense: the Ag subsidies, the fuel subsidies, and the others.

Maybe the industry can move together in lock-step to at least end them in future years.

I live in California and I like clean energy like solar and wind and I dont need a subsidy to enjoy them if I want them. I am probably considered "Green" or environmentally aware or whatever to the typical oil industry type. I can simply pay more for solar. I will subsidy or no subsidy. I will do it because I think it is the right thing for me.

Why is this a hard concept?

Then let solar run for the hills to lower its costs with technology and manufacturing productivity increases. My 2 cents.

I just watched http://www.youtube.com/watch?v=-VmrvSLxwL4!
I don't know too much about peak oil, and knowing that there are a lot of people posting here, i beg for only the top-notch commentators to answer my question!

Colin Campbell has stated in a new documentary (http://www.naturalregressionfilm.com/) that we reached conventional peak oil in 2005, and "ALL KINDS OF OIL PEAK OIL" in 2009! Is that TRUE??!!?!?

PS: I know you can all elaborate on long argumentative answers, but just on this one give a YES or NO answer and a shorty comment of why is that!


likely.. conventional oil is easy to get. non-conventional is harder/more expensive to get.

i dont consider myself top-notch but hey.. you pays yer money and you takes yer chances...

Personally I do not count myself as a top notch commentator by any means, but I am certainly among the most dedicated followers of this site, and I still have a pretty good memory.

The large majority of the well credentialled regulars here believe that peak oil is either already past, or will arrive in the very near future,meaning within the next four or five years at the latest.

There is no explanatory "short answer" that means anything, unless you simply wish to take somebody's word for it.But in a nutshell, depletion is outrunning both discovery and investment;new fields are on the average smaller every year,and more expensive to produce.The old giant fields which produce the bulk of the world's oil are playing out, and new giants are not found often enough to make any real difference.We have a growing population chasing after a shrinking amount of oil in the ground, on a global basis.The tipping point of from rising to decling production is about "now".

Possible alternatives such as shale oil and tar sands are not expected to be scaled up enough to make up the shortfall-not within the next decade for sure and probably not ever..

If you are willing to put in the time needed to examine it, nearly all the evidence, or links to it, can be found in the archives of this site.

The editors are very fair about posting contrary opinions and links to sites supporting contrary arguments.The best links are often found in the comments section.

If you are new to the subject, I suggest you read a couple of peak oil oriented books written within the last few years;if you want to believe there is no problem, select books written by economists and spokesmen with ties to the industry.If you think maybe everybody else , from the geologists to the biologists, are more likely to be telling the truth,start there.

You can find many books and articles defending either position in very short order.There are a number of books written by former high ranking people who have retired from the industry within the last decade which you might find illuminating indeed.To the best of my lnowledge, virtually all of this group of authors are peak oil advocates.

There are also some good peak oil primer articles posted on peak oil sites if you are pressed for time and can afford only a fast overview of the evidence.

If you yourself have even a nodding acquaintance with the basic sciences,I predict that you will come down in favor of peak oil being , in historical terms, a present day reality.Even another decade wouldn't mean much, unless it is a decade most notable for resource wars and /or a very depressed world economy.

If you are a member in good standing of the "church of business" community and a devoted follower of the doctrines of the classical economists, you will not accept peak oil regardless of the evidence until you are baggared by its eventual consequences.

A nice "nutshell" summary, I think.


For future reference, it's more appropriate to ask general questions like this in the most recent "Drumbeat" posting.

I think you will find that among contributors and commenters on this site, most will accept that Colin's statements are either true, or close enough to being true that it doesn't matter a whole lot in the grand scheme of things. To state for myself why I believe peak oil is either already past us or imminent, it is because arguments to the contrary are largely non-existent, and those that do exist are either not specific enough to be convincing, or simply outright ridiculous.

So the answer is YES.

alex- I'll offer you a different perspective for your answer. It doesn't matter greatly if Collin is correct (although my money is on him). Assume he's correct and conventional oil production never exceeds the rate in 2005...or any other spot on the calendar you would like to pick. If global production is X bbls of oil per day and consumption is less than X bopd then everyone can buy all the oil they need if they have the money. In that sense PO has little meaning. Now take the counter position: On a certain date consumption demand exceeds X bopd. So now there's pressure on oil prices to move upwards and that will deny oil to some of the consumers who cannot compete at the higher price levels. This will be the situation regardless if the produces could exceed X bopd a few years down the line.

IMHO it's the consumption swings that make it difficult to keep PO in a proper context. Going back to Colin's interpretation: what does that imply in the long term? Simply that as world population and economies grow demand will exceed production. But in a sense that condition has always existed. A while back when oil dropped below $15/bbl everyone had all the oil they wanted, right? Actually not. There were folks who could have consumed more oil but they couldn't afford even $15 oil. Just as in 2008 there were folks who couldn't afford $148 oil.

This is the sense that I'm developing about PO: it is a real physical phenomenon and will have a profound impact on the future growth/stability of all the global economies. But what impact? More competition for the oil and the higher the price. The higher the price and fewer economies can grow and even some which will decline. But that factor was just as important 40 years ago as it is today IMHO. If demand jumps (let's say thanks mostly to Chindia) and oil bounces up to $150 bbl. This would be a huge burden on the US economy. Demand in the US would fall since not everyone could afford the higher prices. So we ratchet down employment and growth in the US (as most/all other countries will). The net result: the world consumes no more oil than it produces. Is that the definition of PO? Then we hit PO in the late 70's when oil prices peaked if one defines PO as such a state. But that price jump led to a global recession that brought oil back to $10/bbls in 1986. And at that time the world consumed all the oil that was produced...just like during the price spike of the late 70's.

PO is a very interesting technical topic in and of itself. I began appreciating PO in 1975 when I started my career in the oil industry. It was obvious to most of us in the industry although, as I've mentioned before, we called it the reserve replacement issue and not PO. What I've learned since hanging with TOD the last two years is that the complex interaction of supply/demand, economic expansion/recession and geopolitics cast such a huge shadow on the simple math model of PO that it seems less important if PO was in 2005, 1995 or 2120. The question remains: can an economy (of a country or even just a person) sustain itself at $X/bbl of oil? That question is just as valid 40 years before the magic date of PO as it is 40 years after the PO date IMHO. The actual date of PO is one important variable in the full model. But it is by no means a sole determinant IMHO. And as I see changes in the global geoplitics I'm developing a sense that it may not be as dominant a factor as I once thought.

Demand in the US would fall since not everyone could afford the higher prices. So we ratchet down employment and growth in the US (as most/all other countries will).

It's not a given that growth will be affected long-term, and ratcheting down employment is completely unnecessary. But I agree that is the economy's ability to withstand and adapt to high oil prices that is the important and most interesting question. The date of PO is just a date.

My bet is PO, all liquids, in 2020-2025. By then, carbon taxes/caps and electric vehicles may finally stop liqids growth. Barring such factors, there's plenty of supply and an ever-increasing demand.

Where's your model?

I don't need no stinkin model! It's well known there is lots of coal, oil sands, NG and so on. All can be transformed into liquid transportation fuels. But we shouldn't use all that, so I hope we find a way to transition. The timespan I mentioned seems realistic. With increasing AGW worries and electric vehicles, it seems possible. OTOH, increased nuclear and wind electricity may free up fossils for liquid fuels production, so perhaps liquids growth will continue beyond that time frame.

I'll bet too, but I'm afraid I have zero confidence any anything beyond the next 5-10 years. Most countries and in particular THIS COUNTRY, will be on a knife edge of stability. The populace just isn't going to like it when finally told "cheer up it'll get worse...". They'll be "Jihads" all right. Launched by a political landscape of Neocon/Evangelical Christians as far as the eye can see...and I hope I'm really, really wrong on this one; but that "landscape" will be formed in another two years or so.

Keys and Launch Codes anyone? ...and maybe one volunteer from the audience.

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