“The Quest” Questioned #3: We’re Finding Oil Faster Than We’re Using It?

23 Sep 2011 (LINK)

One of energy historian Daniel Yergin’s key stats is that in recent years, the world has added more oil to its proved reserves than it has consumed. If true, that would mean that we’re increasing the amount of oil that we have on hand, ready to go—and that be a good sign.

The problem is, Yergin’s statistic doesn’t stand up—and I’ll show why by looking at it from a number of angles.

Image Removed(This is the third in a series of posts exploring the problems with Yergin’s new book The Quest. Here are links to part 1, “Peak Oil Projection Was Far Off?“, and part 2, “One Giant Oil Field?“.)

In a Wall Street Journal article, “There Will Be Oil,” that’s based on his book, Yergin makes this claim: “Just in the years 2007 to 2009, for every barrel of oil produced in the world, 1.6 barrels of new reserves were added.” (He repeats this stat in a Wall Street Journal video interview.)

If true, this would seem to shoot down what the peak oil camp says, since most of them say that discoveries have been declining for decades. So where Yergin get his number come from?

I went to the freely available and widely used Statistical Review of World Energy from BP, and looked the reserves figures for the years Yergin mentioned, as well as production figures. I calculated all the additions to reserves during 2007 to 2009, and added up the production over that time, and got a ratio of 1.5. Pretty close—so it seems that Yergin is using BP’s numbers, or others that are very similar.

If we look at BP’s numbers, though, they’re highly suspect.

One problem with BP’s figures is that OPEC members in the Middle East have reserve numbers that are—to put it politely—magical. These countries’ figures for “proved reserves” only go up or stay flat—and never go down. Kuwait’s “proved reserves” stayed at 96.5 billion barrels from 1991 to 2002, and then have crept upward from there. From 1989 to today, Saudi Arabia’s “proved reserves” have barely budged, creeping up slightly from 260.1 to 264.6 billion barrels. Meanwhile, these countries have produced tens of billions of barrels of oil. It’s as if a huge corporation told auditors that their bank account always held exactly $572 million dollars, for decades. It’s not believable.

(I covered this problem with OPEC reserve data in detail in another article (link to pdf), “From Wikileaks or Saudi Sheiks?”)

UPDATE: Data from IHS—the company Yergin works for—has shown that these reserves figures are sometimes overstated, as Euan Mearns covered on the Oil Drum in 2006: “IHS Data Suggest Kuwaiti and Global Proved Oil Reserves Significantly Lower Than BP Estimates.”

Another problem with Yergin’s apparent use of BP data is that two countries—Canada and Venezuela—more than doubled their “proved reserves” in just the last few years. Looking more closely, nearly all of those increases came precisely during that window of time that Yergin chose to emphasize, 2007 to 2009.

Canada and Venezuela are both major producers, and no one suddenly discovers that much oil that quickly. So what happened? They had known for decades that they had huge deposits of tar sands and heavy oil, which is basically junk that no one wanted before. But after the price of oil skyrocketed starting in 2001, and an apparent lack of more desirable sources of oil in other places outside the Middle East, the tar sands and heavy oil began to be relied on much more heavily.

It’s odd that Yergin, as a historian, would choose such a small window of time to look at, just three years, from 2007 to 2009. Why not include 2010? Why not go back decades?

To find out what more credible numbers might show, I asked Jean Laherrère, a retired geophysicist who was the head of exploration and production at the French oil giant Total. Laherrère has access to figures from IHS—the company that Yergin works for—and he said that while they’re supposed to be confidential, everyone in the industry knows them. A French journalist who writes on oil asked Laherrère the same question about Yergin’s figures, and he posted the numbers Laherrère supplied.

There, Laherrère uses “proved plus probable reserves,” also known as 2P reserves, which include the proved reserves plus additional oil that producers think they can get out of the ground. (Proved reserves, that Yergin cites, are also called 1P reserves.) Proved plus probable reserves of an oil field is supposed to represent the best guess for how much oil a field is going to produce for the long term.

Looking at the figures from IHS for 2007 to 2009, Laherrère says that discoveries totaled 35.4 billion barrels, while the production was 78.1 billion barrels. So according to those figures, the ratio is about 0.45—that is, the world used about twice as much oil as it added to its 2P reserves. Looked at in this way, the world is definitely using up oil faster than it is finding it.

Over the longer term, there has been a clear peak and decline of crude oil discoveries. That is, we are no longer finding as much as we use. Here’s Laherrère’s graph of annual discoveries compared with production, based on IHS data and other sources.

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One reason for the difference between the two is that Yergin is apparently talking about all sources of liquid fuels, whereas the IHS reserve numbers that Laherrère cites exclude extra heavy oil, including tar sands. But even so, this doesn’t explain the whole gap between their figures, since it would still mean that Yergin was relying on the magical OPEC reserve figures.

In an email to me, Laherrère came to this biting conclusion about Yergin, arguably IHS’s most prominent spokesman: “Yergin should read IHS reports and consult the IHS database.”

In The Quest, there are other strange problems with Yergin’s statistics on oil. On page 239, he states two conflicting numbers global oil supplies. In one spot, he writes, “At the end of 2009… the world’s proved oil reserves were 1.5 trillion barrels.” Then farther down the page, he says, “Currently, it is thought that there are at least 5 trillion barrels of petroleum resources, of which 1.4 trillion is sufficiently developed and technically and economically accessible to count as proved plus probable reserves.”

I underlined part of the text to highlight that the first figure is for proved reserves (1P) and the second figure is for proved plus probable reserves (2P). Since the latter includes proved reserves, it has to be a bigger number—and should be a lot bigger. Yet Yergin says the 1P reserves are 1.5 trillion barrels, and then that the 2P reserves are 1.4 trillion barrels, which doesn’t make sense. If he’s drawing on estimates from two different sources, it’s not clear.

Perhaps it’s just a typo. On page 287, he has an apparent typo in a section that focuses on Saudi Arabia entitled “One quarter of world reserves.” There, Yergin writes “Saudi Arabia [has] about a fifth of the world’s reserves.” So is it a fifth, or a quarter? The BP figures say Saudi Arabia has 19.1% of world reserves—or about one-fifth. This again suggests Yergin is using BP figures—and that the book is somewhat sloppily written. These numbers are one, I’d think, that Yergin should know inside and out.

There’s another spot in which Yergin seems to use the BP reserve figures. On page 4, he says “the Persian Gulf region … holds 60 percent of conventional oil reserves.” (He also said this in his McClatchy interview.) The numbers in BP’s 2008 Statistical Review match up with that, but the number is a bit out of date now. The latest report lists Persian Gulf reserves as 55% of the world’s total—and that percentage has dropped precisely because of the large rise in unconventional oil reported for Canada and Venezuela, the same figures that gave Yergin his hopeful ratio of 1.6 that I started this post with.

This may all seem nitpicky. But I’m trying to figure out where Yergin is getting his numbers, and whether they’re credible. With the inconsistencies I’ve found, plus other errors that Foreign Policy’s Steve LeVine points out, plus Yergin’s apparent use of questionable numbers from BP, I think anyone should be careful about taking Yergin’s figures at face value.

“The Quest” Questioned #4: Only the Pessimists Have Been Wrong?

25 Sep 2011 (LINK)

If Forrest Gump was trying to explain oil forecasts, he might say: “Oil is like a jar of marbles.”

This might sound silly, but bear with me, since it will help to show that an argument from one of the world’s most highly regarded energy experts is ridiculous. That man is Daniel Yergin, described on the jacket of his new book, The Quest, as “the prominent energy expert of our times.” Despite his high standing, he has said a number of nonsensical things about peak oil, and I’ll focus on one of them here.

(This is the fourth in a series of articles about Yergin’s new book. Here are links to part 1, part 2, and part 3.)

Yergin says that although many are worried that the world is at the peak of oil production now, “this is actually the fifth time in modern history that we’ve seen widespread fear that the world was running out of oil.” [1] Each time these fears came up, he argues, they were then proved wrong.

However, there’s a major flaw in his argument: Even if there were predictions of peak oil that were wrong, that does not prove that current predictions are also wrong. Take the example of U.S. oil production, which did reach its peak in 1970 and has been declining ever since. For the U.S., there were a whole range of forecasts of what to expect in the future. Some were overly pessimistic, some overly optimistic, and some got things about right. Some some who were wrong were overly pessimistic, but some who were wrong for being overly optimistic.

Yet Yergin keeps using his argument that the pessimists have been repeatedly wrong. He uses it in his book, and in the excerpt from his book in the Wall Street Journal, and he repeats it in a video interview with the Wall Street Journal and in a Q&A with McClatchy. It seems he thinks that pointing out the past failures actually makes for a strong argument—or at least one that he knows many will find convincing.

“I have seen the same argument raised almost every time someone takes the skeptic’s position on the question of peak oil,” writes economist James Hamilton on his blog. He points out that it’s clearly a fallacy that this argument would apply in general. “Suppose I was trying to convince you that you are a mortal being,” Hamilton writes, “and your counterargument was, ‘but that’s what you said in 2005, and I didn’t die then! You said it again in 2007 and 2009, and each time you were wrong. Why should I believe you this time?’”

I like Hamilton’s analogy of a person arguing with their doctor—but I think there’s a better analogy. Death is an event that’s all-or-nothing. Forecasting oil production and trying to tell whether you’re past the peak, though, is different since it unfolds over a long period of time, and it is not totally clear that you have passed the peak until a while afterward.

It seems that Yergin and many others don’t realize that, by simple logic, it is the biggest pessimists who will be proved first. So pointing out that these pessimists were wrong doesn’t tell you anything about when the peak might come, or how much oil we have left.

And that brings me back to the jar of marbles I started this post with.

Figuring how much oil is available is like a game where you put a bunch of marbles into a big jar and have people guess how many are in there. After you collect a bunch of different guess, to find out who wins the prize, you have to pull out all the marbles and count them, one by one.

Once you get to marble #101, the people who guessed 100 marbles or less are out of the game, but everyone else with higher guess is still in the running. When you get roughly halfway through the jar, and you’ve counted up (let’s say) 250 marbles, then you can say that those people who guessed around 500 marbles are probably going to be right. You won’t know for sure who’s right until you get to the bottom of the jar, but you can get a close enough idea once you’re fairly far through the jar.

When it comes to oil, trying to figure how close we are to the peak production, and how much might be left to produce, is a bit like this marble-counting game. The bigger the pessimist, the sooner they’ll be proved wrong.

On the other hand, the most optimistic estimators, like Yergin, will remain in the game a long time. If you guess that there are a million marbles in the jar, you can claim, up until the last marble is counted, that you might still be right.

Yergin points that there have been a series of pessimists that have been proved wrong, such as the director of the U.S. Bureau of Mines who, in 1919, predicted the peak of U.S. oil production in the 1920s. So Yergin does have a good point: Just because someone is a highly regarded expert doesn’t mean their oil forecast will be right. We can’t accept any of these forecasts—optimistic or pessimistic—at face value. We have to dig into them a bit to see whether they’re believable or not.

What Yergin doesn’t seem to realize—and that others haven’t been bringing up, as far as I’ve seen—is that these arguments apply equally to Yergin’s own statements. If experts are often wrong, Yergin himself could be far off the mark. And if it does turn out that he is overly optimistic, we wouldn’t expect him to be proved wrong, for sure, until well after the peak—that is, until after it is too late to provide an early warning of shortages to come.

In Yergin’s portrayal, it’s only the pessimists who have been wrong, over and over. In his chapter on peak oil in The Quest, he does not mention anything about experts who were overly optimistic. But there were plenty of them in the 1960s and 70s who argued that the U.S. had little to worry about, that there was plenty of oil, and that the country’s production could continue rising for a long time to come.

One such source of optimism was the nonprofit group Resources for the Future (RFF), a group that’s still around. In 1958 and 1960, RFF put out a couple of books that were very optimistic about U.S. oil availability. In their 1960 book, Energy in the American Economy, they concluded “total domestic availability of crude oil in the United States in 1975, at no appreciable increase in constant dollar costs, is on the order of 6 billion barrels [per year].” So you can see for yourself, here’s the quote, from page 386:

Image Removed

Six billion barrels per year is about 16.5 million barrels per day. However, U.S. production actually peaked in 1970 at about 9.6 million barrels a day—roughly half what RFF estimated was possible.

A 1963 Scientific American article by RFF’s Sam Schurr, the lead author of the book I just quoted, said: “Modern man has made himself largely by burning fuel. The supply of fuel appears to be almost inexhaustible.”

The RFF estimate in the 1960 book, the authors go to lengths to explain, is not a forecast nor a prediction, and to achieve it would require sufficient drilling, the right policies, etc, etc—enough caveats that if they were far off the mark, they could cover their butts.

They were well aware of forecasts of a coming peak, though, citing a number of them, including Hubbert’s 1956 forecast (discussed in part 1 of this series on The Quest). It’s clear that RFF did not expect a peak of U.S. oil in 1970 and a decline immediately thereafter, and that they were wrong about the prospects for U.S. oil.

In the early 1970s, after U.S. oil production had passed its peak, but before the OPEC embargo put the words “energy crisis” on everyone’s lips, groups such as the National Petroleum Council argued that the U.S. could boost its production again, as long as there was a “more sympathetic attitude” from the government, as a 1972 New York Times article put it. However, even a huge boost in drilling during the 70s and 80s and the opening of the supergiant Prudhoe oil field in Alaska failed to bring U.S. production up to its previous heights.

Why doesn’t Yergin mention the over-optimists like Resources for the Future or the National Petroleum Council that were wrong? (It’s worth mentioning that, today, Yergin is a member of the National Petroleum Council.)

Unfortunately, the estimates that turn out, in retrospect, to be overly optimistic will only be proved to be so only a while after the peak of production. But by then, it will be too late for an early warning that scarcity is coming.

In his gloating about all the failed oil forecasts of the past, Yergin is like a kid playing the marble game who guesses really high. He can stay in the game a long time, feeling proud of himself for not being proved wrong, while others are dropping out for having guessed too low. But just because Yergin hasn’t been proved wrong yet for sure, it doesn’t mean his high estimate is right.


[1]: Notice that Yergin tends to characterize “peak oil” as “running out of oil”—which it is not. In the simplest picture of peak oil, if we’re at the global peak now, we’ve produced about half the oil we ever will. It took us 150 years to reach the peak, and there would be about 150 years of oil production left to go, albeit with the production declining, decade after decade. By repeatedly equating “peak oil” with “running out,” Yergin is creating a straw man—but digging into that in more detail will have to wait for another post. return to main text↑

“The Quest” Questioned #5: Peak Oil = Running Out of Oil

25 Sep 2011 (LINK)

In Daniel Yergin’s critique of peak oil—in his new book The Quest, and in his articles and interviews elsewhere—he repeatedly equates peak oil with “running out of oil.”

(This is the fifth part of a series on The Quest, covering Yergin’s errors and biases.)

In The Quest, Yergin titled his chapter on peak oil “Is the World Running Out of Oil?” He uses this kind of formulation as well in the main text as well, such as when he writes (p 232): “By the beginning of the twenty-first century, oil prices were once again rebounding. It was around that time that fear of running out of oil began to gain prominence again, for the fifth time.”

And he used it the same kind of wording in a book excerpt the Wall Street Journal, and he repeated it in a video interview with the Wall Street Journal and in a Q&A with McClatchy.

Yergin seems to have been extremely successful in getting others to think about peak oil the same way—even in publications that should know better.

In a review of Yergin’s book in MIT Technology Review, magazine’s editor described peak oil as “the idea that the world is on the verge of running out of oil.” The New York Times’ review describes peak oil as “the idea that the world’s supply is rapidly running out.” In the journal Nature, the review by energy expert Vaclav Smil says Yergin “presents ample evidence to counter the notion that we are running out of oil.”

The problem with equating peak oil with “running out” is that it gives the impression that the world’s oil wells will soon go dry, and suddenly there will be no oil left. But I’m not aware of anyone even half-reputable who has that in mind when they talk of peak oil.

Instead, the idea is that production will at some point reach a maximum, for a combination of reasons, including geology, economics, and politics. And then later production will decline. Although this is often referred to as “peak oil theory,” it’s not a theory—it’s happened in the U.S. Production reached its all-time high of 9.6 million barrels a day way back in 1970, and has been declining, decade after decade, ever since.

But this decline takes a long time. Even the trend of the past few decades continues, the U.S. will still be producing oil for at least another 100 years.

For the whole world, if it is at peak oil production now, it has taken 150 years to reach this point, and the decline back to near-zero production of crude oil would take at least a similar period of time. Nobody credible, as far as I’m aware, has claimed that we will soon “run out of oil.” The issue, instead, is when we will reach a turning point, in which production no longer goes up and up, as we’ve gotten used to over the century-and-a-half-long age of oil.

(Here’s a good primer on the concept of peak oil.)

A number of writers deserve credit for not simply parroting Yergin’s formulation—including Foreign Policy‘s Steve LeVine writing in the San Francisco Chronicle, and Michael Levi blogging at the Council on Foreign Relations. Interestingly, a review of the book in the Wall Street Journal, written by a scholar at the ultra-conservative American Enterprise Institute, does manage to get the idea of peak oil right—calling it “the notion that world-wide production is going into terminal decline“—even while dismissing the possibility.

Why does this matter? People like Yergin characterize “peak oil” as “running out”—but when we look around and see that the U.S. is still producing a lot of oil (we’re still #3 in the world, behind Russia and Saudi Arabia), then it seems like the peakists don’t know what they’re talking about. Clearly oil isn’t going to dry up completely in the next decade or so.

What’s more, Yergin’s over-simplification spills over to distort what intelligent people have said about resources, even when they weren’t specifically talking about peak oil.

Take for example how Yergin describes comments by Hyman Rickover, a nuclear physicist known as the father of the nuclear submarine, and generally regarded as extremely brilliant.

In the opening pages of his book, Yergin describes a 1957 talk by Rickover, titled “Energy Resources and Our Future,” and claims “Rickover’s central point was that fossil fuels would run out sometime after 2000—and most likely before 2050.”

It’s strange that Yergin pulls a few quotes from Rickover’s speech—but then when it comes to Rickover’s central point, Yergin paraphrases rather than quoting. So I’ll quote Rickover’s speech (which was reprinted in full in a newspaper in 1960) to show he was saying something considerably different from what Yergin seems to think.

Here’s what Rickover actually said:

… the most significant distinction between optimistic and pessimistic fuel reserve statistics is that the optimists generally speak of the immediate future—the next twenty-five years or so—while the pessimists think in terms of a century from now. A century or even two is a short span in the history of a great people. It seems sensible to me to take a long view, even if this involves facing unpleasant facts.

For it is an unpleasant fact that according to our best estimates, total fossil fuel reserves recoverable at not over twice today’s unit cost, are likely to run out at some time between the years 2000 and 2050, if present standards of living and population growth rates are taken into account. Oil and natural gas will disappear first, coal last. There will be coal left in the earth, of course. But it will be so difficult to mine that energy costs would rise to economically intolerable heights, so that it would then become necessary either to discover new energy sources or to lower standards of living drastically.

I underlined the part that Yergin mischaracterized, and quoted at length to show that Rickover was issuing a thoughtful warning. What Rickover was saying was that we’d run out of the cheap stuff around 2000—and that seems about right.

This is a more nuanced idea than simply “running out”—but it’s not all that complicated, and should be easy to grasp. It seems, though, that Yergin has an extreme bias against any kind of notion of scarcity, so that whenever someone presents an idea like this, he caricatures it as simply “running out.”

Yergin later spends five pages on a brief biography of Rickover, telling the tale of how he became a driving force behind the development of America’s nuclear power plants, and generally putting him in a positive light. So it’s a bit mystifying why he distorts what Rickover said about fossil fuels. Yergin makes him sound like he was either extremely gloomy or an idiot.

To compound the problem, others have repeated what Yergin said. David Biello’s review on Scientific American’s website repeats this bit about Rickover supposedly claiming we’d run out of fossil fuels between 2000 and 2050, as does Fareed Zakaria’s review in the New York Times’ Sunday book section.

At least Yergin didn’t mangle recent statements from Fatih Birol, the chief economist at the International Energy Agency (IEA).

In The Quest, Yergin says (p 271) the IEA “operates as a kind of ‘energy conscience’ for national governments,” since it “provides continued monitoring and analysis of energy markets, policies, technologies, and research.”

In his book, Yergin generally has nice things to say about the IEA. Yet he seems uninterested in the series of warnings that Birol has been issuing for the past few years.

For example, when the IEA published its last big annual report, the World Energy Outlook in November, Birol told me, they have concluded “the age of cheap oil is over.” This has huge implications, he said. “If the consuming nations do not make major efforts to slow down the oil demand growth, we will see higher oil prices, which we think is not good news for the economies of the consuming nations.”

Birol has been saying the same kinds of things for the past few years—like this warning he wrote in 2008 for the UK newspaper The Independent.

And in April, Birol told the Australian Broadcasting Corporation that world crude oil production reached its peak in 2006. That is, peak oil is here and now.

Yet Birol does not show up once in The Quest. Yergin’s book is very up-to-date, including big events of 2011 such as the Fukushima disaster, the killing of Osama Bin Laden, and the fractious OPEC meeting. So he easily could have said something about Birol’s statements, which I imagine he’s aware of.

In a couple of weeks, I’m going to go to hear Yergin speak at one of the stops on his book tour, and I’m going to ask him what he thinks about Fatih Birol’s statements. Birol has a much better claim, I think, to being an expert on oil supplies than Yergin does.

What I want to know is: Does Yergin simply think that Birol is wrong about the end of cheap oil, and about crude oil production reaching its peak in 2006? Or does Yergin have some way of trying to reconcile their views?

Michael Inman is a journalist who covers climate and energy issues. He regularly writes for National Geographic News, Nature Climate Change, and has a weekly column called The Climate Post. (Bio)