LOBG: Michael Economides

Land of Black Gold with a good find:  Michael Economides on CNBC 08-25-05.

Who is Economides you ask?  Michael Economides is a Professor of Petroleum Engineering at the University of Houston.  He is also co-author of the book The Color of Oil and is interviewed on CNBC fairly regularly.

Economides is joining the "oil is going to $100" club.

From LOBG's entry:
Economides stated three primary reasons.

1.) Russia - "First Yukos was destroyed and taken over by Rosneft, now you have Sibneft, the fourth largest, being taken over by Gazprom, so 50% of Russian oil production is being re-Sovietized, and the Soviet Union did not have a very good track record in oil production."

2.) Chavez - "Even before the assassination insinuations he was militant enough, and I'm sure he's not going to be a happy camper for us."

3.) China - "The yuan has been re-valued and it will make it a lot easier for China to buy oil. They have gone beserk already last year, look for China to increase it's energy demands and oil purchases significantly."

"All of these things are a hurricane level 5, perfect storm to increase the price of oil towards $100."

More over at LOBG's place.

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Yes, oil will hit $100, but when?  6 days?  6 months?  6 years?  Without a time frame the prediction is meaningless.  (Personally, I would expect it to happen some time in mid to late 2006, barring any nasty details, like a war causing chaos in the markets.)

Russia: The only threat I see here is the Russian gov't slowing production as a way to punish the West/US.  With the oil assets in private hands, it would flow as long as there was money to be made; under more ideological control, it could be slowed for political purposes.

Chavez: He's arrogant, but far from stupid.  Robertson flapping his gums and the Bush admin. not being smart enough to condemn the statements isn't going to change Chavez's actions.  The US just handed him a huge, free PR win, and I think he's easily smart enough to take it and not upset the situation unless something far more serious happens.

China: The yuan re-evaluation was miniscule, and we've already seen China's oil demand slow its growth this year, likely in response to the price rise in 2005.  Unless something else unforeseen happens, the yuan change will have a negligible effect on China's oil consumption.

There's a saying among investment advisors: you give either a price target, or a time target, but never both.
Darn! I now have six books to read - I got the Economides book last weekend and it is somewhere in the stack.  Doesn't look like a hard read so somewhere this weekend, maybe  . . .
I thought I remembered seeing somewhere that Economides was a real Peak Oil skeptic and thought the price of oil was way too high.  IF that's true, and he's been converted, that's a significant shift for a major oil pundit.
In a 6 Aug. 2005 interview at Financial Sense Online, Matt Simmons said that Economides believes that Saudi Arabia's claim of 260 billion bbl reserves is conservative and could easily be 200 billion bbl higer. In addition, he believes that they can easily add 5 or 6 mbd for the next 50 years.

I doubt, if he said those things recently, that he's seen the light of peak oil.

If you read closely, he never says that oil production could never increase from these levels, only that currently there is no spare capacity and there is potential for disruption leading to shortages. That is not inconsistent with thinking there is big oil still to be found. I don't recall him previously acknowledging the possibility of even a short term crisis beyond a brief spike, so he may be tasting the kool-aid at this point.
Excellent catch, Ralph.  This is a distinction that a lot of people are forgetting--that current high prices may not be a PO effect, but a much more mundane bottleneck issue.  In fact, I still side with ASPO and say that the peak is in 2007, or possibly as far out as 2010.  (Of course, if the bottlenecks last until PO takes hold, then the current situation is a very good thing as it will spur conservation, educate the public, etc.)

I also find it interesting that there have been several "official" comments from the US gov't and other high profile sources saying that oil prices will remain more or less where they are until the end of 2006.  To me, this sounds like an attempt to shape public perception as we're on the final approach to the actual peak.  

Lou's "current high prices may not be a PO effect, but a much more mundane bottleneck issue"

This is a very important question. We've been told by various "authorities" that price decreases can not be expected through 2006, so that's a pretty long bottleneck. In fact, it's likely we'll be in the $75 to $100 range IMHO sometime in 2006. If these prices depress demand, we might come back to current levels ($65 to $70) from whatever the high is.

Importantly, it seems that much, much higher prices are required to change American gasoline consumption habits in those cases where there is some elasticity. So, I'm skeptical about large demand drops in the US (and in China).

Finally, what oil supply magic occurs in 2007 to make everything OK again?
Economides does not believe in the PO/Hubbert theory, check:
Michael Economides supported the idea that oil is extremely abundant, and "technological advances will enable us to keep producing oil at current and even greater rates." He pointed out that with inflation, the oil we have now at $25 a barrel is the cheapest in history. Oil in the 1880s was $1000 a barrel in today's money, and the current price is half the price of oil earlier in the twentieth century in constant dollars. He emphasized a well-known fact: that predictions about oil shortages in the past have universally been wrong.  Instead, Economides predicts that the world will not run out of oil for two centuries. He claims that there are tremendous undiscovered reserves in the Gulf of Mexico, the north slope of Alaska, and deeper waters offshore, not to mention many other places in the world, such as the Persian Gulf and the Caspian Sea. But Economides believes that even these undiscovered reserves will not play the major world in meeting our need for oil, for "natural gas will become the fuel of choice throughout the world within the next decade," and this will in turn lessen our dependence on crude oil. Economides calls the trend of moving from wood to coal to oil to methane and ultimately to hydrogen the "decarbonization of fuel." Hubbert's peak is a fact, but "it will not come into fruition," because the transition to natural gas in inevitable due to the implacable, universal trend of decarbonization. Hydrogen fuel cells are "around the corner" as an energy source, and the hydrogen will come from natural gas. Petroleum (oil plus methane) will increase from 61% to 67% as a fraction of our global energy use, and the addition will be natural gas. The planet's methane resources are enormous and, in many cases, just now being tapped. While there is no doubt that the U.S. economy is heavily dependent on oil, he concluded, the Middle Eastern oil supply is available and right now is vital to our country. But the dependence will decrease in time as Earth's tremendous natural gas resources are increasingly used.

src:  Petroleum Experts Debate Impending World Oil Shortage

He made a good prediction about the increase of oil price in 2000 but I think he believes this is a temporary business cycle.  

"Instead, Economides predicts that the world will not run out of oil for two centuries"

So, In addition to being an economist, Economides is also a petroleum geologist? A very versatile guy, I must say.

"Hydrogen fuel cells are "around the corner" as an energy source..."
[insert usual remark here that hydrogen fuel cells not an energy source and it takes energy to produce the hydrogen]
The original post says that he's a professor of petroleum engineering, not an economist. Also, Simmons, in the interview I mentioned in a comment above, says that Economides worked for Schlumberger before going into academia.

For anyone who's interested, that interview is very interesting. You can find it at:


I was being sarcastic and in this case, it didn't work.