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CERA’s peak oil critique has a credibility problem

(Note: Commentaries do not necessarily represent ASPO-USA's positions; they are personal statements and observations by informed commentators.)

“We invite others [in the peak oil debate] to join in a considered dialogue that now seems too easily lost in the rancor.” So ends a recent article, “Peak Oil Theory Could Distort Energy Policy and Debate,” by Dr. Peter Jackson, Cambridge Energy Research Associates’ director of oil industry activity.

Headed by Pulitzer Prize winning petroleum historian Daniel Yergin, CERA employees hundreds of people who study energy developments. In the last two years, CERA has spearheaded a campaign of peak oil denial. One of its senior staff, Robert Esser, has been quoted as saying, “Peak oil theory is garbage as far as we’re concerned."

CERA’s arguments about peak oil are showing a few chinks in the armor. Consider just the following:

Certitude. In the world of scenario planning, players on both sides of the peak oil discussion sometimes convert major unpredictable factors (e.g., timing of new production; size of resources; shapes of production curves) into inevitabilities. In truth, the uncertainty about the size of the resource and associated geopolitical influences is large and increasing, pointing to the likelihood that by 2020 generous portions of humble pie will have been served up to both sides, though from here it appears CERA’s slice may be larger.

Consider CERA’s primary conclusion that there’s “no evidence of a peak before 2030” and that “global production will follow an undulating plateau.” (emphasis added). It doesn’t take much imagination to envision a scenario in which oil production peaks prior to 2030. If the current conflict in the Middle East were to spread to Iran, if there were a successful attack on Saudi oil exporting terminals, if enormous investments are not made in expanding oil production… all of these are viable possibilities. To be fair, some peak oil defenders have been equally cavalier about their ability to predict the future.

Track record sullied. As recently as 2002, CERA forecast that North American natural gas production would increase 15% by 2010. Five years later, North American natural gas production is down 4%. If CERA was this wrong about natural gas, where the public data are outstanding and the geology well known, what’s the risk that they’ll be wrong about “no evidence of a peak before 2030” with oil?

In the fall of 2004, CERA was quoted in a money magazine saying that high oil prices (then over $50) would soon be back in the $30-$40 range. Even after last fall’s dive, prices still run 50% higher than CERA forecast.

In 2005, CERA projected that four giant and super-giant fields--Thunderhorse (2005), Sakhalin II (2006), Azadegan (2007) and Kashagan (2008)—would come on line sequentially, each eventually providing 250,000 barrels/day or more to market. Today, that million barrels/day of oil has been delayed an average of three years per field for a variety of weather, geopolitical and/or technical reasons. Delays are becoming the norm more than the exception.

Admittedly the calls for early peaks by some peak oil prognosticators have come and gone, adding some credence to critical views. But CERA tends to trivialize the associated learning curve here with a painfully inappropriate red herring: “This is about the sixth time we were supposed to have run out of oil.” No serious peak oil “concernist” during the last two decades ever raised a “we’ll run out” alarm.

Growing denial. Consider CERA’s focus on existing and projected oil production rates, a concern ASPO-USA shares. Nearly half of the world’s 20 largest oil producers, which together account for 85% of world production, have hit peak production during the last few decades. Some of these countries peaked because of geologic limits: USA, Norway, UK, Indonesia. Some appear to have peaked for combined geologic, political, and investment reasons: Mexico, Venezuela, and Russia, though Russia may increase a bit more in the next five years, and Venezuela still daydreams about doubling production. Some peaks were for geopolitical reasons--Iran, Iraq, Kuwait and Libya, although the latter could exceed its earlier peak. To this writer, the math here appears obvious: despite promises of hundreds of new projects coming on line over the next decade, it’s growing harder every year for the gainers —- Angola, Brazil, Russia, Canada --to offset the decliners.

Within the industry one hears the growing lament that upwards of 75% of the world’s proven reserves and most prospective undiscovered resources lie in countries where national oil companies and governments restrict access by the oil majors. Yet Jackson optimistically insists that CERA’s market view will lead us to another 25 years of continuing growth in annual world oil production, without providing details due to their proprietary data. He gives the panoply of growing geopolitical risks lip service.

Apples and mangos. Like the EIA, IEA and others, Jackson combines conventional oil, enhanced oil recovery, extra heavy oil, oil shale and exploration into one figure that shows 1 trillion barrels consumed with 3.8 trillion to go. This is enormously deceptive, since key factors such as projected flows, timing of flows, net energy, environmental footprint, technology, development costs, etc. make such aggregated numbers almost meaningless. All oil is not created equally. For example, Canada has 160 billion barrels of tar sands. At forecast rates of production it will take them two centuries to produce them.

In the Oil & Gas Journal’s Feb 12, 2007 issue, the author of CERA’s updated natural gas study admits that many of the current natural gas “resources are deep, smaller, technically more challenging, or more distant from markets.” That’s largely why they’re more expensive to drill and why in aggregate they flow at lower rates—exactly the types of problems that are plaguing efforts to expand world oil production, especially unconventional production.

On lobbying. In some of his writing, Jackson uses the phrase, “peak oil lobby” —- a strange way to describe a loose affiliation of peak oil experts. Most of these “lobbyists” are disparate characters with differing views: retired and semi-retired oil industry characters like Jeremy Gilbert, formerly with British Petroleum; a few handfuls of insiders still active in the industry; several very respected industry analyst firms like PFC Energy, John S. Herold Inc. and Simmons & Co. Int’l; a cadre of webmeisters, led by The Oil Drum; some 20 U.S. Representatives and Senators; the worldwide not-for-profit ASPO affiliates, and assorted others. This writer isn’t unaware of anyone getting paid major sums of money to provide their perspective about the coming peak oil phenomenon, or paying large sums to curry favor via K Street lobbyists.

It’s not a stretch to cast peak oilers as David and CERA as Goliath. CERA’s distinctly for-profit business appears to position itself as the highly-paid “voice of the industry.” They charged $1000 for their copyrighted 13-page peak oil slam published last November, which continued little new information. Attendance at their recent CERA Week in Houston cost roughly $5,000. CERA’s PR machine impresses. Who’s kidding whom about lobbying and deep pockets to open the doors in D.C.?

The Missing Debater. Dr. Jackson’s entreaty that “this very important debate deserves a rational and measured discourse” sounds sincere. A discussion between two opposing viewpoints shouldn’t be conducted just in the newspapers, technical journals, on the web, and at the National Academy of Science. Yet CERA turned down an invitation to discuss the peak oil issue at ASPO-USA’s national conference in Boston last fall, and CERA didn’t invite an ASPO-USA representative or others to join a peak oil panel in Houston last week during their national conference.

Wrap. Sadly, nearly all the focus of this discussion tends to be on the question, “when will oil production peak?” Pessimists say “now or within a few years,” while CERA claims “not for a few decades.” This detracts from the more essential question: “so what should we do about it?” CERA worries that the peak oil discussion “could distort energy policy and debate.” Peak oilers worry that CERA may perfect the art of distortion.

Steve Andrews and Randy Udall are two of five co-founders of ASPO-USA, a non-profit, non-partisan educational group focusing on our peak oil and gas challenges.

Editorial Notes: I wonder if there would be a market for energy consultants who were more "reality-based" than CERA? If I were in the oil industry, I would want a more rigorous analysis than is currently on offer. This commentary was just published in ASPO-USA's "Peak Oil Bulletin", edited by Tom Whipple, and available free by email from ASPO-USA. -BA

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