Friday, July 11, 2008

We Fact Check the Left, Too!

CounterPunch describes itself:

Here at CounterPunch we have many friends and all the right enemies. And, guaranteed, you'll never see any of us on the pundit line up at MSNBC. We try to stay beyond the pale.

Someone I know described CounterPunch's Cockburn (that's pronounced "coe-burn" for those of you who are still stuck in the locker room) as 'fallen off the far left edge'. We here at GNB have a tendency to, shall we say, concentrate upon the peccadilloes of "The Right" or "The GOP", or "The NeoCons". But this post is presented as evidence that we write about the knuckle-dragging-left-my-brain-at-home-stupidity of "The Left" as well.

At CounterPunch, Ismael Hossein-Zadeh writes about problems with the theory of Peak Oil. Interestingly, he gets it pretty much all wrong. Let's see how!
Peak oil theory is based on a number of assumptions and omissions that make it less than reliable. To begin with, it discounts or disregards the fact that energy-saving technologies have drastically improved (and will continue to further improve) the efficiency of oil consumption. Evidence shows that, for example, “over a period of five years (1994-99), U.S. GDP expanded over 20 percent while oil usage rose by only nine percent. Before the 1973 oil shock, the ratio was about one to one.”[4]

This is absolutely irrelevant to Peak Oil theory. Peak Oil says nothing about oil consumption.

Second, Peak Oil theory pays scant attention to the drastically enabling new technologies that have made (and will continue to make) possible discovery and extraction of oil reserves that were inaccessible only a short time ago. One of the results of the more efficient means of research and development has been a far higher success rate in finding new oil fields. The success rate has risen in twenty years from less than 70 percent to over 80 percent. Computers have helped to reduce the number of dry holes. Horizontal drilling has boosted extraction. Another important development has been deep-water offshore drilling, which the new technologies now permit. Good examples are the North Sea, the Gulf of Mexico, and more recently, the promising offshore oil fields of West Africa.[5]

Also irrelevant to Peak Oil theory. Peak Oil talks about the rate of extraction and how it follows a normal curve. Peak Oil theory says nothing about exploration.

Third, Peak Oil theory also pays short shrift to what is sometimes called non-conventional oil. These include Canada's giant reserves of extra-heavy bitumen that can be processed to produce conventional oil. Although this was originally considered cost inefficient, experts working in this area now claim that they have brought down the cost from over $20 a barrel to $8 per barrel. Similar developments are taking place in Venezuela. It is thanks to developments like these that since 1970, world oil reserves have more than doubled, despite the extraction of hundreds of millions of barrels.[6]

Irrelevant to Peak Oil theory. Peak Oil theory is about the rate of extraction, not about the form of the oil. If unconventional fields like tar sands and oil shale become a significant part of the actual extraction market, then we'll have more data (and more oil). In the meantime, Peak Oil theory talks about what it knows: extraction of oil from any given field follows a generally normal distribution over time.

Fourth, Peak Oil thesis pays insufficient attention to energy sources other than oil. These include solar, wind, non-food bio-fuel, and nuclear energies. They also include natural gas. Gas is now about 25 percent of energy demand worldwide. It is estimated that by 2050 it will be the main source of energy in the world. A number of American, European, and Japanese firms have and are investing heavily in developing fuel cells for cars and other vehicles that would significantly reduce gasoline consumption.[7]

Irrelevant to Peak Oil theory. Peak Oil theory is about the extraction of oil. It says nothing about alternative forms of energy. It also says nothing about the rate of consumption of energy or even oil.

Fifth, proponents of Peak Oil tend to exaggerate the impact of the increased oil demand coming from China and India on both the amount and the price of oil in global markets. The alleged disparity between supply and demand is said to be due to the rapidly growing demand coming from China and India. But that rapid growth in demand is largely offset by a number of counterbalancing factors. These include slower growth in U.S. demand due to its slower economic growth, efficient energy utilization in industrially advanced countries, and increases in oil production by OPEC, Russia, and other oil producing countries.

What any proponents of Peak Oil theory say about demand has nothing to do with Peak Oil. Demand has nothing to do with Peak Oil. Peak Oil has to do with the available rate of extraction of oil from known fields.

At this point, one wonders why we're bothering to continue reading Mr. Hossein-Zadeh, since he either:

  1. knows nothing about Peak Oil theory; or
  2. knows but is willing to deceive his readers

Peak Oil is about the extraction of oil from known fields. It takes advantage of the observation that oil extraction volume from a field follows a known distribution: low at the beginning to high in the middle and low at the end. By looking at known volume of extraction of fields, it's possible to predict where/when the peak (maximum) extraction value will occur. It's not quite exact, and large new finds would make a difference, but the essential correctness of the idea was established when King Hubbert accurately predicted peak flow in the US. His 1956 paper offered two scenarios for US production, the second of which came true when US extraction peaked in 1970.

Peak Oil is not about oil consumption, oil exploration, or oil alternatives. If oil extraction technology improves, generally it allows us access to new oil supplies not previously economically extractable. If that happens, Peak Oil theory allows for a modification of the expected peak. Peak Oil is about adding together the know profiles of extraction for existing known sources of oil and getting a realistic picture of when oil extraction will peak. It worked for US fields, it will work for the rest of the world as well.

This has led to a steady rise in crude oil inventories over the last two years, “resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices. . . . In fact, during this period global supplies have exceeded demand, according to the US Department of Energy.”[10]

This appears to be flat-out wrong. A "not-so". This Week In Petroleum (Crude Oil Section) at the EIA has something to say about that:
This graph shows US Crude Oil stocks over roughly the last year. The blue band is the average range, and you'll notice that the weekly run over the last couple of months has been sharply down toward the bottom of the band. It's quite clear that last August, US crude oil stocks were considerably higher (above 325M bbls) than they are now (below 300M bbls). According to the data table, on 2008.07.04 the US has 293.9M bbls, and that on 2007.07.07, the US had 352.6M bbls.
This graph tells us that we currently have about 19 days of oil, down from about 23 days in 2007.

The fact that the skyrocketing oil prices of late have been accompanied by a surplus in global oil markets was also brought to the attention of President George W. Bush by Saudi officials when he asked them during a recent trip to the kingdom to increase production in order to stem the rising prices. Saudi officials reminded the President that “there is plenty of oil on the market. Iran has put some 30 million barrels of oil that it can't sell into floating storage. ‘If we produced more oil, it wouldn't find buyers,’ says the Saudi source. It wouldn't affect the price at all."[11]

This one's interesting. It's almost certainly a real quote (although, given the truthiness of the rest of the article, who knows?), but the fact of the matter is that most Saudi excess capacity is "sour" oil -- petroleum with a whole lot of sulfur in it. Prices quoted for oil are almost always for the most desirable variety, generally "light, sweet crude". Sour crude goes for less and is less desired. As Time tells us:

The extra 500,000 barrels they plan to start shipping next month will likely be heavy, "sour" (sulphur-rich) crude, which most Saudi fields produce. Sour crude is far more difficult to market globally than light, sweet crude, because it needs a lot more refining to meet the environmental standards of the industrialized world."The Saudis would discount it further, because refiners don't want it," says Harry Tchilinguirian, senior oil analyst in London for BNP Paribas.

In other words, the Saudis could extract more oil, but that oil would be undesirable because of its sulfur content. So the quote is probably right -- if you want milk, and a store without milk offers to sell you motor oil, you probably won't buy it.

Mr. Hossein-Zadeh "teaches economics at Drake University, Des Moines, Iowa." I hope he's more professional as a professor then he is as a Peak Oil critic.

And I worry about his students.

[20080711 11:21 PDT Updated to correct misspelling of 'sulfur' as 'sulpher'. My bad.]