An Economist response, or is it a techie Sunday?

Oh, dear it looks as though I have to disagree with an economist again.  But this time it is the magazine rather than an individual. As has been pointed out, and to an extent discussed in recent comments thanks to which I was able to read the initial article, the Economist came out with an article this past week that suggested that the current problems with the supply of oil are not really serious, or long-term.

There are several ways to address the issues of the article (you will have to wait a bit for discussion of the author's book since I only ordered it on Friday), but it appears to me that a primary criticism has to lie in the misunderstanding that the author appears to have about the role of technology and the slow speed with which things happen.  I am not going to argue the point that there is still a lot of oil lying around.  Yes there is, and even when we have depleted a field, we are leaving perhaps 60% or more of the original oil in place.  And yes, given enough money and time we can even get that oil out.

Nor am I going to argue, at present about the longer-term existence of large volumes of oil. Rather, I would argue that the problem that we have is of getting an adequate supply of oil, each year, to meet the demand that there will be for the oil in that year.  Under the current methods of production, and against an increasing level of demand  it is becoming more difficult to produce enough oil to meet that demand.  There are two major reasons for this, neither of which is properly recognized in the Economist article.  

The first, and most critical issue, is the one that we call depletion.  When an oilwell is first put into production, the oil flows into the well due to the pressure difference between the fluid in the rock, and the fluid in the well.  If there is no difference in pressure, then no oil flows, (see Newton) and the greater the difference in pressure, then the higher the oil flow rate.  As the oil flows out of the well, however, it reduces the pressure in the fluid. (Simple, crude experiment - get a bottle of soda water, shake it up and stand it in the sink.  Open the top.  The gas pressure will drive some of the water out of the bottle, but after a short while the pressures are equal and more than half the water is still in the bottle. )

This basic knowledge has been around for a long time, and it has been recognized that it gets harder to get the oil out, and that it flows more slowly, as the volume of oil that is left in the rock around the well goes down.  (And generally a single well can only, realistically drain the rock out to a certain distance from its location). Historically that number has been considered to that the well will deplete (or reduce production) by about 5% every year, from its peak level.

But this has recently changed, and the change has both merits that the Economist understands, and pitfalls that they don't appear to have heard of.  The change comes about with the increasing practice of pumping water into the ground under the oil layer, so that as the oil flows out, water is pumped in to replace it, and the driving pressure remains the same. This extends the life that the well has at the higher pumping rate, but it has two downsides.  The first is that it is very hard to control how the water flows up through the rock toward the well.  And if the well is in the wrong geological conditions, then the water can get to the well before all the oil is removed, and production is lost.

To solve this problem, and also to increase flow rate, there has been a move towards a second innovation, where the oilwells, that used to be vertical, now curve over and run horizontally along and through the oil-bearing rock.  They can also now be built so that instead of just a single well bore running through the rock, the drill is backed and re-run so that the well has a number of small offshoots from the main well as it goes through the rock.  This is known as maximum reservoir contact or "bottle-brush" drilling.  If can increase the volume flow from an individual well from a few hundred barrels a day to up to 10,000 bd.  

I borrowed this slide from one of Matt Simmons presentations.

Unfortunately it is not increasing the actual oil volume in the ground, nor in many cases, is in giving much more total volume of oil from the field than might have been obtained conventionally (Matt Simmons would argue that it might give less).  Thus the first effect is that it shortens the life of the field.  The second, and this has only been appreciated in the past decade, is that it also means that when the oil now starts to deplete, it drops at a much faster rate.  Examples from Oman and the North Sea have shown that the number is now in the range around 15% rather than 5%, and thus fields that were expected to retain a long life in decline are now showing that instead it will be brutally short.

The second critical issue that the Economist is not able to properly understand relates to the historic nature of oilfield discovery and development.  Generally the larger fields in a region are found first.  They are also, obviously, usually the first to be developed and produced, and as they deplete, the production moves on to exploit the next largest (of which there are more) and as these deplete so smaller fields are exploited, of which a greater number must be found and produced to maintain or increase overall production each year.

It is only when these two critical factors are considered that the underlying weakness of the current world oil situation can be understood. The Saudi Oil Ministry has admitted to a depletion rate of around 800,000 bd/year, Iran to about 400,000 b/d, to name but two.  

If you are going to match that depletion and increase production you have to drill more oil wells.  And this is where the second catch comes in, because the new wells will not, in general, be as productive as the old ones, so you have to drill more of them.  So now some of us start doing mathematics and multiplying number of rigs x wells per rig x production per well and getting numbers for the new production, to match both depletion and increase, that a country can achieve in a year. We also look at the volumes of new production that are planned by the companies (and Chris Skrebowski's list is looking to be more comprehensive now than that of CERA).  Bear in mind that horizontal wells take longer to drill than verticals, so you can't get as many of them in a year, and if you are drilling with water injection then you have to drill the water injection holes as well. And also (and this is where the USGS may have slipped a bit) as fields age, so the success rate in finding new fields goes down, and a greater number of wells have to be drilled to give the same number that find a productive volume.  This is why a number of us at this site have an interest in exactly how many rigs are really out there producing. For example the new development at Kurais, which will produce 1.2 mbd has been projected to need 400 wells (at 3,000 bd/well), and at 6 wells/rig/year this will take 20 rigs three and a half years.

Having said all that as background, it is not unreasonable to assume a number for the depletion of existing wells that lies around 5%, but for which there are legitimate reasons to argue could also be around 8% (As Schlumberger, for example, has suggested). At the lower level world production from existing wells is falling at around 4.2 mbd/year; at 8% it is falling at 6.7 mbd/year. Thus, over the next 5 years, just to sustain production, we have to find between 21 and 33 mbd of oil. When CERA says that we are going to find 15 mbd in that time frame, you can understand why the question of the depletion rates that are assumed become of critical concern.  And since this is going to cause some debate, let me give one of those quiet coughs, and point out that those who say that depletion rates have been overestimated were those who were also saying that the UK would be self-sufficient in oil and gas until 2010. (And that North Slope depletion had stopped).  The recent comment that Saudi Arabia tries to hold depletion to 2% through increased in-field drilling and new discoveries is not exactly a boost of confidence to that argument.

Unfortunately the article also has no apparent understanding of how long it takes to develop a field.  Nor of some of the geo-political problems that have been covered in posts and comments at this site.   The comment

It is true that the big firms are struggling to replace reserves. But that does not mean the world is running out of oil, just that they do not have access to the vast deposits of cheap and easy oil that are left in Russia and members of the Organisation of Petroleum Exporting Countries (OPEC). And as the great fields of the North Sea and Alaska mature, non-OPEC oil production will probably peak by 2010 or 2015. That is soon--but it says nothing of what really matters, which is the global picture.
This does not recognize the dramatic drops in production that have already occurred in both the North Sea and North Slope, and implies you should believe that they are still at peak levels, it also seems to suggest that there are great gains in production to the world to be expected of Russia and the Middle East.  As has been noted in several posts and comments here, those statements cannot be justified by the facts.

Thus when the article goes on to

For one thing, the nightmare scenario of Ghawar suddenly peaking is not as grim as it first seems. When it peaks, the whole "super-giant" will not drop from 5m bpd to zero, because it is actually a network of inter-linked fields, some old and some newer. Experts say a decline would probably be gentler and prolonged. That would allow, indeed encourage, the Saudis to develop new fields to replace lost output. Saudi Arabia's oil minister, Ali Naimi, points to an unexplored area on the Iraqi-Saudi border the size of California, and argues that such untapped resources could add 200 billion barrels to his country's tally.
it fails to recognize that some parts of Ghawar have peaked some years ago, as has overall production from the field. Further that the concern is that, with increasing numbers of wells in the field being "bottle brush", that when the decline comes it will, in fact, be the same 15% or more that we are now also anticipating for Cantarell, and that we see in the North Sea and saw in Yibal.  The length of time that it will take to develop new fields is finite, and that is the critical value of the CERA and Skrebowski lists, because in the immediate short term these are the only new projects that can be anticipated within this decade.  Even if 200 billion were found on the border (and if you look at a map there are known fields up there already) it will still take years to develop and bring them into production.

This is already getting way too long but let me throw you a few more bones, and then I'll quit.

The notion of a sharp global peak in production does not withstand scrutiny, either. CERA's Peter Jackson points out that the price signals that would surely foreshadow any "peak" would encourage efficiency, promote new oil discoveries and speed investments in alternatives to oil. That, he reckons, means the metaphor of a peak is misleading: "The right picture is of an undulating plateau."
Nope, no price signals around here that I can see! How about you?  Seen much increase in efficiency so far? Me neither!

. Kenneth Rogoff, a Harvard professor and the former chief economist of the IMF, thinks concerns about peak oil are greatly overblown: "The oil market is highly developed, with worldwide trading and long-dated futures going out five to seven years. As oil production slows, prices will rise up and down the futures curve, stimulating new technology and conservation. We might be running low on $20 oil, but for $60 we have adequate oil supplies for decades to come."
Hmm, wonder who is going to be developing that technology - can't be DOE they are cutting budgets, can't be those who know what they're doing, they are all either getting rich or retiring, and the world-wide shortage of engineers that is developing means that the new crop will likely go to production rather than research.

But the main hope that he throws to us is alternate fuels.  

Despite today's obsession with the idea of "peak oil", what really matters to the world economy is not when conventional oil production peaks, but whether we have enough affordable and convenient fuel from any source to power our current fleet of cars, buses and aeroplanes. With that in mind, the global oil industry is on the verge of a dramatic transformation from a risky exploration business into a technology-intensive manufacturing business. And the product that big oil companies will soon be manufacturing, argues Shell's Mr Van der Veer, is "greener fossil fuels".

After all

But if the peak were to come after 2020 or 2030, as the International Energy Agency and other mainstream forecasters predict, then the rising tide of alternative fuels will help transform it into a plateau and ease the transition to life after oil.
Wonder if he has any clue as to how much agribusiness will be required to replace 15 mbd of oil? Many of the techniques he mentions at the end will help towards a reduction in the size of the problem we are starting to face.  Unfortunately the Kern River produces only   570,000 bd of oil, and now needs 33,000 wells to do this (with annual drilling of new wells at levels of up to 2,000 per year.
Rather, I would argue that the problem that we have is of getting an adequate supply of oil, each year, to meet the demand that there will be for the oil in that year.

This is exactly the point I have been trying to hammer home. I honestly believe we are not yet at a peak in production, but for all practical purposes it doesn't matter since demand will increase as fast as new supply can be brought online. We are opening up a serious supply/demand imbalance. Call it "Peak Lite" if you will. It will have practically the same effects as a true production peak, without the same level of panic that will accompany a production peak.


I agree with your point about "Peak Lite".  To me, it would be less controversial if we concentrated on "demand exceeding supply" rather than the technical "Peak Oil".  Most people can understand "demand exceeds supply" which is probably what is happening now.  We all know we will only know we are at peak after it has happened, anyway.
Right now, the press and public are trying to figure out who to blame for high prices.  We hear "Iran and Nigeria", or "The Big Oil Companies".  If it become well known that China, Japan, and Europe are trying to outbid us for the worlds oil production, and there's not enough to go around, that would sink pretty quick to almost everybody' head.  Once they get that concept, soon to be decreasing production would be a much smaller step.
"If it become well known that China, Japan, and Europe are trying to outbid us .... "

This is the exact argument that worked with my father, an old timer in the patch. "As long as China is willing to pay more than we are, prices will continue to explode. It has nothing (little) to do with speculators or Big Oil." And then the warning: "And oil hasn't even peaked yet!"

Ok, in the meantime it probably has.


I've assumed for a couple of years now that "peak oil" would be an economic, rather than geologic, phenomenon.

There's still be lots of oil, even when it costs $200 a barrel.

What we're really dealing with is peak culture.

i second the amen.. in response to both RR and Don
. . . since demand will increase as fast as new supply can be brought online. We are opening up a serious supply/demand imbalance. Call it "Peak Lite" if you will. It will have practically the same effects as a true production peak, without the same level of panic that will accompany a production peak.

 I think we need a TOD lexicon and I wish to propose that what RR describes above may better be called a Logistics Peak to distinguish it from the actual Physical Peak

 I don't know who first introduced the term Logistics Peak; I do know it was not me and therefore someone else should get the credit. I do think it would help the clarity of our discussions if we distinguish between these two peak events.

Crude Shortage or Recoverable Crude Shortage?


Also known as "technical peak".

Mariano Marzo, geologist and Spanish member of ASPO, talks about an iceberg. The part above water is the technical or logistical peak, plus geopolitics, that is the part every informed observer must acknolewdge is very real. The bigger part of the iceberg, hidden from view, is peak oil, the physical, geological peak. We know it exists, but unfortunately we can calculate (as with real icebergs) its size (ie: when and at what rate).

Ouch, that must be "acknowledge", and "unfortunately we can't calculate".

Sorry, no English mothertongue and such...

What I find fascinating is the close correlation between the Lower 48 and North Sea (crude + condensate) HL plots.  The Lower 48 peaked in 1970, just shy of 50% of Qt.  The North Sea peaked in 1979, just over 50% of Qt.  

This is a 29 year difference, with considerably better technology in the North Sea, but the North Sea peaked at almost exactly the same HL point as the Lower 48. The P/Q intercept on the North Sea plot does accurately suggest its greater decline rate, but as I have suggested before this is roughly analogous to the rate at which you pour water out of a bottle.  

The rate at which you pour water out of a bottle does not affect the volume of water in the bottle.  Within limits, this is roughly true for oil fields, as long as you do not produce the field at a high enough rate to damage the reservoir.  I think that a lot of people are mistaking a "higher pour rate" for a higher recovery via better technology.  

The 1999 Economist cover story ("$5 Oil"), just as the North Sea started declining, marked the beginning of the oil price increase from $10 to $75.  

I expect that the current cover will mark the beginning of a price increase from $75 to something a lot higher, as the world crosses over the 50% of Qt mark (just like the North Sea in 1999).  Who knows what the price will be?  Matt Simmons estimate of $200, in 2010, in constant 2005 dollars is as good as any.  (Unless we have a severe recession/depression or a bird flu outbreak.)

 The North Sea peaked in 1999, just over 50% of Qt.  
If you do a Google News Search for Declining Net Oil Imports (or Exports), you get my MSM article as #1.  As best that I can tell, none of the other listings really address the possibility of declining net oil export capacity.  How's that for a scary thought?   (You also get my article as #1 if you search under Mainstream Media.)

Either I'm wrong, or it never occurred to the MSM to even question export capacity.  

When the Energy Bulletin posted the article that Khebab and I did, "M. King Hubbert's Lower 48 Prediciton Revisted," (in which we explicitly warned aobut declining net export capacity), if you did a Google News Search under Declining Russian Oil Production, you also got that article as #1 for a couple of weeks.  Since we did that article, the Russian Energy Minister has warned about the possibility of a "real collapse in oil production," and the IEA has started warning about Russian oil production problems.  

We will see if a similar pattern regarding exports pops up. But it's kind of lonely out there for Khebab and me.    Is that weird or what that no media groups appear to be addressing the net export question?  They talk about produciton problems, but nary a mention of the possibility of actual declines in net exports.  


I think you are doing a lot of excellent work, which, in a another world should be given frontpage space in the mainstream media. Unfortunatley, we're stuck with the world with got. I also think we're going to see 'logistical' or 'bottleneck' problems arising way before 'geological' peak. I just don't see how 'supply' can keep up with 'demand' in the furure, especially given the enormous growth we are seeing in China and India. Something has got to give somewhere.

Whilst we are less familiar with concepts like logistical peak, surely the idea of 'bottlenecks' in the economy is far more easily understood and studied? I know it doesn't sound as 'fancy' as some other terminology, but isn't it what we are really talking about? The oil is still in the ground, but for a variety of reasons, we just can't get it out of the ground in sufficient quantities to supply growing demand.

But isn't that what the Hubbert peak has always been? In fact, the Hubbert model is called elsewhere in the literature the "Logistic Model," satisfying an equation equivalent (after changes of scale) to the ordinary differential equation dq/dt =q((1-q). It initially grows exponentially (oil fields don't actually behave this way, so Hubbert taught us to discard the "early-early" production), but it "saturates" and it gets harder and harder to produce as the total supply is exhausted (far past peak).

The peak in lower US without Alaska production about 35 years ago arose from an inability to get new wells to replace fully the depleting old wells. The biggest, easiest fields are pumped out first; as they deplete, the industry drills more, less productive wells,...

Alaska overwhelmed that depletion when it came on, but now it's depleteing rapidly, too. BTW, it seems to me that the early (pre-peak) tail of the Alaska production shifted the 1971 peak in total US production a little later than Hubbert's original prediction, as well as introducing a smaller, secondary peak on the down-slope. I think Deffeyes' more recent books show a slightly different version than Hubberts original paper, but I don't have the numbers to check this hypothesis.

When near the all-time peak in production (let's use the word "peak" ONLY for the maximum of some identified mathematical function unless we're talking about mountain ranges), the capacity to bring new production on line is limited, so spot shortages and price volatility reign. And we won't be sure this was the all-time maximum production until years later, when we're well below it and can no longer hope to return to it.

Re:  Logistic(s) Versus Logistic

I think that there has been some confusion regarding logistics, as in getting wells drilled completed, producing and getting the oil to market--versus the mathematical term.  

In regard to the Lower 48 versus Total US, IMO you need to define what you want.  If you want a model for the world, you should use Lower 48.  If you want a reserve estimate for the US, you should use total production.  

Actual post-1970 Lower 48 cumulative production was 99% of what the HL model predicted, using only production data through 1970.   I don't think that it is a coincidence that we are seeing record high nominal oil prices and falling total US petroleum imports on the downside of the 50% of Qt mark worldwide.  

Below is the link to the 1999 article

Economists are the most difficult breed to convince about energy issues that we are facing today.

From what I've read the term the "Big Rollover" seems to be used by some for the time when oil demand exceeds that which can be brought to market, resulting in significant price increases. (I thought I had some links on this but failed to find them)

Though it might be seen as some kind of 'economic' or 'market' oil peak a little reflection will indicate it is likely to be mild rehearsal for the effects of the real, physical, production peak.

Current data seem to suggest we are not at this "Big Rollover" yet. Prices over the last 3 years have been on a reasonably constant +0.3 slope ( = increasing 30% annually). One might expect a period of parabolic increase when it does happen as prices and speculation increase rapidly to the point where oil becomes almost unaffordable to virtually everyone and significant demand destruction begins. I would expect oil prices to exceed $250 / bbl at that time, possibly briefly reach $1000. The big rollover could happen before or after the date of peak oil as defined by maximum physical production, best hope it is before since that gives more time for adjustment and a lesser supply shortfall - for a brief time, at least.

Here are three recent articles that discuss aspects of oil economics and markets from different perspectives, I think they are all worth a read:

I think everyone would rather see the rainbow than the storm.

A bit off topic, but is there a page that describes the 'defcon' system for peak oil? Not the defense defcon system described in Wikipedia, I can find that.

Does it go something like this:

  • 0: Bluegreen algae. Maybe a few hydrothermal-vent barnacle type varmints.
  • 1: Rats & roaches. Pockets of vertebrate life.
  • 2: A remnant human population somewhere ekes out a stoneage existence.
  • 3: A population and some technology. Some chemistry survives, and improves the scavenging ability of the survivors.
  • 4: A billion or so human survivors. There's a good record of the catastrophe and people can learn from it.
  • 5: The happy ending: people learn to ride that bicycle and lead healthier lives. Technology continues to advance...
Numbers 2 and 3 seem to be the most likely to me.
6. We replace oil. The UMW gets rich mining coal and the OCAW gets rich building synfuel plants.
I devised something similar that I called "Levels of Collapse":

I've posted it here before. I would really like to know of any other attempts to explore this concept, I've seen none.

How about adding a zero level of collapse? Something like this...
Price of oil increases radically as peak arrives, slowly falls as synfuels and battery cars cut demand for gasoline and diesel fuel. No demographic changes.
To quote Elvis Costello "I used to be disgusted, now I try to stay amused"

I see no profit in arguing with these people.

The reality is unfolding in the near-term.  

HO, your post is long, but extremely valuable; thank you.  We are clearly reaching a stage in the public debate where these sorts of issues will need to be addressed in painstaking detail.

One issue that you did not address, which makes me wish your post had been even longer:  The whole question of whether cutting edge technology of both the present and the reasonably anticipated future will increase URR in existing fields.  And further:  If so, why; and if not, why not?  

Did the ECONOMIST article have anything to say about that; and if so, how would you reply?

(One thing to duly note in this connection is Matt Simmons claim that horizontal/bottlebrush technology will DECREASE URR.  Why is that?)

I would think that one crucial issue that arises with the potential of hi-tech to raise URR is EROEI.  Fundamentally, there may be many advanced technologies that are technically feasible and WOULD serve to increase URR - but these same technologies are as a matter of basic physics so energy-intensive to implement that one might as well just forget it and leave the oil beyond original URR in the ground.  I.e., many technically feasible technologies to increase URR can, as a matter of basic physics, be implemented only with an EROEI of less than 1:1.

Based on your own concrete expertise, how relevant is this angle on the question?

That's also something I was thinking when I read the initial essay. From this part here:

Yes there is, and even when we have depleted a field, we are leaving perhaps 60% or more of the original oil in place.  And yes, given enough money and time we can even get that oil out.

We should also note that even given enough time and money, a poor EROEI may prevent the oil from ever being extracted. I don't think a lot of people understand this. I have gotten into this debate over the tar sands in Canada. Yes, there are a lot of reserves. But the low EROEI means that we are going to expend tremendous energy processing them, and a substantial fraction of the tar sands are probably not recoverable due to poor EROEI.


To a certain extent you might stomach a negative EROEI for something like oil extraction simply because the end product turns out to be more efficient in applications like transportation.

For example, say you have a 2:1 EROEI using coal- or nuclear- or whatever-generated electricity to extract fuel oil for use in trains, planes, and automobiles (and ships, and trucks, and so on). Say also that you can convert said vehicles to use this electricity directly for power, but at a 3:1 EROEI. In this case, it makes sense to burn energy in the extraction process.

This is the argument that is made for using coal to make ethanol. It might make economic sense, but it's not an environmentally friendly answer. Regardless, I think this is going to be an increasing trend in future ethanol plants.


That's an important point.  Insofar as the input energy to obtain a certain quantity of liquid fuels comes from (relatively plentiful) coal or from (already existing) nuclear power, it may effectively not factor into the denominator of the EROEI ratio under certain circumstances.

Which raises the following question:  What percentage of the energy-inputs used to extract liquid fossil fuels is ITSELF derived from liquid fossil fuels?  And what percentage thereof is typically derived from natural gas - which, unlike coal, is also scarce, limited, and desireable in particular ways that coal is not?

This seems to be the Peter Huber arguement discused here on TOD some time ago.

Yes, negative EROEI items can provide  great conveinance (and be quite profitable) such as the Duracells in my remote.

But as energy supplies contract, how long can any energy sink -- of any kind -- remain viable?

EROEI is a really useful number, but it has to be understood what it means.

Operations that have an EROEI less than 1 are still useful, we do them all the time in converting one form of energy to the form that we want it in.

The thing to realise is that when EROEI is less than 1, we're not talking about an energy source .

>>The thing to realise is that when EROEI is less than 1, we're not talking about an energy source . <<

Yes. That was my point regarding duracell batteries; they're convienent, but energy sinks.

That is, of course, the gazillion dollar question. However, since we don't have any alternatives to energy sinks in this universe, we need to do what we can to extend the lives of what we have. Right now our problem is that what we have is only going to get us through 100 years at the hugely, unbelievably optimistic best, and we humans seem to want to be comfortable a little longer than that.

Anyway, my only point was that EROEI is probably not going to be (and probably should not) the limiting factor on oil extraction.

How abot stomaching a negative EROEI simply because the material you aextracting has the right qualities for producing a highly useful and valuable product?  Plastics anyone?

Even when EROEI is very negative we will continue to extract oil simply because it is more than a fuel, it is a feedstock and an industrial material.  Maybe it'll also be a reserve currency, like gold, only dirtier and flammable.

The EROEI is important, ofcourse.
But in the oil-extraction business one can
even see a negative energy return, which still makes sense.
For instance, one could use Nucular powers stations to generate steam for huff 'n puff in thick oil.
This takes a lot of energy, but it gives us the presious
dinosaur blood we so desperatly need...
Thank god it's premium content.  That's my excuse for not reading it.  Weren't these the guys predicting 5 bucks a barrel back in the 90's?
Well, not really predicting.

Anyhow, a quote from the article in march 1999

Low oil prices crippled the Saudi economy in 1998: output shrank by nearly 2%, both the current-account and the budget deficits soared to nearly 10% of GDP and debt approached 100% of GDP. This year will be worse.

The choice is simple. Either the Saudis must cut back their welfare state, by slashing benefits and raising taxes, or they must find a way of increasing oil revenues. But the ruling family's delicate domestic situation makes the first option difficult. So instead the Saudis may now do what once would have been unthinkable: throw open the taps. That, according to McKinsey, a management consultancy, would certainly herald an era of $5 oil.

It would also destroy OPEC. But the cartel is already moribund, and unless Saudi Arabia can bring it back from the dead, which is highly unlikely, going for full production is the strategy that makes most sense for all the Gulf states. Mr Elden has crunched the numbers for the five main producers (Saudi Arabia, Kuwait, Iran, Iraq and the United Arab Emirates) at a $10 price. His analysis shows that after a short period of lost revenues, the Gulf states would enjoy years of strong cash inflow, as they take market share from high-cost regions.

Trip down memory lane.

The fact that the Economist needed to produce a "special report" to refute peak oil means to me that peak oil has definitly gone main stream.  I guess I better start assuming everyone is familiar with the topic even if I haven't mentioned it to them.  

One of the boxes in the article lists the prices at which they believe different fuels become economic.  $20 conventional,  $40 GTL, CTL, tar sands, cane ethanol, $50 shale oil, $60 corn ethanol, and $80 biodiesel.  Their source was CERA.

A few of the numbers jump out at me.  

  1. the tar sands number seems a bit high since most of these projects were on edge of economic viability 5 years ago when the price was in the 20-30 dollar range.  

  2. The shale oil number seems a bit low considering there isn't a significant amount of shale oil being produced commercially right now.

  3. The $20 break even point for conventional oil has increased significantly from their 1999 article when the Economist believed $5 oil was a real possibility.    
One thing that we need to keep in mind when looking at numbers for cost of fuel generated from non-conventional oil and alternative sources is that these numbers are moving targets.  As you go down the list the cost of production is generally dominated by energy inputs - they tend to have poor EROEI.  Increasing oil prices necessarily lead to increases in natural gas and coal prices as substitutions are made, so coal and natural gas based solutions don't dodge the problem.  What would be more useful is a curve which shows the cost of the alt fuel vs. cost of inputs, or at least an honest statement of the EROEI.  On this basis alt transport fuel sources which use agricultural wastes or renewable inputs (for example, using wind turbines to charge up the batteries for a fleet of EVs) look a lot more promising.

Of course, as RR points out above, EROEI is a moving target too.  Right now the EROEI for obtaining oil from kerogen strip mines in Alberta is reported to be around 3 to 5.  However, the most profitable bits of a resource are always used first, so baring a tremendous technical breakthrough the EROEI goes down as the resource is depleted.  You can't legitimately lump all 3 trillion barrels of tar sand reserves into your URR estimate (as the Economist clearly would prefer to do) without a reasonable plot of the resource density vs. EROEI.

A friend of mine works for one of the major oil service firms, and told me he was completely unconcerned about peak oil because of the size of the tar sand reserves.  At this point I drew a Gaussian distribution on a beer soaked napkin and drew a vertical line sectioning off the high end tail from the main portion of the curve.  I told him that the tiny high end tail was the EROEI > 1 portion which we will mine for fuel.  The lower portion is what future generations will use (at great expense) for high grade plastics and pharmaceuticals.  He was a couple beers ahead of me; I'm not sure it sunk in.

Opps, meant to characterize tar sands as "bitumen strip mines".  "Kerogen strip mines" = oil shale.
>I told him that the tiny high end tail was the EROEI > 1 portion which we will mine for fuel.  The lower portion is what future generations will use (at great expense) for high grade plastics and pharmaceuticals.

Thank you for pointing this out Commander.  Its nice to see the non-energy value of oil acknowledged on the oil drum.  I'm going to invest my cash in medical supply manufacturers - in Edmonton, Alberta.  They have a nice source of raw materials a few hundred kilcks.

THe numbers appear to be all either out-of-date lowballs or simply WAGs.  Some of these are the same numbers I remember from the 80's before development ceased.  With today's higher investment costs they seem unlikely.
Yea, I completely agree.  I suspect they did a study back in the late 90's/ early 2000's when oil was $15 and natural gas $2, not to mention much cheaper steel, increased costs for rigs, etc., and even though all these costs have increased several fold they continue to quote the same numbers.  In other words, when oil was $15 and natural gas $2, it would cost you $40 to produce oil shale.  When oil is $50 and natural gas $5, it would cost you $75 to produce oil shale.  And when oil hits $100, it will still cost $120 to produce oil shale.  It's a moving target and no matter what it's a losing proposition.  But nopw that oil is $74 a barrel, why not just continue to quote the $40 figure so everyone is comforted about our energy future. Also they don't consider their impact on prices.  Sure, it costs so much to get water in Wyoming for industrial purposes, but when you start pulling 50,000,000 gallons a day, your own extensive use of the natural resource will drive up its price locally.
The listing of absolute dollar amounts for "oil alternatives" struck me as the most glaring issue in their analysis. They very obviously miss the point that the price of oil in many ways drives the prices of all it's potential substitutes - take ethanol for instance, since the price of oil drives the cost to produce fertilizer, pesticides, run farm equipment, transport the ethanol, etc the price of ethanol will rise in lockstep with that of conventional gasoline and diesel. The price of the tar sands is dependent on the price of the energy (mostly natural gas right now) used to heat it up.  And the price of coal is increasing as natural gas becomes scarcer and more expensive.

Saying that there is a static breakeven dollar amount at which oil substitutes become "competitive" ignores the interdependency of all energy sources.

The listing of absolute dollar amounts for "oil alternatives" struck me as the most glaring issue in their analysis.

I noticed that as well. Every time someone tells me that ethanol will be economic as soon as oil reaches $X/bbl, I point them to the graph here:

It's never happened before, in 23 years. Ethanol prices track gasoline prices.


i think thats because to make ethanol from any crop needs inputs from gas/desiel for the tractors and other farm equipment to harvest it. ethanol also needs natural gas to make the fertilizer that allows the farmer to grow the yeild needed to keep the price as low as it is.
...and ethanol also only provides about 75% of the energy as you have to use more to go the same distance.  So ethanol is even more expensive "per mile".
in other words. for it to be cheaper then gas it needs to be sold at a great loss.
Deffeyes says oil shale is not economical at any price of oil.   I've read nothing on TOD about it (tho' don't read 100% of TOD).   Has there been an economic analysis of oil shale here?  Does anyone here have an informed opinion of its viability?  Thanks.
I have read a couple of studies. Shell was claiming it was viable at some price of oil, but I think they were assuming a constant natural gas price. In my opinion, the only possibility for economic viability is if you can heat up the ground with nuclear or coal or some renewable energy source like solar energy. I think I saw claims of a positive EROI, but I would have to really scrutinize those energy inputs and outputs.


Thanks, Robert.  Yes, solar could make sense at some point depending on the cost of the hardware.  As you know, production is presently sold out well into the future for higher payback purposes than heating up the ground and that's likely to be the case for a long time, I would think.
They are paying welders $100K per year and throwing in housing, mortgage bonuses, flights in and out, and education bonuses up there in those cold tar sands.

From Rigzone April 21st.

Oil export crisis

This weekend I stumbled over the German Oil statistics : An absolute eye opener: In 2005, the German "call" on OPEC oil increased by 16,1% to 25,5 million tons over 2004. The culprit is the declining north sea.
Overall consumption just decreased by 0,2% in Germany, with motor fuels down by 1,8%; these days the German railways reported an increase of 4% in the passenger kilometers traveled in the first quarter 2006. Air traffic is booming, thanks to the low-fare airlines (ryan air, air berlin , etc).
Stocks cover 126 days of consumption.

Kind regards to WESTTEXAS

Interesting - very good catch on the shifting supplier amounts, but using my math, imports declined around 3%. (Not that I would defend my skills much.)

Also interesting is the seeming swings, but fairly steady downward trend in most categories, at least to the extent that Vorjahresmonat (previous year's month) gives an interesting picture, along with the other annual columns.

Another intriguing thing - both OPEC and the North Sea are roughly equal at this time, but roughly a third of the North Sea loss of imports has to come from non-OPEC sources. Russia would be the most logical, but roughly 264,000 tons of oil is not exactly trivial in one month. According to the energy calculator at, this works out to something like a 64,530 barrels a day increase from somewhere other than OPEC or the North Sea. Of course, some could be various condensates, though again, Russia would be the logical source, as most other major gas suppliers are either OPEC or the North Sea (Netherlands is possible, though).

Apart from refinery utilization increasing though total refined products decreased, the other thing that struck my eye is the (implicit) continuing building of reserves, even in a 'declining' situation - in theory, this stockpiling isn't necessary to meet the current declining demand. (Admittedly, in the article I quoted on the weekend, the oil sellers here didn't expect such a decline in vehicle fuel sales.)

Just guessing, but I think production world wide is as all out as possible, and anything which can't/isn't being refined is being stored (Germany's refineries seem to be at 96.6% utilization, but are producing roughly 7% percent less, while imports are down around 3%). Obviously, storage is quite finite, but this amount of 'dark oil' could be the rough equivalent of how various public companies smooth earnings (generally illegally) - in other words, a shell game may be underway, though in its early stages. This will make things much harder to follow -
a. Tank farm in producing land - 1 million barrels
b. Tankers in transit - 1 million barrels
c. Tank farm in importing country - 1 million barrels
Is the amount of oil being counted 3 million barrels, or just 1 million? Somehow, I don't think this information will be very easy to acquire and then analyze - the same way it was very difficult to pick up this revenue smoothing in public companies - and how this revenue smoothing became increasingly more fraudulent in various cases.

Of course, there could be a number of other explanations, and this is only essentially a single data point (though it does cover more than a single time point). Further, some definitions are anything but clear to me - the 'Wiedereinsatz, Additive' category could imply a certain growth in biofuels, for example, which would then imply that ca. 1% of Germany's mineral oil imports have been replaced in Feb. 2006 with 'renewable' fuels. All speculation, but at least based on some facts.

But it would seem as if Germany is beginning to decrease its liquid fossil fuel use, both at the consumer and at the refinery level.

So far, the pain doesn't seem unbearable - nobody is pawning anything for a tank of gas, and with the nice spring weather, I would guess more bicycle riders than 5 years ago are to be expected. Like America has more cars than drivers, my impression is that Germany has more bicycles than riders - but in this case, almost everyone is a bicycle rider. And everyone learns about riding a bicycle in traffic in school (4th grade or so - street signs, rules of the road, safety, etc.), taught by the police, to make sure that bicycles are part of the normal traffic mix.

Actually, May 1st is coming up, and if the weather is even vaguely nice, the bicycle traffic jams of families riding over the bicycle paths will be again be something to get amused about. I should note that in Germany in general, anywhere that you can drive to on a paved road, you can ride to with a bicycle over a paved path or by sharing the residential streets. In other words, no one here will need a crash program to build bicycle paths either.

Peak oil is demand exceeding supply. That is inherent. If supply is enough, even if we "peak" that means some other factor regulated the demand: dieoff, conservation, new discoveries, alternative sources.

Peak is a simple physical process. It will happen at some point in the future no matter what if we continue to use oil. All analyses beyond that basic unassailable foundation are balancing acts of the push-me pull-you kind. Demand decreases, oil lasts longer. Demand increases, oil disappears faster. You can break out the various elements of demand destruction, oil extraction technologies, political insanities and what have you, and examine them until the cows come home, but the foundation remains the same. An oil-based society that has reached massive overshoot will be in deep doo if it does not find a way to back off the limb, if it does not acknowledge the inevitable. Sooner is better than later.

The people at the economist and the rest of the technophiles and cornucopians are telling the world, hey, don't worry, keep consuming and screwing and making babies cause we got oil enough to get us even further out on that finite limb. They want to make money and damn the consequences. They believe the technology fairy will swoop down and somehow make it possible for us to keep acting in this anti-physical way -- that we do not have to adhere to the laws of physics. They are handing the world a gun, teaching it how to load that gun, how to hold it in our collective hands, how to put it against our collective temples and finally how to pull the trigger all the while telling us that this will all work out because of the special technology in the bullet. Meanwhile, we are heading towards that pink mist of brain matter and blood known as inflection point, dieoff, the big one.

They are a funny people these economists. They have a pseudo-science that cannot predict anything, yet they predict. Their free market belief system is a precious faith-based pseudo-religion that they claim supremacy for even if it kills us. And, when you say anything about that ludicrous field of study, they have a conniption and ask, well what would you have us do? Become communists? Ah, the either/or fallacy. The logical fallacy of choice for the economist and other bone heads who lack common reasoning skills.

Guess what, chief? Life is more complicated than that. You see, there is no free market. That would simply mean chaos. Every law ever written is a law that regulates to some extent the free market. Why? Because people are pretty much evil little animals. Without laws, we would finally have the free market. I could take what I wanted. So could anyone. You build up a business and I'd take it away at gun-point. My investment? A gun and a few bullets. What a return!

It turns out that the free market as envisioned by economists is a market that benefits the rich. Hobble the poor and let the rich do what they want. The market is only seen as free to the extent that it enriches the already rich.

The motto of the economist and the rich is, society be damned. Look at the environment. Industry is trying to get all rules regarding safe-guarding the environment abolished. Screw society. It wants to eliminate unions. Screw society. Health care? Screw society. Pensions? Screw society. Living wage? Screw society.

Republicans hate you. Economists hate you. They simply want your money. Screw society.

But then they say, it will trickle down. Double think. Off-shoring means jobs. Double think. Eliminating environmental regulations will mean a healthier environment. Double think. Up is down. War is peace.

When will the people of the United States realize that their government is trying as hard as it can to destroy them?

A little vehement, but you certainly have a point.
Economics is one long unacknowledged confusion between description and prescription.
I thought it was great, and quite poignant.  Well said, and bravo for the inflection.
There are a few economists worth reading. One is Michael Perelman. He has a new book coming out next month: Railroading Economics: The Creation of the Free Market Mythology.

From Amazon:

Most economic theory assumes a pure capitalism of perfect competition. This book is a penetrating critique of the rhetoric and practice of conventional economic theory. It explores how even in the United States--the most capitalist of countries--the market has always been subject to numerous constraints.

Perelman examines the way in which these constraints have been defended by such figures as Henry Ford, J. P. Morgan, and Herbert Hoover, and were indeed essential to the expansion of U.S. capitalism. In the process, he rediscovers the critical element in conservative thought that has been lost in the neoliberals present. This important and original historical reconstruction points the way to a discipline of economics freed from the mythology of the market.

I've read and recommend the following:

Manufacturing discontent : the trap of individualism in a corporate society, London ; Ann Arbor, MI : Pluto Press, 2005.

The perverse economy : the impact of markets on people and the environment, New York : Palgrave Macmillan, 2003.

The pathology of the U.S. economy revisited : the intractable contradictions of economic policy, New York ; Houndmills [England] : Palgrave, 2002.

The natural instability of markets : expectations, increasing returns, and the collapse of capitalism, New York : St. Martin's Press, 1999.

Well if we're recommending titles, how about Kevin Phillips' latest, AMERICAN THEOCRACY: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century?  Peak oil is front and center in his analysis.  He has a wonderful description of what he calls "petroleum culture."  
We are addicted to oil and the Bush administration has done everything in its power to make sure we stay addicted to oil. The lack of decisive action to prepare for peak oil is crime against all humanity. The Bush administration wants a "survival of the richest" outcome. Dieoff isn't a concern at all as long it is the poor who dieoff.

Here's my feeling: Over the years the military-industrial complex has been using American taxpayers' money to build and fund a network of 750 military bases around the world. Nobody talks about this very much.

But its seems likely that the MIC simply used the old American Republic to "hatch" this autonomous empire, which, as the U.S. falls into bankrupcty, will simply become a seperate military empire that rules from wherever it wants -- Dubai, Washington, London, Japan, Baghdad Embassy, etc. It's transnational in nature, and likely has a huge warchest (I've read $60 trillion) that can be used to bribe, blackmail and militarily dominate the old nation states as they fall into poverty.

This group really has no allegiance to the United States, per se, its allegiance is to itself. It just used trillions of dollars of American money to bloom itself into existence.

Hard to acknowledge, but I think it's true.

Hi Don in Colorado

Sounds like our military complex may develop just as innumerable other transnational corporations, the Chinese army owned companies/ factories in the Chinese market economy.  Or for that matter how the Russian Railroad system(which I rode recently)developed autonomy and self sufficiency amid chaos

It's an interesting idea, the transnational military state, ruling the world. However, thankfully, I think it may be flawed in a number of respects. Here are just a couple. Finding soldiers willing to fight and die, not to protect their homes, families, and way of life, but for an 'abstract idea'. Unless one sees the US army turning into a 'mercenary army' more or less like Spanish Conquistadors, in the pay of multinational corporations, and more or less independent of any state.

Armies needs ideologies and 'reasons' for fighting, a 'culture of warfare' if you like. If the US army can't even pacify Iraq, how on earth can they pacify the world!

Colonial wars are notoriously unpopular on the homefront, precisely because of their agressive and 'imperialist' nature. To have any chance of success, one needs a strong and accepted 'idea' to back them up, like a Christian crusade against the heathens, but who really believes this kind of stuff anymore?

Well, the heathens certainly do!
Yeah, that's a good point. That's another, really Big question though. I'm not sure that actually makes the 'job' of conquistadors any easier, it might make it harder. Especially if the heathens 'idea' about why we're fighting is closer to 'reality' than ours is.
Hello Writerman,

Your Quotes: "Armies needs ideologies and 'reasons' for fighting, a 'culture of warfare' if you like...To have any chance of success, one needs a strong and accepted 'idea' to back them up, like a Christian crusade against the heathens, but who really believes this kind of stuff anymore?"

Thus my speculation on Earthmarines and large biosolar habitats.  Once we go postPeak and suffer from massive shortages [internal depletion + Westexas & Khebab's import depletion combined W&K], it will become obvious to many that this is a logical path AND WORTH DYING FOR.

It will be the biosolars trying their permiculture best to keep the last strawberry, carrot, wheat, dairy cow, goat, on and on, from being eaten. The Earthmarines will be strongly incentivized to protect these people laboring daily to maintain some semblence of agricultural output and a measure of modernity.  It will be obvious that trying to prevent the final filling of the planetary petri dish will be the ultimate ideology, and a 'culture of warfare' against the detritovores to prevent them from over-running the last vestiges of biodiversity will be all the reason they to defend the biosolar areas.

The detritovores trapped in the cities postPeak will have an enormous numerical headcount advantage over the biosolars, but the difficulty of even reaching the beginning of the Earthmarine Buffer Zone, then trying to get past the vastly superior sniper firepower should be sufficiently capable to keep them out.

It is the only US solution I can forsee to minimize violence as much as possible if the worldwide depletion rate is 10% or greater, and the theory by W&K results in 15% or greater internal depletion.

Of course, IMHO, the worst, but most likely alternative is the 'Nuke their Ass--I want Gas' mindset whereby we try and shift Dieoff forces overseas for as long as possible to keep the vital detritus resources flowing home.  Then when this hopeless strategy fails, as it must, then the HAMMER will really swing hard across a severely weakened homeland.  IMHO, it is far better to promote 'No Thanks--I like Empty Tanks' and mitigate with Powerdown ASAP.  TIme will tell.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

Hello TODers,

Contrast my strategy with Putin's Gazprom: 38% of it employees are working in a non-related energy business!  The NYT's link:

This is sub-optimal for Russia when they go postPeak: Putin's iron-clad control over the Russian economy and military will make it very difficult to setup biosolar habitats.  On the bright side, Russia is still a large and low-density country where many can still disappear into the wilds.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

A quote from the ECONOMIST article:

"Globally, the oil industry recovers only about one-third of the oil that is known to exist in any given reservoir. New technologies like 4-D seismic analysis and electromagnetic "direct detection" of hydrocarbons are lifting that "recovery rate", and even a rise of a few percentage points would provide more oil to the market than another discovery on the scale of those in the Caspian or North Sea."

I would be very grateful for informed discussion of this claim.

To get the discussion started, here is something I cribbed from Elizaphanian's website:

"This line of argument has been extensively discussed by Deffeyes et al. Whilst there is undoubtedly some element of technological impact, it is nowhere near enough to offset the decline in production, and in fact is more likely to increase the decline rate, from gentle slope to scary cliff - as has been demonstrated in the North Sea, where all the most modern technology in the world is doing nothing to slow the decline."

The technological issue is important, but infrastructural one is graver, at least in Russia.
There are plenty of small and very small fields scattered over almost all the country. It's like dew on cold bottle. No one knows how much oil these fields carry.
Imagine all the complexity of developing such reserves.
Hmm! Maybe I should do a little note on 4-D seismic.  Basically it introduces time into the picture of what the reservoir looks like, so that you can track the position of the oil:water interface as it moves up, and react accordingly if it is not behaving properly.  There is still some debate about how truly accurate it really is at the interface itself, but the thought is that it can give sufficient control to get the extra odd percent.  This is a whole lot easier to describe than it is to carry out in practice.  Most of the gains have been in showing where the oil is, rather than increasing the efficiency of extraction, and that is not made clear in the article.
But if you know where oil is (as opposed to being ignorant about it without seismic 4-D), doesn't this increase URR even if said oil cannot necessarily be extracted faster on account of URR?
Boy, and here I was hopimg we were developing tesseract technology.
HO, I feel like I just took a refresher course. Good job.

Re: "Nope, no price signals around here that I can see! How about you? Seen much increase in efficiency so far? Me neither!"


Re: "The second critical issue that the Economist is not able to properly understand relates to the historic nature of oilfield discovery and development." Almost all economists make this mistake. In fact, the only ones I know of that don't are Lou and James Hamilton.

Of course, this is where Deffeyes' remark becomes even more poignant.

"The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in ground."

best, Dave

Dave Smith, Senior Business Journalist on the Sunday Times wrote an article / leader today about how he reckons that the oil price will crash and that he maintains that oil will return to $40 / bbl.

Over the last two years, I have tried to point this guy in the direction of the concept of PO. He steadfastly maintains a position that does not really recognise the concept.

His article fails to mention the problem of depletion. He maintains that as the price rises, other oilfields will be more economic (and yet in the same article he predicts a return to $40/bbl , which will kill the viability of these same small, minor, marginal, technically difficult fields...).

The guy is an Economist by training and it is beginning to show.

Still... raise a glass everybody: 'To $40 dollars a barrel!'

Economics is 50% religion, 50% salesmanship.The respect and credence given to "economists" by the average person is mindboggling.Most "economists" will never let reality get in the way of a good theory.
In theory, theory should accurately model the real world;
In the real world..  well that's the problem, 'cause the real world clearly doesn't understand the theory..
The gap between theory and practice is always less in theory than it is in practice :)
Very informative - thank you. Perhaps we need to ask our economist friends when a price increase is significant enough to become a price signal. 3.5X in 4 years appears significant to me but I'm no economist. Even the optimistic fall back to $40 is a 2X increase.
Good Post, HO!

The Quote: "CERA's Peter Jackson points out that the price signals that would surely foreshadow any "peak" would encourage efficiency, promote new oil discoveries and speed investments in alternatives to oil."

This would be only be true if every person alive had adequate purchasing power and Peakoil knowledge.  I think Jackson is mostly wrong in this statement because he fails to include the ongoing phenomena of demand destruction.  Instead, for increasing billions, their only fossil fuel substitution method is 'unaffordability'; they use ever lesser amounts which counteroppose price increases.  Even the superrich  building their super-efficient Eco-Tech homes, like Richard Rainwater, are dampening the demand for fossil fuels which reduces the full price signal effect.

Thus, the overall pricing effect is more like a person unknowingly driving a car with a hole in the gas tank [depletion], and a malfunctioning gas-gauge [lack of Peakoil awareness].  When the car suddenly quits 50 miles from the nearest gas-station, they instantly are willing to pay bigtime for a towtruck to restore their mobility, or if 'unaffordable', they start walking.

If America had listened to Carter's Sweater Speech; if we had created a 'national gas gauge' we all could have studied: we would have done our best to shutdown NA extraction and Powerdown, willingly paying an instantly higher price for imports to ease the Powerdown transition as we strived to plug the 'hole in our national gas tank'.  We would have carefully conserved the remaining fuel to insure that we make it to the next gas station, this in an attempt to avoid the drastically higher and sudden cost of calling the 'tow-truck' to instantly repair our national infrastructure.

Since we failed to do this Powerdown planning and transformation: when Peakoil finally hits the resulting price signals will suddenly indicate EMPTY for most of us.

For example, the US lower-48 and the North Sea failed to price signal indicate that they were rolling over.  I expect the world Peakoil rollover to have the same price signal problem.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

This all reminds me of the joke about the man sitting on his roof watching flood waters rise. A rescue boat come by and offers to take him off. "no thanks, I'll be OK, God will provide" he says. Subsequently another boat comes by, same offer, same reply. Finally a helicopter comes along (water still rising) and tells him it is his last chance - same reply. When he gets to the pearly gates he asks St Peter why God had let him die. St Peter said " He sent 2 boats and a helicopter, what more did you want?" We have had a massive increase in the oil price and no major finds for years, we have lost a major US city and half the Arctic icepack, what sort of signals are we looking for before we accept that we have an oil and climate problem?
The more I think about Peak Oil, or the concept that demand will always exceed production (in many ways that defines the impact of Peak Oil), the more I think about food production in the US.  The average MidWestern farmercan plant and harvest 500 acres, pretty much alone, except during harvest.  If you added 10 more farmers to the same land could you reduce eneryg consumption?  I don't think so, not by much if you could.  So many discussions here focus on individual (urban or suburban) effects.  I'll get a moped/bicycle/walk to solve my problem.  I think the farmer problem hasn't been addressed.  So if farmers have to get priority for fuel, the chance of selling some of that fuel for non-farm use seems awfully tempting.  I see this as a major problem, and I don't see anyway out of it.
you only appear to imagine farmers getting priority for fuel as a regulated initiative. why? the solution to your dilemma is simple from a market perspective.

if farmers produce less, food prices will rise. if people want to buy food, then the price farmers can receive for food must raise until it is worth their while buying oil to produce food at current oil prices.

this is why many foresee a great exacerbation in the problems of global hunger with the onset of peak oil. poorer countries may simply not be able to pay for enough food in order to eat. the same goes for poorer sectors of first world societies, and many possibilities for civil disorder are implied.

it strikes me that maybe I am perhaps being patronizing in pointing out basic market principles, and the real question you are asking may be: "given that rationing will be the best solution (to avoid mass third world starvation), has anyone figured out a solution to the black market problem?" To which the response is, "No, that's the key reason market solutions are preferred in the first place!"

"The average MidWestern farmercan plant and harvest 500 acres, pretty much alone, except during harvest.  If you added 10 more farmers to the same land could you reduce energy consumption?"

Well no, not by adding 10 farmers. But we already have an example that says it CAN work, and maybe even at as low a number as 15 additional farmers: Cuba in the Special Period following the loss of Soviet support and oil.

In Cuba today, 15% or so of the population is engaged in agriculture; the US currently has something like 1%. They are very nearly self-sufficient while using something like 5% of the diesel, chemical fertilizer and pesticide that they used pre-1990. Farmers enjoy wages 2-3x that of the average urban worker.

Now when I first heard this while visiting Cuba in 2004, my reaction was "Great, so you guys have 15% of your population engaged in farming, but that would never work in the US." Then I started to think about what the "real" unemployment rate is in the US: maybe farming at a decent salary might be preferable to being stuck in a perpetual unemployable under-class.

And that was before I learned about Peak [Logistical|Geological|Affordable] Oil!


The hidden hand will provide sufficient fuel to sufficient farmers. Some farmers will fail because farm income declines, then produce prices will climb high enough to allow the remaining farmers to outbid commuters for diesel and fertilizer. True, some might starve, but not in the rich world, where the poor are subsidized.
There is no way the hidden hand will solve this problem.  I am totally convinced rationing will happen, especially if the Democrats are in power, which seems likely.  It's going to be ugly, and I think people need to think about food more than has been discussed here.
Current mainstream US (and other developed countries') farming methods are not about maximising food production and producing varied food all year round. They are about maximising economic return, farming is business. This has implications. Labour is expensive - minimise labour. Monoculture is efficient (from the large scale economic perspective). Intensive use of fertilisers, pesticides, fungicides is essential, as is large scale mechanisation.

I produce 90% of my vegetable consumption apart from grains all year round (in UK) and with plenty spare to give away from less than a 70' x 20' plot with very minimal chemical use.

If the objectives of farmers were similar to mine they would produce considerably more food but at significantly higher cost (given current labour prices, since it is very labour intensive). I use no mechanisation. So, I disagree: you could add 100 more farmers to that 500 acre farm, reduce fossil energy use on mechanisation and chemicals, and produce more food. The artificially low cost of fossil energy and chemicals has briefly (for a period of probably about a hundred years) skewed farming into the dominant pattern we see in developed countries today. It will revert.

Just remembered this: in 1900 25% of US agricultural land in current production was used to feed horses. Rather stunning when you think about it, particularly when you consider the US population growth between 1900 and now. Brings a certain perspective to our use of fossil energy (substituting for horses) in transport and agricultural mechanisation. Somehow I don't think horses consuming all US agricultural production to maintain the current US population to 1900 standards is viable.

I think I first heard this from Richard Heinberg but have seen at least one seemingly independent source.

Just finished reading "Better Off", which describes a year with pseudo-Amish agriculture.  No electricity, no motors.  It is common for them to have more acreage devoted to either pasture or feed-grain than for their cash / food crops.  More acres goes into providing horse energy than food energy.  It works for them though, and they arguably make better use per acre than our mechanized monoculture systems.

Also have been shopping for acreage suitable for organic farming and have been looking at average farm sizes.  Many organic farms have well over 100 acres, but typically only about 5 acres are instensively cultivated with diverse produce, yielding enough for about 100 families, while the rest is either pastureland or monoculture crop.  There are alot of good reasons for this.  Much of our land is only adequate for pasture without extensive soil amendments & irrigation that have to come from somewhere, so why not use it for pasture?

It appears to be pretty hard to farm more than an acre or two by yourself using permaculture / sustainable techniques, but at 150' - 400' per family, you can feed a pretty good number of people off of those few acres.

The economics of it are tough though, you're going to be pooped at the end of the day trying to earn 10-20k a year feeding 50-100 families or thereabouts, where if you can get 500 or 1000 acres you might make a decent living at modern monoculture farming, especially if you can cash in on government subsidies.

To get more than a couple of acres in vegetable/fruit produce, the farmer has to hire labor and make them feel good about their 10k a year salary.

If anyone has a better take on CSA / organic farming economics, I'd like to hear it.  The few stats I have found on organic farming incomes seem to support what I have found antecdotally.  A few growers close to large cities who have marketing panache make good incomes selling to celebrity chefs.  The rest eek out 15k / year and work 2nd jobs.  A growing 3rd class kind of turns organic on its head and makes reasonable incomes with unsustainable but certifiably organic methods.  Like the organic eggs in your supermarket shipped across the country.

Cuba must be some sort of textbook example on this. No more USSR to buy sugar at above-market rates : no foreign exchange = no oil, no fertilizer.

Agriculture reverted to labour-intensive, organic production.

Not an ideal situation but nobody starved, and the regime survived.

Easier for them because

  • they were late in mechanising anyway
  • a command economy can be reorganised in such an event

Can't see it going smoothly in the USA...

I was particularly struck, on my couple of visits to the States, by the absence of farmland, anywhere near any cities, and in hill country or anywhere else that wasn't real easy to mechanise on a really big scale.

I suspect there's a lot of back-pedaling to do to enable agriculture to become sustainable in the post-peak world.

In Old Yurrup, things won't be quite so bad, there are still quite a bit of smallholdings, subsidised for electoral reasons. Though the EU is still determined to stamp them out within 10 or 15 years... get with the program people, you'll regret it when they're gone.

This is so hard for us laypeople.  How do we know whom to trust?  There are so many disagreements on the facts between Stuart, Matt and the "all is rosy" folks like the author of this Economist article.

What information can we be really confident in?  What do you all look to for indisputable fact?

I know how you feel - it's taken me nearly two years of hard work, but I have attained a high degree of confidence that the imminent Peak people are right about a lot of things, and the Cornucopians wrong.  And the Peak people tend to have much stronger arguments, far more solidly rooted in empirical evidence, than do the Cornucopians.  But it does take a lot of hard work to verify this all for oneself.

For what it's worth: For me the crucial breakthrough was recognizing the fundamental importance of "Energy Returned on Energy Invested."  By effectively ignoring this, cornucopians are also ignoring the First and Second Laws of Thermodynamics.  This basic EROEI concept is the key to the strength of many Peak Oil argumnents, and to the weakness of many Cornucopian arguments - such as those in the ECONOMIST article.

How do we know whom to trust?

Who to trust? Good question.
Do you believe we live on a planet that circles the sun? Do you see any pipes carrying fresh new oil from outer space and into the underground rock geology of the Earth? Do you believe the Earth has finite volume? Critical "thinking" is a first good step to knowing whom and what to trust.

The Cornucopians will have you believe there are no limits. We humans can do anything we dream about. When was the last time you took a vacation trip to Mars with your good friends, George Jetson and Arnold Total-Recall what's his name? After all, "we" landed on the moon 37 years ago (July 1969, remember? remember?). By now there should be space stations and moon ports and Mars motels and all that Star Trek stuff. So where is it all? Instead we live in a world of continuing deceit and promises about freedom being on the march.

Trust "them" if it makes you feel better --if you can fool yourself to that extent.

Good one-I used to love the Jetsons. "Who do I trust" i.e. "My head hurts when I think too much".
Jaaaane!  Get me OFF this Crazy Thing!
Loved the Jetsons. Made the same arguement last Thursday in the comments that got this thread started.
Thank you, Heading Out, for putting the issue of The Economist article to bed, and all of us a good refresher.
sThis is the ultimate physic argument. We live on a sphere in space. A lonely little speck in an immense sea of nothing.

There are no alien ships coming, no pipes connected to the oil fields from space. We have to accept the physical facts of our existence. What is wrong with that? I like planet earth. I like the one billion year environmental experiment that led to our species, our brilliant, loving, hating, innovative monkey spirited species.

Why not accept this? Why not just revel in the sunlight? Why not be a part of the interconnected ecosystem. Why not admit our limited understanding?

I read the "Sun Also Rises" by Hemingway last week and I realized that we may reach a day when fishing for trout in a pure cold stream may be a thing of legend. Why? For Hummers?

It makes me sad.

For me, it was when I understood "depletion".

But, I agree, it is hard to know who to believe. But, I see that in everything political...and oil is political.


Get acquainted with the work done by M. King Hubbert. The are a lot of places to find it on the net. From time to time one of the editors here posts an update on reservoir depletions based on Hubbert's model. The accuracy of the model is striking. Once you understand it you will tend to believe the folks who use it or cite it.

None of peak oil has to accepted on faith. There are a lot of facts available. Get acquainted with the known field reserves (threads are here) and the known discovery trends (threads also here).

Sadly, you cannot rely on our mainstream news coverage. They have been suborned by deep advertising relationships with automobile, real estate, financial and consumer products industries. These industries will suffer profoundly if the consumer stops borrowing and spending.

There is a lot of good information here:

Mostly in powerpoint format.

You can believe any of the editors here <g>.


If I may, I would like to extend the relevance of my EROEI comment to something else:  The viable introduction of alternatives on a scale sufficient to compensate for declining oil (and, soon also, natural gas) production.  All of the fossil fuel based alternatives cited in the ECONOMIST have low EROEI - albeit possibly positive - as has been noted already on this thread.  This reality on the level of physics translates into vastly infrastructure-intensive, finance-intensive, and labor-intensive projects on the level of economics, and on the level of human activity needed to make these viable as substitutes on any significant scale.  And, given the nature of what's required, this cannot possibly happen overnight.  Rather, it requires decades in order to scale up vast and incredibly complex infrastructures costing literally trillions of dollars.

It is essentially in view of this that the Hirsch Report concluded that Peak Oil could not possibly be successfully navigated with any possible combination of alternatives without at least 20 years' lead time.

Re:  The Peak Oil Debate

Plan for the worst, and hope for the best.

"How do we know whom to trust?"

I have made several lifestyle changes since the "peak oil" thing dawned on me, and I intend to make a few more.  It occurs to me that I have made no change that I would regret if it turns out the "peak oil" camp is incorrect.  My presence now leaves a smaller footprint as I consume less.

I trust myself, and very few others.  Does it matter who's right?  Live as you think you should, all things considered.

I've got very bad news for you. You shouldn't and can't trust ANYBODY. Not the peakers, not the cornucopians, not the TODders. You have no choice but to look into it, but to listen to both sides. The very best case is when you can get the two sides to directly debate each other and listen to the answers.

"What information can we be really confident in?  What do you all look to for indisputable fact?" There are no indisputable facts! All facts are disputable. Some facts are maybe a lot closer to being indisputable than others. You have to spend a lot of effort in researching these issues, not original research, but just understanding the arguments of others.

A few of pointers: 1. When someone says, "trust me", don't. 2. Look for interests -- who gets what out of what position? 3. There's nothing wrong with having to an opinion as long as you're willing to change it in the face of facts or logic. 4. Look at all major viewpoints. 5. This whole game is being played out daily in the business pages (and elsewhere) of the NYT, WSJ, FT and other periodicals. You can track to no small degree JUST THERE, enough to convince one something really serious is going on. 6. Deffeyes, Campbell, Simmons should be listened to -- those who gainsay them should be listened to. 7. TOD is a good site because people can freely duke it out without namecalling and other diversions. 8. There is absolutely no choice but for people to do their own thinking, own research, own listening, own arguing. It's THE ONLY THING that can save us that this become a widespread habit.

Bravo!  Now if only I could farm the realted tasks out to a graduate student in Calcutta.  Seriously, I wholehaertedly agree with your points and the general idea that we must be inquisitive and not expect to be fed unbiased information, but...  I think my girlfriend is going to dump me if I don't cool down the inquisitiveness a bit.  Anyone else?

Normally, I'd look at this, realie it is totally off topic and superfluous to TOD reader's interests, then delete it.  But I figure this thread is dead, so I'm guessing it won't bother anyone.

Read you tomorrow folks!

Definitely save some time for your girl friend -- life is too short.
The Economist published an article once that stated that the Club of Rome had predicted that all the oil would have run out by the year 2000 and boy, did they turn out to be wrong! Elaborating further on that they sort of made the point that doom and gloom predictions are always wrong.

I read the book "Limits to Growth" after that and to my utter disbelieve it did not once state any prediction about the year 2000.

The Economist has all the reputation of a rocksolid institute and it seems policymakers read it and value it. But for me that article on the Club of Rome based on such obviously wrong grounds revealed to me that the emperor has no clothes. So, who do you trust? Not the Economist.
I think it needs to be said by someone:  There is a considerable amount of evidence that THE ECONOMIST is simply engaging in bald intellectual dishonesty in a lot of what they write about these sorts of topics.  If they are challenged by any sort of empirical evidence suggesting limits to the unlimited-growth paradigm they champion, then they are willing to unscrupulously lie about the facts left and right in order to make their case.

That's my take on it.  After all, these people are not lacking in intelligence, are they??

The dishonesty at THE ECONOMIST did not start with articles about oil depletion or the fallacy of. The magazine has been a huge cheerleader for "globalization" while always downplaying any negative effects on citizens of the (former?) first world.  
A bit unfair - the economist does not intentionally represent the first world, but the whole world. They are reasonably concerned with the standard of living in the second and third worlds, and naturally approve of mfg jobs created there - and approvingly note that low costs increase the average standard of living in the first world, too, even as (mostly union) jobs are lost in the first world.
Economiists in general have a problem with the PO concept - there is little mystery that they will be wrong about this when it comes.
Damn those lazy good for nothing union members! You're right-THE ECONOMIST is a paragon of wisdom. Cheap trinkets at WalMart in exchange for well-paying jobs. Sounds like a good deal.  
So was the worker who lost his job making cheap trinkets that used to be sold at walmart before mgmt realized their customers didn't give a damn where the trinket was made?
I first met THE ECONOMIST in 1974. I was meeting bright people who read it, who took it very seriously. People who had real intellect,who I took seriously, read that magazine seriously. Back then 32 years ago, nothing that appeared in that rag withstood any scrutiny at all, Still doesn't
Some things never change.....
This thread has highlighted something that I've been concerned about for some time now: the serious disconnect between what I will call the 'financial types' (by that I mean most economists, those who operate on Wall Street, and the banking establishment) and the technical types (engineers, scientists, geologists, etc). It's beginning to look like the two might as well be different species. It's almost  like the Eloi and the Morlocks from H.G. Wells' 'The Time Machine' (the engineers, of course, being analogous to the Morlocks).

Economists love input/output analyses and tend to relegate the technical details to something that is part of the 'black box', i.e., something that  they know matters in a general sort of way but which they really can't be bothered with. As long as the inputs are correct and the mathematics correct, the answers that comes out of their models must be correct. Let's not sweat the details, please.

On the other hand, many engineers can't see the forest from the trees, and many don't even want to.

I think the biggest fallacy in the thinking of the 'financial types' is this notion that if demand is great enough, someone somewhere and somehow will eventually satisfy that demand. If enough people want iPods, then iPods will materialize - and likewise, if enough people want energy, then energy will materialize. Thus, we have this idea that if oil gets expensive enough, a priori, something will automatically  come into existence to take its place.

The geologists know better and the engineers know better, but they (particularly the engineers) are not very effective in expressing what they know.

This whole problem of different languages was driven home to me recently when I tried to explain the concept of EROEI to my older cousin, who is a retired VP of marketing for a major consumer products company and a very bright guy.   My cousin is no dunce, but I'll be damned if I could get through his head that it's not a question of "Why don't you engineers do something about it?', but rather a matter of some fundamental phsysical constraints and near intractable 'system' problems. He is just incapable of processing the idea that we cannot 'manufacture' energy, but rather must extract it from increasingly difficult sources. As a side note, he drives a Mercedes and an SUV and refuses to accept the fact that he may not be able to continue doing so at some point.

So, I think that 'spreading the word' about Peak Oil, or less controversially, the 'energy crunch' is going to take a lot of patience.  Many of the non-believers are hardly dumb or ignorant people, but they are in deep denial.

The MSM is telling people what they want to hear. It is like religion: many intelligent people "believe" that the universe was created in six days. In 2006, most Wall Streeters know what the score is with oil depletion (where do people think the "speculation" money is coming from?)but talking heads like leading economists will be telling the public that there is no oil supply problem as the last drop is being squeezed out of the ground. That is what they are paid to do.
Agreed.  One brother graduated Duke U In 3 years, top of class. Briliant guy.  Makes tons of $.  Absolutely cannnot, will not see Peak Oil as an issue.  Believes in the invisible hand.  Says when it gets bad enough the "market" will find anothr source for energy.  Can't even talk about it.
BTW-- his degree- Engineering.  
But he works in marketing.  
When GM and Ford do the death dance, (it will be soon I think) your brother will believe. He will see that 80 years of brand equity and immense reserves of intellectual and financial capital were for shit. The failure of these businesses will destroy a lot of status quo assumptions.
When you are at the top of the heap, you don't have to worry about the invisible hand.  Only people who are at the bottom, or concerned about the collective effect worry about the invisible hand.
Right. Society's "winners" abhor change as change introduces the chance that they could lose that status. Thus even thinking about it is a no-no as it causes consternation.
There are plenty of engineering and geologist-types who can express themselves with great alactrity, so I really don't think that's the fundamental problem.  There are no shortage of qualified people in the Peak Oil crowd, for example, who could write a devastating, point-by-point rebuttal to the ECONOMIST article, in a way that is clear and understandable for the average educated lay-reader of the ECONOMIST.

But this will probably not happen.  Why?  Because of the stubborn closed-mindedness of the Editorial Board of the ECONOMIST - all of whose members are probably loaded down with vested interests of various sorts to persist in their close-mindedness.


"...all of whose members are probably loaed down with vested interests of various sorts..."

Could it be WestTexas' Iron triangle?

Detailed Rebuttal to Economist:
Maybe this indicates a shortcoming on my part, but all-in-all this sort of problem makes me hope that the plateau we are on now really DOES turn out to be the Peak, just so people will finally see that we are right!
the serious disconnect between what I will call the 'financial types' (by that I mean most economists, those who operate on Wall Street, and the banking establishment) and the technical types (engineers, scientists, geologists, etc). It's beginning to look like the two might as well be different species.

I think many financial types have already seen the light, and more are opening their eyes, for example the UBS analyst.  Don't crucify all of the 'financial types' as a group please.  I'm one of them.  Front Page of WSJ is hardly being ignored in the financial world...

WSJ, April 18, 2006; Page A1

Increasingly, ... prices also are being guided by a continuing rush of investor funds into oil markets. Institutional money managers are holding between $100 billion and $120 billion in commodities investments, at least double the amount three years ago and up from $6 billion in 1999, says Barclays Capital, the securities unit of Barclays PLC.

The flow of money into oil, analysts say, has been prompted by a spreading belief that demand for oil will continue to rise with global economic activity as supply tightens under the influence of several factors -- among them, the West's escalating nuclear standoff with Iran; growing political violence in oil-rich Nigeria; and more broadly, steadily growing global economic activity. The three-year bull run in oil has been underpinned by strong global demand for fuel coupled with a prolonged shortage of spare capacity to pump and refine crude.

"What's been happening since 2004 is very high prices without record-low stocks," says Jan Stuart, global oil economist at UBS Securities. "The relationship between U.S. inventory levels and prices has been shredded, has become irrelevant."

btw, I also shuddered while reading that atrocious Economist article.  Talk about a straw-man argument...
The inventory issue is so ridiculous that it is amazing.  We are above the average range, so there is no problem.  However, if we had stocks that were about 4 days worth of usage lower, we would be below the average range.  I assume that 4 days worth of usage is the diffence between a crisis and a price bubble.

Maybe, just maybe, some high-priced investors have actually looked a production data and determined that production cannot meet demand, and therefore, that is why prices are high.

This is one of the problems Tainter points to.  One of the issues of complexity is that the societal problems become too great for any one person to understand.  We all become specialists, and we have whole layers of complexity that exist just to try and coordinate among all the specialists.  

There's a theory that once you reach the point where those in charge cannot understand the nature of the problem, you're doomed.  

I'm reminded of the Challenger disaster, where the chief engineer was told, "Take off your engineer hat and put your manager cap on."


I work with geologists and civil engineers and they are two different species. The arm waving Geologists are more "science as an art" while engineers are closely related to accountants and everything has a number and a place. Around the office we refer to it as "engineer's disease."

To be a snivel engineer you have to know the three laws of snivel engineering:
  1.  Water + dirt = mud.
  2.  Mud (insert alternative here) always flows downhill.
  3.  You can't push on a rope.
At my alma mater CE was the last major you transfered to before giving up on engineering altoghether - you could almost completely avoid having to know any dynamics, chemistry, electricity, magnetism, and nuclear physiucs.  They aren't necesarily representative of the rest of us.
"the recent wild changes in expectations about oil prices will lead to an energy glut ... according to all that is known up to now about the elasticity of supply for energy."

The Economist, January, 1974 (quoted in Catton, Overshoot 1980, p. 66)

They seem to have the One Note Samba down pat.

Right, energy became elastic seven years later when Volker stepped in and took the country into a deep recession.

Try that today and you'll probably have a worldwide financial meltdown ...

Mar 1999 : We may be heading for $5 (oil at $10)

Dec 1999 : We woz wrong (oil at $25)

[O]ur cover, "Drowning in oil", on March 6th, ... speculated that having fallen to $10 a barrel, the price of oil might soon fall further, even as far as $5. This view was surrounded by weasel words--possibly, perhaps, may--but no matter, for our leaning was clear. The world was already awash in oil. And the country with the biggest oil reserves, Saudi Arabia, looked as if it might react to this not by cutting output in a concerted effort by OPEC members, as in the past, but rather by "throwing open the taps" in an effort to boost its own oil revenues.

    It wasn't long before this was proved wrong. About four days, in fact: the following week, OPEC ministers agreed to cut their production, in a deal that was formally confirmed a fortnight later. By then, the price had risen by 30%. By December, it had hit $25 and was therefore getting close to having trebled since our forecast that the price might soon halve.

The Economist is partisanship and advocacy.
If you can see thru Fox News you should be able to see thru The Economist.
Do not be led astray by the cultivated English accent.
a bit off topic.
i can understand why people would blame the oil companys for the high prices. today i went to get gas for the lawn mower(the reason why is a another story) not only are the gas stations demanding you pay before you pump the gas, they short you by .05 gallons on the gallon. basicly i payed for 1 gallon and the pump only gave me .95 gallons but they still charged me the full price for one gallon 2.83 before this.
I know this isn't an open thread, but CNN has a story that says the following:

Kuwait has offered to release 2 million barrels of oil per day if the Organization of Petroleum Exporting Countries (OPEC) agrees, Lundberg said.



That story can't be right. Kuwait only produces 2.5 million barrels a day. That story suggests they are sitting on (at least) another 2 million a day. I find that hard to believe. But if it was true, I think you would see oil prices start to fall pretty quickly.


Maybe the key word there is "release". Perhaps they have some large petroleum reserve. I have to find out more about this story.


A cynical person might wonder if this also was timed to coincide with the reopening of the odd refinery around New Orleans, and the increase in gas supplies that this might produce.  Suddenly there is more than enough gas, the price falls, and someone becomes a hero.

Doesn't have to last for long - the Hurricane season is not that far away - just enough to give the headlines.

The CNN story you mentioned quoted analyst Trilby Lundberg as saying this.  My understanding from other stories is that Kuwait will suggest that OPEC release the additional 2 million/day of OPEC's spare capacity, not Kuwait's specifically.  For example:

"Kuwait will propose that the cartel offer the market its entire 2 million barrel per day (bpd) of spare capacity, although a similar offer last year failed to find buyers seeking lighter, sweeter barrels, or to reverse rallying prices."

The IEA reports Kuwait's Feb. production at 2.52 mbpd with .08 mbpd spare capacity. That claim in the article appears ridiculous.
Uh, now I see this article at by Leanan.
Someone please explain this all! Kuwait can magically almost double their output?

Suddenly, lots of facts I thought I knew are looking fuzzier.

Read the article carefully.  They're talking about OPEC's spare capacity, not Kuwait's.
Yeah, that is making more sense now.
I am so rivetted to see where all this is going in the near future.  
My guess is that the same thing will happen as last year.  OPEC will say they have no buyers for their spare capacity, which is true-- if they were to offer it (assuming they can produce it), it would be heavy, sour crude which refiners can't or don't want to take.  They'll bluster about how OPEC can provide the world whatever it needs, but that the current pricing problem is caused by refinery bottlenecks combined with geopolitical tension.  Which is also (at least mostly) true.
Exactly.  They may not even be real barrels.  Talk is cheap.

Or it might be Saudi Arabia's heavy sour crude that nobody wants.  Or who knows, maybe the Saudis will pull some out of their tank farm system.  

IMO, they are just trying to talk the market down.

And actually, even that unwanted Saudi oil is fictional.
I'm sure they will.  Talk is cheap.  
Odd, I distinctly recall reading an article today where Kuwait wanted to EXTEND the OPEC 2 mb/d release of supply.  In other words, at some point in the past the decision was made to release an extra 2m/d into the market as an emergency measure and they want to make sure to continue that.
Here is a fine editorial written by an economist for the Philadelphia Inquirer, on why any boycott against ExxonMobil WILL NOT WORK.


I think your argument is flawed. Well, on the whole I agree wholeheartedly, but I have one question mark. You say:

Having said all that as background, it is not unreasonable to assume a number for the depletion of existing wells that lies around 5%, but for which there are legitimate reasons to argue could also be around 8% (As Schlumberger, for example, has suggested). At the lower level world production from existing wells is falling at around 4.2 mbd/year; at 8% it is falling at 6.7 mbd/year. Thus, over the next 5 years, just to sustain production, we have to find between 21 and 33 mbd of oil.

This seems to assume that every single well in every single field is now in decline. Remember, there is an equally long upside to the curve before it falls. Not that this means very much qualitatively for the argument, but I feel it is important to get even the smaller things right, so as not to give the "sceptics" something to hang onto.

The fields that have a long upside are the much smaller, more recent finds of more expensive oil. The big ones with the cheap oil are for the most part on the downside. On the downside of the equation is the historic need to increase production by 1-2 mbpd per year - or projected future demand. when you compare the upside fields with the downside fields, HO's argument remains sound.

His post was a response to the Economist article which was a poor excuse for a balanced study of current world oil production and basically a one-sided summary of the CERA/cornucopian view.

He is referring to aggregate (average) decline, over the whole field.  Some wells literally water out (down to 1-2% oil cut) in a very short time frame.