The IHS Energy View of Peak Oil

Recently, Robert Esser of CERA testified before congress World Oil Production capacity to increase up to 25% by 2015; No peak seen for decades, US Congressional Committee told.
"A detailed new audit of our own analysis and the enormous scale of reserve upgrades in existing fields, confirmed by the most extensive and complete databases on field production - the proprietary databases of IHS, of which CERA is now part - contradicts those who believe that peak oil is imminent," Esser testified.
CERA was acquired by IHS Energy in September, 2004, so of course this amounts to CERA auditing itself. It seemed that the IHS Energy website might be a good source on the IHS/CERA point of view and this turns out to be a bit of a gold mine. Indeed, there are a number of presentations there that give us some insight into their thinking. There is a lot of material there to sort through. In order to narrow this story somewhat, a presentation entitled Global Oil Supply Issues: Recent Trends and Future Possibilities (pdf) seemed a good place to start--not least because it contains some slides on IHS Energy's position on peak oil. The presentation is by Ken Chew, IHS Energy VP for Industry Performance and Strategy. Let's see what Chew had to say about the peak oil issue.
The slides (44-46) deal with peak oil. Here, we'll present each slide followed by some comments pertaining to Chew's points.

Slide 44--Peak Oil Can Not Be Forecast

If you look at Chew's slides 26-28, the IHS Energy Methodology is described for estimated discovered recoverable resources.
Slide 27 -- URR Estimates
  • Uses a "bottom-up"approach that reflects evolution of resource estimates for individual fields
  • Sum the ultimate "proven+probable"technically recoverable liquid and gas resources of each field and undeveloped discovery, by year
  • All resources attributed to the year of initial discovery
  • Aggregate the annual discovered resource values
Slide 28 -- Total Recoverable Resources

Subtract country cumulative production (slide 26) from country ultimate recoverable resources [URR] (slide 27) to derive remaining resources by country (slide 28).
So--you guessed it--Chew bases his entire analysis on purported data about discovered resource volumes but when considering the question of "peak oil", turns around and says that we lack accurate data about such resources. Of course, a Hubbert Linearization attempts to estimate Qt for a given field, oil province or country based on its production history (P/Q)/Q. IHS Energy uses no such analysis. Chew's slide 31 indicates that
  1. Pre-1995 Resource Growth (upward revisions) = 457 billion bbl
  2. 1995-2003 Production = 236 billion bbl
  3. 1995-2003 Discoveries = 144 billion bbl (61% of #2)
leaving us 365 billion bbl in the black--all based on pre-1995 URR inflation. Where do these resource growth numbers come from? We must turn to the Role of Mature Fields in Meeting the Global O&G Supply Problem by another IHS Energy VP, John Stark, to answer that question. Here's slide 9.

TOD readers are familiar with these kind of numbers and can decide on their own whether these estimates, some of which are clearly marked as questionable by IHS Energy itself, are credible. And, even if they were all true, would peak oil flows in the near-term foreseeable future be affected in any significant way?

Concerning our inability to forecast how much new oil will be discovered and when, Chew (slides 2 & 3) presents a discovery curve that looks pretty normal showing that liquid resources put on-stream have outstripped discoveries since the 1981 to 1985 period. The 20 year trend seems clear--how can there be any major uncertainty about the expected discovery volumes in the future? The Earth is well-explored by petroleum geologists. There is no new magic technology which will buck the trend and find lots more oil than we already know about. However, perhaps we have underestimated knowledge growth. As Lord Bacon once said, Knowledge Is Power. I just don't see how it translates into more consumable liquids (boe) in the future.

As to the evolution of demand, that will depend on price and the economic fortunes of various countries (eg. Russia in the early 90's) but see the discussion of slide 45 below for an in-depth discussion.

Regarding "above the ground" events that will impact supply, these can only certainly be negative unless mirabile dictu, there is a magical turnaround in Iraq, Osama and friends decide to take early retirement, Nigeria insurgents make peace with Chevron, Iran has a change of heart about its nuclear program, feuding ethnic groups in the Caspian Sea region sing "Give Peace A Chance", India & China decide that ramping up energy usage is less important than climate change impacts, the US adopts a national policy to go with biofuels, solar and wind to mitigate its foreign energy dependence--you get the idea.

Slide 45--Peak Oil Is The Wrong Question

The seamless transition to alternative transport fuels? Can someone out there, anyone, demonstrate how exactly this transition is going to work? As far as oil supply & demand issues go, given overall declines, this would seem to be the biggest problem that peak oil presents. Biofuels? What's the answer? If there is one, what's the timeframe?

Now, here's an interesting point of view. The "peak" may occur a number of years after demand permanently exceeds global supply capacity! In other words, there would be a period in which oil supply capacity continues (however marginally) to grow but can not keep up with demand. This amounts to a kind of "economic" peak, not an "absolute supply peak" in which incremental flows (mbd) reach their maximum value over some period and are never exceeded thereafter. Not being an economist, Chew's key question brings up many thoughts.
  1. Liquids supply goes up but increasing demand is never met. Isn't this called resource scarcity?
  2. Re: #1, doesn't that mean prices can only increase if there's little elasticity in the world markets? Even in the best case, where demand can be reined in, wouldn't such a structural adjustment take some years to achieve? With supply increases that are inadequate to meet demand, how could prices ever decrease even if demand is able to eventually adjust? Supply & demand would remain on the precarious razor-thin edge we find today in the best case. Does anyone believe worldwide demand will actually decrease (without sacrificing sacred "economic GDP growth") in any timeframe worth mentioning--because that would be the only thing that will lower prices. Otherwise, it's a recession or it's a depression (whatever your preferred term).
  3. If there is so-called demand destruction, doesn't that mean zero or even negative GDP growth on a region to region basis? Certainly, there is a constraint on worldwide growth based on Chew's year-to-year ceiling on available supply vis-a-vis demand.
Of our inability to accurately assess the evolution of demand (slide 44)--normally, demand will only go up as it has year on year for a long time. The evolution of demand would seem to depend on available supply capacity which determines price. If that capacity goes up a little, as opposed to not at all, and is exceeded by demand, then prices rise no matter what. But Chew's question seems hopelessly obscure to me.

Slide 46--Peak Oil May Not Be The Real Problem

We are familiar with the usual arguments about insufficient refinery capacity and the inability of existing infrastructure to deal with "heavy, sour" crude. As far as transporting oil to market goes, that is yet another kind of "above the ground" consideration, in addition to delays, geopolitical events, hurricanes, and the rest, that have an impact on the timeframe in which peak oil occurs.

But here, Chew's remarks provide some insight. Investors will be reluctant to commit to an environment in which peak production is forseen. The crisis may be in producing the oil and getting it to markets. The crisis! Well, maybe IHS Energy and TOD are not so far apart afterall. It may be simply an argument about timeframes in which the peak oil community says the crisis will be sooner than later but the IHS Energy/CERA crowd--based on some inaccurate data and optimism about "above the ground" events (see slide 44)--pushes the date out into the 2010 to 2020 period.

An Alternate Universe...

No where in Chew's presentation are decline rates from existing (including mature megafields like Burgan) mentioned. Not at all. When referring to depletion, Chew is talking in the usual sense about historical cumulative numbers as a percentage of estimated URR backdated to the start of production. (eg. slides 26, 43). It is as though we are living in an alternate universe. In this universe, available capacity only goes up and never goes down. It seemed prudent to disregard silly references to what Chew calls resource plays (slides 8 to 16, including oil shales, tar sands and Orinoco heavy crude). Or his references to USGS data (slides 33,34). Chew's presentation also clearly shows the continued failure of E&P Effort and Investment by the IOCs (slides 20 to 25).

But bringing all that up just seemed like piling on.
> Sum the ultimate "proven+probable"technically
> recoverable liquid and gas resources of
> each field and undeveloped discovery, by year

As an energy analyst and consultant I would like to
point out that this above is the real culprit why
IHS and CERA conclude peak is "not imminent". They
add the proven (P-95) and probable (P-50) to come
up with URR which they later use in their analysis.
What they do not tell you is that the probability
for them to be correct is 50%. If they only use the
P-95 (95% chance the URR to be what they believe)
then the peak date will be around 2007, give or take.
Everything else like transport and refinery limitations
take back seat to the fact that their principal
assumptions are correct with 50% probability.


This isn't right.  If the geologists and petroleum engineers are unbiassed estimators of the P-50 reserves of an individual field, then when you add lots of fields together, the reserves should be right with only a small error (due to the central limit theorem).  Specifically, the relative error will scale like 1/sqrt(N), where N is the number of fields being aggregated.
Didn't the USGS use a similar approach for new discoveries. I had no argument with the critiques of their reserves growth estimates but when it came to their estimates for new discoveries I couldn't see any problem with their methodology (using Monte Carlo simulations based on probability distributions). The only problem was the degree to which the resulting discover projections were at odds with the historic decline in disoveries (eg to meet their estimates would require a complete turnaround in this trend). This suggests that their probability curves may have been a tad optimistic!

Maybe it is this "unbiassed estimate" of the probabilities we are lacking in both cases.

The thing is, those reserve errors are not going to be independent from field to field; errors in estimating the size of a field are much more likely to be a result of methodology problems, misestimating current/future technology, etc, than just statistical error.  

So adding all of the individual field estimates together will not necessary reduce error dramatically, even if the field-by-field estimates are unbiased.

Even IF the probable reserve calculations have a higher level of accuracy than current conventional wisdom, one cannot escape the fact that a sizeable number of oil fields are on the brink of decline and even terminal decline. Once peak of an individual oil field has come, extraction during the second phase becomes increasingly expensive.

Combine this factor with ever increasing world demand and the result is predictable.  Arguing whether accurate estimates of probable reserves peg the brunt of the shock in 2 years or in 10 years is a matter of pedantry - as much of a waste of time as arguing over the ideal placement of furniture while the house is burning down.

The depth of the denial in the anti-Peak Oil crowd is incredible. I submit two examples.  

First, a few months ago at an oil industry meeting, the Texas State Geologist, in response to a question from me, stated that with new and improved technology, Texas, while it may not be able to equal its peak production, could substantially increase its oil production.  One little problem.  Texas oil production has fallen for 33 straight years.  Our esteemed Texas State Geologist is pretending that three decades of declines don't matter.

In a recent interview, the Norwegian Oil Minister apparently asserted that Norwegian oil production would not peak until well after 2008.  Another little problem. Norway, as predicted by the Hubbert/Deffeyes Linearization method, has already peaked.

The common connection here is that when faced with years or even decades of production declines, the anti-Peak Oil crowd still refuses to recognize the hard, cold reality of depletion, so why should we expect them to acknoledge the reality of depletion before the worldwide decline has even set in?

or how about this in the latest issue of Geotimes, published by the American Geological Institute. There is a bit called Energy Outlook, written by the chair of the Geoscience Dept. at the University of Texas. "Peak oilers" are debunked in what to me is an extremely non-scientific, finger-pointing fashion more appropriate to our esteemed House of Representatives.

  1. We make "..narrow, and sometimes even unwarranted assumptions.."

  2. "They wrongly assume they know what that finite amount is" in regards to the total amount of oil

  3. They relegate "to mythology the recovery of new reserves from existing fields"

Of course the proof of the peak concept - the documented declines in Texas, North Sea and Kuwait etc. are not mentioned.

The following are held up as the sources to trust for future energy outlooks - the USGS, IHS Energy, and CERA.

He predicts a new methane economy, especially as the source of hydrogen for the hydrogen economy, which will start sometime after the middle of this century. But at the end he notes, almost parenthetically, that during the transition to this golden age, we will consume twice our historical consumption of oil and increase natural gas consumption 15-fold.

How much of AGI funding comes from AAPG I wonder - and when will Peak Oil get the serious scientific scrutiny it is screaming for from the mainstream academic geologic community?

BTW, this is my first post - I have learned an awful lot from TOD the past 6 months

Welcome Thaelom, what took you so long, heheh?

Perhaps he knows about the proposed genetic engineering of cows which will enable them to be 'milked' of their methane. Animal rights groups are outraged by suggestions that the me-cows will have to wear lead booties to prevent them floating away and becoming a hazard to airplanes.

Now where did I put those dashed di-lithium crystals? Scottie...

Welcome aboard. Perhaps Geotimes author Dan Fisher (Energy Outlook 2005) would care to explain this:

Thanks to OilCEO for the graph.

Do market fundamentals reflect reality now (end 2005) or were they actually out of whack in 1999 when oil dipped below $15/bbl? Fisher quotes "Pete" Stark of IHS and "Dan" Yergin of CERA (we're all buddy-buddy here) without mentioning that these two organizations are essentially the same. He also quotes his good buddy "Tom" Ahlbrandt over at USGS.

Finally, Jesse Ausubel's methane economy by 2050. My first reaction is "Beam me up, Scotty". On the other hand, I may post on this one.
westexas, can you post a link to that interview with the Norwegian, I'd like to see that, it could rank up there with some of al-Naimi's Best.
Investment decisions

Vienna airport always wanted to build a third runway by 2011 to meet demand projections. Now they outbid everybody in the privatisation of Bratislava Airport (capital of Slovakia), which is only 48 km away from Vienna airport. The concept: operate Vienna as a hub for premium passengers, move the cheap flights to Bratislava, get back to Vienna by rail.

For investment decisions, you cannot beat the British for the being the most stupid. Expand Heathrow, add an extra runway, expand Stanstead, add a runway and a terminal or two. Especially if it involves digging up good agricultural land. Nothing like turning agricultual land into concreted runways because a lot of people in authority believe that extra runways will be needed by 2030.
Very interesting post Dave, thanks.
I do think that this community and CERA are not that far apart. I'd like to remember some more things said in Congress (more or less like this):
"Beyond 15 years, we're all guessing here" - Well, ain't 15 years from now 2020? The year after which CERA predicts the "bumpy plateau".
But most important of all were the questions posed by congressman Alan from Maine:

"We've been talking here about production, but to us what matters is price. If it's going to be a sharp peak or a bumpy plateau, who cares?"

He then questioned Esser if the bumpy plateau would have the same impact in prices as the peak would have. He answered yes.

Congressman Alan : "So you're not telling us to sleep over it, right?"
Esser: "Right."

I mentioned this at the time. CERA is changing it's "posture," if not it's tune. You cannot help but notice it in Esser's testimony towards the end. The jig is up.
good apostrophes.
The only thing missing from this presentation is the role of Santa Claus and the Tooth Fairy in delivering the kinds of oil reserves that this person seems to think are in the ground.

I would have liked to see a slide on this.

CERA and Congress would love to think that it will be 2010 to 2020 when the problem is going to hit.  We as humans love to put off what we don't have to do today for a future time.  There are folks amoung us who continue to scream at the others and say " DO IT NOW! LATER IS TO LATE!"  

If anyone has had to do that dreaded project (fill in blank) you know how you put it off just one more hour, or day.  You knew you were putting it off, you knew you had to do it, but yet you didn't.  

 This is where we find ourselves.

 And the answers will be same, we will put it off, we will have people even tell us it is * OKAY * to put it off!!  That was some of the talk going on in the news and in Congress, and even at the local shop where you met folks. It is OKAY to put it off it's so far away someone else can worry about the project, I can live my life like I have been.  I can make a future like I had, for my kids, It'll be OKAY.


Dan Ur - I think it is the 'after I am dead" syndrome.  As long as it happens after I am dead it is not really a problem. This technique is heavily used by the nuclear industry as well that really only have to store waste until after the people involved are dead.  After that it is an SEP (somebody elses problem).
Bingo.  I'm constantly amazed by the number of people who implicitly or even explicitly view the world this way.  Do none of them have children of their own or any children that they care about?  (For that matter, why should they care any less about the world we hand off to the next generation if they're childless?)

I'm tempted to make a bumper sticker for my car that says, "Burn more fossil fuels NOW!  What has the next generation done for you lately?"  But it would be just my luck that some enivronmentalist wouldn't realize that it was sarcasm, a fight would break out, and we'd wind up on the TV show Cops.

Yes, that same thought struck me too.  I've already accepted that the older years of my life may be very hard, but my focus is on my children.  I only hope I can help them into adulthood both healthy and educated.  But then I've never understood the mindset that the goal is to use up everything just before you die.
We have a 'triune' three layered brain. The neocortex can conceptualize what is happening with oil and our children but the limbic system and reptilian complex have ALWYAYS valued the present was more than the future. Organisms that didnt wouldnt be around today because their ancestors would have been outproduced by those taking advantage of all immediate resources.

We are the first generation in the history of our species to be able to collectively use 300x the annual net primary productivity of the sun. We are also the first generation -in the 280,000+ generations sicne man split of from apes, that will see less people on the planet when we die than when we were born.

Intersection of thermodynamics/human genes gonna be a live experiment on a grand scale-circa 2020-2030ish.

Actually, the Toba event of 70,000 BC killed off so many people that it is measurable on the genetic map of India. All the natives of India died when a meter of ash fell, and India was recolonised from the east and the west.
Most of humanity died because of that volcano. Our genetic diversity shows signs of it. Cheetahs were so badly hit that they are almost genetically identical, to the extent that they can accept skin grafts from each other.

Trying to remember a show I saw on genetics and human populations:

All of present day humanity can be traced back to roughly 15-20 humans on the African coast. Do you know, is that about right?

Good analysis, Dave, many thanks for digging the info out.

Seems to me that every risk in their forecast is to the downside: optimistic reserve numbers, optimistic production numers, optimistic (no realistic) depletion numbers, everything being fine on the geopolitical front. Given that, I say that IHS/CERA are being grossly irresponsibe and scientifically misleading. If they were to properly model these downside uncertainties in their forecasts they would end up with a much more pessimistic picture.

It will be interesting to watch what the major oil producers do over the next couple of years. Will they buy the IHS/CERA view and step up investment in production and the supply chain or will they hold back? We can see Saudi drilling frantically, yet the major western oil companies and Russia seem to be holding back. No doubt they will all have their own analysis and reasons for doing whatever, but there will be lines to read between.

I'll stick with my previous explanation: there are really 2 Earths, and CERA are living on a different one to me.

Even if PO is not till 2010 to 2020, Hirsch's report concludes we need at least 15 years' massive action to moderate it's impact. Even the PO optimists should be arguing for that effort to be a major priority NOW. I'd guess most of us here think we'll be very lucky, unless a massive recession intervenes, to make it much past 2010 before hitting PO. It's hard not to get very angry at irresponsible fools like IHS/CERA.

Well, we have started our massive effort.  The budget just passed by the house calls for drilling in ANWR, laying off 200 people at the National Renewable Energy Lab and screwing the poor.
I was not aware that CERA is now owned by IHS Energy. It is evident from the IHS website that IHS has a client base heavily  dominated by companies in the energy industry.  There is, of course, nothing wrong with that, but it does cast some doubts on the objectivity of their public pronouncements. They may not be outright shilling for these companies, but by the same token then are not likely to be inclined to publically say anything detrimental to their clients' interests.

I can tell you firsthand from my experience at Arthur D. Little in the 1970s that nothing is more true than what Mark Twain said on the subject: "You tell me whar a man gits his corn pone, en I'll tell you what his 'pinions is."

It seems to me they are admitting peak oil and ignoring it at the same time.

It is a market driven approach.  So what if peak oil comes along?  Be it a peak in extraction or a peak in delivery infrastructure.  Whenever the supply gets scarce the demand side will just have to shrink by substitution of other energy.  No big deal.  Oil will continue to be viable.  New technology will will take over at the margins where high cost forces a switch away from oil.  The peak will be a non event whenever it shows up.  Very calming.

I see this as denial in the worst way.  They just can not admit that bad things could happen.  A positive attitude solves all!  

The very intellegent and knowledgeable posters here at TOD have shown how difficult it will be to shift to alternative energy AND keep a similar economy and standard of living.  It the energy density stupid.  It isn't only about energy anymore.  The economy has to weather an energy crunch or the peak will cause other unwanted problems.  There are way too many people just glossing over this problem and it is going to bite us when oil gets scarce.

What struck me as a very important statement was the one concerning investment - why pour money into infrastructure and exploration when the actual end of the Oil Age is in sight?

Oil companies can actually just sit and wait - prices will rise, and their profits with them. Investors will not be a problem, as they will pile on when everything else seems to be flat or going south. Thus they should be able to fund most anything they want to sometime in the future. They should be ok with rising prices.

But the rest of the country is headed for a wall. The inflation conveyor is quickly replacing the cheap stuff we are buying today with higher priced stuff made in 2005, after this latest jump in gas prices. This decreases demand, reduces sales, lowers earnings, and results in plant closings and job cutting. Mergers have been going on for the last decade in retail and most other sectors - not much cost savings left in doing that anymore.

We really haven't felt the full impact of this latest fuel price jump. I look for it to hit sometime 2nd Q of 2006 or so. It will not bother us in the oil business, but industries where fuel is a significant operating expense have only recently adjusted their pricing to reflect the new costs. That means that the effects haven't reached the end users just yet. Even the airlines haven't digested the newer fuel costs into their fare structures. It may take bankruptcy of a few to force that.

The only industry that seems to reflect price increases instantly is the power industry. I think we can all see what is coming for most other industries next year. What happens when driving season opens and demand rises again? No new refineries yet, and another record hurricane season predicted.

It looks to me like we are heading for a very bumpy economic road, and if it isn't actually caused by the increase in price as we are approaching the peak, then the Peak may well be the end of the world economy. If this is just a small dose of what we can expect from rising energy prices, then things are very gloomy...

Appropo of that...

"A dispute over the best way to move Alaska North Slope natural gas to the U.S. market has resulted in an antitrust suit claiming BP Plc and Exxon Mobil Corp. are conspiring to withhold the fuel to drive up prices, according to a media report Tuesday." p;siteid=mktw&dist=

I mentioned earlier today that one should watch the oil producers to see which way they jump - rushing to develop their massive remaining reserves or holding back. Perhaps this is one indication. No doubt BP and Exxon will reasonably say: we'll produce for when the pipeline is scheduled to open (they haven't even decided the route yet, LOL). 'Tis a frivolous suit, methinks.

Do I hear 'nationalise them' echoing through the ether from the future?

Don't panic, don't panic, don't...

IMO, we are going to see a widening divergence between the rising fortunes of the energy producers and the declining fortunes of the energy consumers.  The question is, how will the consumers react?  I've put it this way:  are the angry soccer moms going to be rioting at the gates of the mansions of the energy producers?

The majority of Americans today live off the discretionary income of other Americans.   The problem for energy producers is that they are a minority within a minority (energy producers within a minority of producers).  

I think that energy producers are making an epic mistake when they side with Peter Huber, Yergin, et al.  If--as Huber and Yergin say--we have plenty of energy, then rising energy prices must be a result of a conspiracy.   Thus, more and more calls for punitive taxation, virtual nationalization, etc.

There are clear indicators that higher energy prices are already leading to creeping inflation.  The inflation factor would be clearer if housing (esp. new home construction), food, energy, health care, and education were included in such calculations. Understandably, these things are not included because of their volatility, but they have a large impact on the average family.

In late October, the NY Times reported that retailers and manufacturers have been absorbing the costs related to higher energy prices.  The article said many of these businesses have little maneuvering room at this point and another increase is energy prices will force them to pass the higher costs onto consumers.

Massive consumer debt (negative savings rate), job loss (GM, and Ford layoffs, plus predictions that a downturn in the housing market will lead to a loss of 800,000 jobs), and the specter of inflation represents a worrisome combination.

Wow, I don't think you are all being nearly cynical enough.  The last two points on the last slide say it all.  If enough people agree that peak oil is a problem, CERA feels that it could create a self-fulfilling prophecy.  That is, people believe that there will be a shortage of liquid fuels, so they refrain from investing in new infrastructure that might delay the peaking (though simply making the depletion rate faster in the future), thereby ensuring that production peaks soon.

The part you have to read between the lines to see is that IHS and CERA provide services to the oil investment/infrastructure community.  What happens to CERA if investors create the self-fulfilling prophesy above?  CERA turns out to not only be wrong, but out of business and probably under congressional investigation.  What happens to CERA if they convince enough people to keep investing in more infrastructure?  They might have a remote chance of staying in business for a little while longer.  If nothing else, they can pin their forecasting error on other people's lack of investment, instead of their own delusions.

Re: "being nearly cynical enough...."

I will quote from my story here.
Are there any major misperceptions out there you would like to correct?

Sieminski: There are way too many conspiracy theories that involve oil.

Diwan: Between conspiracy and incompetence, I'll always choose incompetence as an explanation.

Dave: Agreed. Wishful thinking and denial are also problems.
That's not to say that IHS/CERA does not make political calculations--they obviously do. But I'll stick with my remarks as quoted above.
OK - let me say it this way: Chevron and BP tacitly acknowledgee are approaching the peak, Shell is largely quiet from their reserve recanting and the shock of some recent depletion rates, Exxonmobil denies peak oil but warns about the future exploration and reserve picture. CERA/IHS feel that if enough people believe PO is imminent, then it will be quickly factored in to the investor mindset, which means stockholders will frown on investing for more oil.

Disagree - if stockholders are making killer dividends then they want their fearless leader (CEO) to make even more, as the whole planet clamors for more shares of stock...feeding frenzy, which means a lot of cash which has to go somewhere or the government will get it just like they did the tobacco guys.  Oil companies will have no choice except investments as their reserve portfolios shrink, and as prices get stratospheric, everything becomes more economical, even the spaceships to Jupiter to scoop LNG...

Why? Because the alternatives WERE NOT READY!! The smooth transition we all hope for is out of the question, because it will minimize profits for the shareholders of these big companies. Need I remind you of Dick Cheney's vested interest? Big OilCo shareholders are waiting with eager glee for PO, because it will enrich them beyond wildest dreams of avarice.

You are right about CERA/IHS simply not being able to tell the truth - but IMO, it's not about self-fulfilling PO. What it is actually about is preventing investor panic and capital flight from everything outside energy. Once people really snap to PO, they go to gold, precious metals and oilfield stocks. That is the only positive way to position your money in the event of an imminent oil peak, outside of the small community of renewables ventures.

I really think that this is the first bump in the road for oils price climb. We got whacked with shortages from aging infrastructure, sour/heavy oil and lack of capacity, increasing heat energy in the atmosphere and associated storms and various political crap across the world (Nigeria, Iraq, etc.). Much of this is not going away, and may get worse. And all the while, depletion rates increase and it seems consumer demand is set to increase until we reach some critical energy cost number that shuts down profitability and tumbles the whole world economy.

As long as TPTB refuse to address the issue with the urgency and honesty it demands for practical management, we are looking at some kind of massive economic collapse.

As it is in their own best interest to profit from this same collapse, I would say that people should batten down their hatches over the next few years as best they can, and be ready for WTSHTF or even TEOTWAWKI. To believe that the ultra-rich do not see what is approaching is delusional - the signs are all out there .

We are reading the same tea leaves they are, and coming to the same conclusions. The only people coming to a different conclusion are the think tanks, book peddlers and talking heads who are being fed their lines to keep the public unaware. Even reading between the lines of the independent oil companies and national oil companies lays out a scary picture. Don't think that others are not reading between these same lines and reaching similar conclusions.

Hey, does anybody own Halliburton? I do. What does Halliburton think about peak oil? I'll bet you Halliburton execs know more about peak oil than anybody on the planet, including everybody on this site - combined! Who cares about Exxon and Shell. Just ask Halliburton - he knows everything. I remember when he was just $24 a share.
It's now clear that CERA is an heavily biased entity who is manipulating the numbers in order to fit their hidden agenda! As pointed out by westtexas they are using proved & probable reserve numbers which make the probability of their predictions to be correct around 50%! What a relief knowing that the future of the industrialised world is at stake! I just can't believe they were allowed to testify before US congress! shame on them!


Although I agree that the CERA/IHS projections are wildly and dangerously optimistic, the use of 50% probabilities is not necessarily that wrong. Although the resultant estimate of total reserves will still have a 50% probability of being too high, the spread between the  50% probability and the 95% probability decreases as the sum is taken over larger number of fields. In the idealised case of 100 identical fields the ratio of 50% to 95% probabilities of the total will be one tenth of the ratio for a single field.

We could accept an estimate that has a 50% probability of being too high if it had a low probability of being very high. The estimate of 50,000 'heads' from 100,000 coin tosses has a 50% chance of being to high but less that 1% chance of being more than 1% high.

These considerations do, I accept, rest on some shaky premises:-

  1. The 50% estimates have some basis in fact and are not wild guesses
  2. There is not some systematic bias introduced for  political or financial reasons
  3. The total is summed over a large number of fairly well matched fields and not dominated by one or two very large fields
The real assumption there is that the coin tosses (field estimates) are independent events.

As I commented elsewhere in the thread, it's quite possible for there to be no political or financial biases, but still have the field estimates correlated.

As a simple example, suppose there's a new technology X about which opinion is split as to whether it increases total oil recovered from a field by -10%, 0%, or +10%.  Best guess gives 25% chance of -10%, 50% chance of 0%, and 25% of +10% for any particular field. But this probability is based on uncertainly about the technology, not the particular field.

In that case increasing the number of fields added doesn't reduce this bit of uncertainty at all.

Obviously in real life there will be uncorrelated uncertainties that will reduce overall uncertainty when you add the data.  But I'd be willing to bet that many of the biggest uncertainties are indeed correlated, and will leave a sizable core of uncertainty to even the most carefully unbiased estimates.

Colin Campbell and others have provided a good description of why the remaining reserves (proven and probable) are likely to be more difficult and more costly to extract.

The issue of 50% probable reserves is fine for determining a RANGE of estimated of total reserves.  However, we shouldn't lose sight of the forest for the trees.  Whatever remains of the world's oil will become increasingly more energy intensive to obtain.

As always, great post Dave.  It is interesting to me, however, how much attention we here at TOD seem to pay to CERA, Daniel Yergin, and now IHS.  

Yergin had great timing in coming out with his book, The Prize, in 1990 right when Saddam invaded Kuwait.  He got world wide acclaim, and became an international figure.

CERA, however, has no more real inside information on what is going in in the oil industry and what the world wide supply will be than a suite of other consulting firms and players.  Also, as pointed out here on TOD, CERA has been dead wrong in a number of past predictions (on oil price and on nat. gas supply).  IHS is new to the consulting game.  It is interesting to me that they are starting to publish opinions like those you would see coming out of CERA.

For other opinions coming from within the oil industry, I have found that Petroleum Intelligence Weekly has articles almost in every publication warning of supply difficulties ahead.  The Oil and Gas Journal has published many articles in the last year or so on Peak Oil, even if they haven't used that terminology.  Obviously, Matt Simmons, Boone Pickens, and Richard Rainwater are energy insiders. And of course there is ChevronTexaco - "Will you join us".  The oil industry is starting to wake up to Peak Oil.  

Of course you're right, Bubba.

My perception is that IHS/CERA have positioned themselves as high-profile "experts" both in the press and now testifying before congress. That is why I examine them here just as Stuart and HO have done in a number of posts on their yearly supply numbers. As you say, sources like OGJ and Petroleum Intelligence Weekly are more serious and trustworthy. But when I listen to NPR, read the NY Times or the Washington Post, I don't hear the nuanced expert opinions of PFC Energy's Roger Diwan--instead they trot out the always available Daniel Yergin for the soothing, "everything's OK" view. Personally, I want TOD readers, especially those new to the peak oil issue, to have a discrimination filter in place when they hear these pollyanna views.
<The IHS Energy View of Peak Oil>
You asked...
<The seamless transition to alternative transport fuels? Can someone out there, anyone, demonstrate how exactly this transition is going to work? As far as oil supply & demand issues go, given overall declines, this would seem to be the biggest problem that peak oil presents. Biofuels? What's the answer? If there is one, what's the timeframe?>

Now that's what I call a loaded question!  And there are so many words that would need "tighter definition"..."seamless" (the transfer to mass car use was not "seamless", just ask the railroad workers (the ones still around from the glory days of rail), demonstrate how "exactly" it exactly...technical developments could make any prediction a guess..."what's the answer?", "what's the timeframe" there any one "answer" or a myriad mix of technology....and would the price and nature of depletion change "the timeframe" other words, would it be done in one fell swoop...or in fits and starts forward, with a market driven "staged transition" over time....?

But for a second or two...let's play.  You are surely aware here at TOD of the "plug hybrid" cars of
Now, they are not an economically viable alternative with gas at $4 bucks a gallon...even $5 won't make them competitive...but what about $6 or $7 bucks?  (before you laugh, the Europeans are already getting into this range)

The Lithium ion batteries are already powerful enough...they have enough energy density per pound for almost all in-town, lower speed range  (some talk of a 20 mile range at any speed below 20 mph, but that can be easily managed...if a battery pack can be charged at home, and then run, let us say 50/50  (up to 50 mile range with a 50 mph speed), and recharged at home, it revolutionizes the whole issue of peak oil or depletion of oil, all that is lacking is the price of the batteries, and HERE'S THE BIGGIE, whether or not they can take the charge discharge cycle with durable battery life....THAT'S IT.
The batteries are VERY CLOSE NOW to what is needed to alter the fuel consumption landscape forever....where will they be in 5 years...10 years...

A bit more....suppose the batteries can never get much better or cheaper....then, with the knowledge now gained about plug hybrids, we go up another path...let us say, Hydraulic Hybrid, which the EPA has already shown a full size vehicle using (a Ford Navigator of all things!).  It works this way:  An efficient gas, Diesel or natural gas turbine (of the Microturbine or Capstone type) drives a hydraulic pump, which builds pressure in "accumulator" tanks.  At low speed and for short range, the vehicle moves on hydraulic power only....but at higher speed, or at longer range, the gasoline engine starts and recharges the pressure in the accumulators.
It gets better:  With the hydraulic system, the system can be VERY deeply discharged with no damage, (zero pressure), and then recharged back to 100%, something that would destroy a battery after a few times...and there are no rare earth or precious metals involved.
IT GETS EVEN BETTER.  With the plug hybrid concept, the vehicle could have it's accumulators charged to max in the garage or driveway by the house the full effect of plug hybrid.  The vehicle would never even have to start the engine to leave the drive under hydraulic pressure drive!

We could go on....WalMart roofs and parking lots roofed in to protect customers from the sun, and also carrying high efficient solar panels to create solar hydrogen for fuel cell cars....

Electified rail trains to haul freight, methane from sewer gas, animal, plant, and manure waste to create fuel used in the same applications as natural gas today...
We must recall that these alternatives DO NOT have to replace all fossil fuel consumption.  

Even the most pessimistic of the "Peak Oil" scenarios, the "Upsalla Protocol", projects crude oil production out to 2060 or later at least as high as it had been up to 1968 or so....all we have to do is fill in the growth since 1968, and account for future growth.  The fossil fuel industry will be HUGE for a lot of years to come  (the rest of our lives, certainly)
Predicting the "seamless" transformation is almost impossible, but it is where the rubber meets the road.  Almost everyone now agrees there WILL BE FOSSIL FUEL DEMAND DESTRUCTION.  I was once asked what the "peak oil" crowd felt they could do....and after much thought and self hit me.
The job of those who see and accept Peak Oil is this:  To make the coming "demand destruction" as humane as possible.  Roger  

Nice post Roger, it lowers one's doomerocity level a bit.  Do you have any figures on how much additional electrical capacity would be required to convert the auto fleet to plug-in hybrids, the truck fleet to electric rail, and home heating to electricity?  Would coal and nuclear be sufficient do you think?
I did some rough figures once upon a time on conversion of transport to run off the grid. I came up with a number that nearly doubles current U.S. electrical output. Roughly 1250 new 500 MW power plants. This is on top of the 150 plants I figure we'll need to replace lost nat. gas production. Of course vehicles would be lighter, and I used 15kwh/gal. gasoline. (which I don't know to be accurate) The problem I see is that we haven't even taken one step in the direction of updating the grid. Further electricity would be needed to mine & transport coal. Looks like we are going to be busy. So when do we get started?

The exact figures of the extra power consumption to use hybrid electric or hybrid hydraulic type cars/vehicles would depend completely on the market penetration of these vehicles, and their efficiency, (20% of the market, 30%, or 50% ?, with better batteries than we now have, and how many in town vehicles could be full electric (battery what range and efficiency, and what about the other developments, hydraulic electric, solar produced many fuel cell electrics, and at what efficiency?), but the KEY thing almost everyone goes right past is that most of the recharging of any grid produced transport energy would take take place at night, on off peak hours.

A study of the California power market shows a day peak vs.night off peak nights at around 20% to 30% depending on time of year.  What this means is that at night California has about one third of it's power plant productive capacity at almost idle, leaving that power available, but of course, if we began to pull that power, it would definitely increase night time fuel consumpton needs. But the excess power available nationwide at night (as far as generating capacity goes) is many gigawatts.   And that's with no additional renewable power (solar, wind, etc.) added, and dismisssing the growth of "distributed generation", which is a rapidly growing business, with large users like hospitals, schools etc., providing power generation and multi cycle recycling of hot water from waste heat, etc.

On the curbside parking problem mentioned by some posters, thinking like a typical suburban/rural American, I frankly haven't given it a great deal of thought! (blush!) :-)  It would be an infrastructure problem that would require some considerable work and planning, that is a given....not undoable, but not cheap either....

On electrified rail, two points:  The rail companies would almost surely consider some added power production (again, distributed generation) to power their own trains, and of course, again, much of the power consumption would be at night....hauling frieght would not have to done at as tight of a time schedule  (Matthew Simmons has made the case that a great deal of heavy transportation would move almost immediately to rail and river barges when peak oil/gas production comes, meaning that one of the first casualities of the event will be the JIT (Just In Time) delivery methods of most business), but the DECREASE in overall consumption of fuel compared to highway tractor trailers could be large....

I want to go back to the original set of questions I was playing around with:  exactly how "exact" the plan can be would depend greatly on the price points of fossil fuels, how much the expected newer efficient technology could be introduced, and how fast (the exact "timeline") and many legal and social barriers and issues....that was my point that when CERA says a "seamless transition" to other fuels and technology, they are assuming an "if everything goes perfectly" scenario.  Things seldom go anywhere near perfectly, and most transitions are not "seamless".  That doesn't mean the transitions cannot be made, but, exactly as some of the posters here have indicated, difficulties in changing a built up system of this size will be difficult, and in many cases, probably painful. It also depends on (as ole Curly said in "City Slickers")  THE ONE BIG THING.  
WILL.  Right now, the real central problem is  almost everyone in the mainstream press and the public at large completely refuse to admit that the clock is running and that time is getting very short.  On these boards, we often loose track of the fact that MOST OF THE PUBLIC have in no way accepted that this is anything more than a temporary inconvenience, and the banking and investment firms show little interest in investment, and MASSIVE it will be, that must be made NOW if we have a hope of making a transition anything close to "seamless".

I agree. I feel that the transition will be anything but seamless. To make a "seemless" change requires sacrifice, planning, and investment. The U.S. population is not even in denial about it yet, they are living in a dream-world. Every message they get from their neighbors, the politicians, the media, tells them that if and when we have an actual problem, the solutions are plentiful and we'll just switch to plan "B". What people don't realize is that the free market system is going to fail them on this one. The market won't signal the need for change, it won't help fix the problem, it will hit the PO&G wall along with the rest of us. If there is a disruption in oil imports, or natural gas peters out, or if any of a host of other potential problems materialize we will probably see serious civil unrest. People in this country are not used to shortages or hyperinflation or actually having to sacrifice anything at all, for the most part. Many do not even know or think about where the electricity or gasoline they use even comes from, they take it all for granted. The O&G companies are in business to make money, not to watch out for future public welfare. I will say this though, the oil & gas companies have been quite resourceful at keeping prices relatively low for a very long time. I just think it is irresponsible to expect them to keep pulling rabbits out of their hats. (or where ever they keep pulling them out from) That said, I'm afraid there is no way we are going to painlessly wean ourselves off petroleum, even if the weaning is slow and progressive. If the change is forced into a condensed period of time, well you know the story.
So you just plug in your hyrid car to the mains?

That's okay if you live in middle-class suburbia and have a garage. A hefty portion of world car users live in flats and use on-street car parking.

Obviously they are not going to run a 50 metre power cable from their flat to the car or move en masse to a house with a garage.

Apart from the fact that nobody will buy such a car until their own petrol/diesel car is near the end of its life, what do they do to recharge?

Vast recharging lots looks an expensive option to me. You pay for parking (land is not cheap), you pay the premium for using the service and you have to somehow get from there to your place of work and back.

Excuse me for thinking this option has a long way to go!

Selling power via street side powerposts where you swipe your credit card is a simple problem to solve.

The hardest part is to make the plug in hybrids good and inexpensive enough. The second hardest is to generate more electricity.

I am afraid not:

Swipe card power points? Even parking meters are only about one for every 5, 10 or 20 cars. Can you imagine the cost of manufacturing, installing and maintaining such power posts for every car parking space in the world? Or perhaps we are down to rationing again? Thirty cars for every recharge point? I can see the fights now.

Once again, has common sense been applied to this problem?

What if you are not guaranteed a parking-recharge spot (a common problem in my city), push the car home?

Then you have the problem of chronic parking spacing more stretched by people wanting not to park but recharge.

This also looks like a no-go in developing economies.

Overall, too expensive for non-garaged car owners.

You are describing a strong demand for power posts. They will not be especially expensive to series produce or install. This is exactly the type of problem a free market excells at solving. I would not worry about it at all as long as any parking lot owner can earn money on selling electricity.

The only key component I would hope get extra attention and standardisation is a better power connector. Ideally one wich can be disconnected automatically and where nothing breaks if you drive away without a manual disconnect. Extra points if fancy equipment on the car can make an automatic connection when you park.  I have some ideas about this but they are far from finished and I have not done any litterature search.

1-2 kW power posts with fuses, timers and sometimes fancy control equipment are very common in nordic countries for motor heaters to easy the starting in cold weather and comfort heat the car. They are usually installed at parking spaces reserved for workplaces and at home. Scale up the power rating, add a card reader, a tiny computer and a standard power cable network and it is solved. Building them in the millions is dead easy and installing them is easier then installing a streetlight lamppost.


You talk as if the Free Market has already decided street power points is the most optimal solution!

The Free Market may decide through a multitude of field trials and customer feedback that hybrids cars are a crock.

The public might even reject them for less efficient measures.

I just have my doubts about a future with every street lined with these recharge points. Too utopian.

As I wrote, the critical part is the vehicles.

If plug in hybird cars or all electrical cars get longer battery life lenght and lower price and thus become very attractiv I am sure recharge post problem will be solved almost everywhere and probably quickly. They are far easier to build and run then for instace a fast food restaurant a cafe or an unmanned petrol pump.

The vehicles do not even need street power pointes to start selling in large nubers. Its enough with non credit card charging aoutlets in private and company garages.

Worry about the cars and the powerplants. The parts inbetween are much easier to build and run.

Slow down... this conversation is about gas-optional hybrids, not full electrics. Plugging in the car saves money, and may be more convenient than stopping by the gas station, but if you can't find a plug you can still fill up the tank.


A long ways, yes. It points out that we are losing the cheap oil limitless monolith and that the future will require many, diverse solutions each of which plays a part in the big picture.
Hm... That hydraulic EPA PDF has a problem in its numbers.

Page 4 says:
Overall Weight 240 pounds (22 gallon system)
Specific Energy ~8 kW-sec/kg
Energy Density >50 kW-sec/gallon
Power Density 3 kW/kg

So at 8 kW-sec/kg, a 109 kg system should store 872 kW-sec. Divided by 22 gallons, that's 40 kW-sec/kg, not >50.


Seems like a good catch by Chris Pheonix, maybe it's some of that government math from the General Accounting Office!  :-)
Re:  Yergin's track record

In an 11/1/04 Forbes column, Yergin was quoted as saying that oil prices on 11/1/05 would be at about $38 per barrel.

Another miss for the Yerginmeister.  

Thanks for that, westexas. It's good to know at least one other person is paying attention.

Note to self: I need to start a table of predictions "from famous (oil) people."

N.B. - Yergin wasn't that far off, was he? I mean, look at how his prediction would have been viewed at the time. How many people, besides me, would have been right a year ago?
Seriously. I mean none of you guys knew me then, so how would you have known that I'm always right about the Price of Oil?

Well, on 31st December 2004 I predicted 2005 oil price peaks of $60 in early April 2005 and $75 in late October 2005. Haven't seen any better guesses, though I was about 5% high and the second was nearly 2 months late.
I'd actually like to setup a points system, where people submit their predictions/dart-throws one-month, 3-months, and 6-months out. You get 1 point for being within 10% of a one-month guess, 5 points for three months, and 15 for 6 months. Or something like that. That way all your wrong guesses are counted in with your correct ones.

Have you ever talked to someone who gambles alot or plays the lottery. They are always winning. I've never understood this, since the odds say quite clearly that they should always be losing :)

To make it easier to calculate perhaps use round $ and subtract if more than $10 of, for example:
10 points within $1
5 points within $5
1 point within $10
-5 within $15 and over $10
-10 over $15 out
-15 over $20 out

I never buy lottery tickets, did think about betting on NFL - there were actually situations where you could fleetingly get prices that guaranteed a very small win (about 2 to 5%) by using different online bookies and backing both teams in a game but they only came up about once every 3 weeks so not worth the effort of watching prices like a hawk. I do spread bet on stock indices, commodities, currencies but only do a bit better than break even, hopefully I'll improve with practice and be able to earn a decent living.

Alright, good. we'll work on this. By next Christmas, this sight will be the place to come for odds. The Oil Casino - I can see it now - Green Neon.
I have a simple question: Why do you think that peak oil will arrive when simultanously seeing that Saudi Arabia and many western oil companies heavily invest in refining capacity? This folks have to know what's going on! This is especially true for Saudi Arabia! It doesn't make sense for them to increase their refining capacity while simultanously expecting that there won't be enough crude available to feed all these new petrochemical facilities.
Saudi are investing in refineries, including at least one in China, in order for their sourer and heavier crude to be refined. A bit of a 'quid pro quo' - we'll build refineries to process OUR crude, hence give us a reliable market. It also seems that Saudi are running low on lighter, sweeter crude. Since their heavy crude sells at a significant discount versus light crude it probably makes very good commercial sense to refine more of it to add value.

As far as I'm aware the major oil companies are very much NOT building new refineries, some people (and I might agree with them) say this is an indicator that they  expect the supply of oil to be limited before new refineries could repay the investment.