Wishful Thinking: Yergin and the Worry-nots

August 15, 2006 at 10:03 pm
Contributed by: Chris

Folks,

Whenever the corporate media want to present a “balanced” view of our oil and natural gas problem, there’s one guy they always call upon: Daniel Yergin of Cambridge Energy Research Associates, or CERA. He’s that benign face on the TV assuring you that we’ll have ample supplies for the foreseeable future, who projects that we’ll add another 40 million barrels per day (mbpd) of production capacity by 2015, magically matching our projected demand. He’s the one who’s opinion is supposed to be as valid as the host of petroleum geologists who make up the ASPO, who say that we’ll hit the peak around 90 mbpd in 2010, or 4 mbpd more than today, in four years.

As for Yergin himself, here’s how FTW’s Dale Allen Pfeiffer describes him in his excellent critique of Yergin’s analysis:

 

 

Though Daniel Yergin is considered to be an authority on international politics, economics and energy, he is neither a scientist nor an engineer. Despite this lack of credentials, Daniel Yergin was awarded a Pulitzer for his book The Prize: The Epic Quest for Oil, Money and Power, and he is currently a member of the Board of the United States Energy Association, the National Petroleum Council, the US Secretary of Energy’s Advisory Board, and the US Department of Energy’s Task Force on Strategic Energy Research and Development. He is also a member of the Committee on Studies of the Council on Foreign Relations and a Foreign Associate of the Royal Institute of International Affairs.

With all of these credentials, one might wonder how he could author an article which is so misleading. However, I have seen him in action, arguing with several of my colleagues, and I can state that the man is a true cornucopian. He will not recognize any data that might shake his faith in Neoliberalism or free market economic theory. No doubt, he will consider this article to be rubbish, if he even bothers to read it.

 

Unfortunately, your average hapless viewer has no way of knowing that CERA’s projections are ridiculously optimistic, stretching the bounds of reason. He or she probably doesn’t know that CERA is “an independent research firm that gets its funding from a mixture of utilities, state regulators and other clients.” That certainly wasn’t mentioned when the Wall Street Journal printed Yergin’s commentary on August 9, 2006, wherein he blamed oil prices on a “wall of worry” and dismissed the Prudhoe problem. The pipeline shutdown is merely “precautionary,” and only five barrels were spilled! It’s not like BP has been criminally negligent in their maintenance of the pipes for the last couple of decades or anything.

In other words, asking Yergin and CERA for their opinion on oil depletion is like asking the Pope for his opinion of Catholicism. These are True Believers we’re dealing with here, people who have a deep and vested interest in maintaining business as usual. They are hardly objective observers, and their opinions are hardly as worthy as those of other well-known and scientifically objective observers, such as those of ASPO.

Let’s have a little reality here, shall we? Yergin’s case projects a wildly successful campaign to developing known sources previously considered exotic, and improved extraction methods. But he never mentions that improved extraction has not increased flows where it is practiced–at best, it delays the peak date and then produces a steeper falloff on the back side of the production curve, that’s all. And all the unconventional sources he pins his hopes on–ultra-deepwater/polar/NGL/oil shale/etc.–are going to prove much more difficult to bring to market, much slower to arrive, & much more expensive than projected. Hmm, how long would it take to build a pipeline from Antartica to…uh…?

Indeed, in recent weeks we have already seen various warnings that the cost of much-ballyhooed projects to produce liquid fuels from exotic sources like coal, oil shales, and tar sands will be double or triple the cost previously projected, and investors are fleeing for the exits. Why? Because of the cost of oil, natural gas, and base metals is skyrocketing–a highly predictable factor that somehow nobody doing the original estimates ever seems to take into account.

Here are two critiques of CERA’s latest report, both by members of ASPO. Professor Kjell Aleklett of the ASPO shows how and why CERA’s estimates cannot be believed, and Chris Skrebowski casually points out some of the more obvious “nonsense” in the report.

Beware of anyone who preaches business as usual about energy. We lose precious time letting the likes of Yergin lull us into complacency, time that would be better spent on mitigating the effects of the coming depletion. And the next time you see “that guy” on the TV, assuring you that everything will be just fine if we could all just stop worrying, know who you’re dealing with.

Review: CERA’s Report is Overly-Optimistic

by Kjell Aleklett
Uppsala University, Sweden
Uppsala Hydrocarbon Depletion Study Group and ASPO
Tuesday, August 8, 2006
http://www.peakoil.net/Aleklett/Review_CERA_report_20060808.doc

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

On August 8, 2006, CERA (Cambridge Energy Research Associates) released a new private report with the title “Expansion Set to Continue – Global Liquids Capacity to 2015”. “Private report” means that CERA expects you to purchase the report for $2,500. The data files used in the report are also “private” rather than being audited or refereed like the data in normal scientific articles.

In the complete press release CERA present 2 of the 31 figures in the report, and both figures show very optimistic growth in the global productive capacity. The conclusion is that the report “reinforces CERA’s view that the specter of “peak oil” is not imminent”.

It is now time to make some comments about the CERA report. It is obvious that ASPO, the Association for the Study of Peak Oil & Gas, is a problem for CERA, or maybe a business opportunity as Daniel Yergin in the overview of the report announce a forthcoming report, “Myths and Legends Concerning Peak Oil”. In the report is the first of four key conclusions; The much discussed “peak oil” is not imminent nor is the start of the “Undulating plateau”.

 

When discussing different opinions it is always good to look for the common ground and figure 8 is therefore a good starting point. We and CERA agree that production from existing oilfields is declining on average at about 5% per annum and this means, according to CERA, that 40 million barrels per day extra capacity is needed by 2015. CERA has looked at planned projects from now till 2012. They believe that all projects will be completed to 100% but with 30% of the projects delayed one to two years. Even with this very optimistic assumption they need more production and the addition is smaller fields/upgrades, fields under appraisal, NGL and yet to find.

The extrapolation to 2015 can be found for individual countries and what is needed to support an increasing production is an enormous success in new discoveries and that these discoveries can be put in production very quickly. As example CERA think that Saudi Arabia need more than 2 million barrels per day from fields that not have been found today. Shaybah is the latest giant field that Saudi Arabia started up in 1998 with a production capacity of 500,000 barrels per day. In principle CERA is saying that production equivalent to 4 Shaybah fields will be found and put into production during the next 9 years in Saudi Arabia.

When it comes to Russia, the number two global producer, CERA forecasts its production will rise to 11.2 mbpd. That is 1.3 mbpd more than the estimates from the Russian government itself.

Some people say that ASPO is pessimistic when it comes to future supply. We think that we look at the future in a realistic manner. It is clear that CERA is very optimistic, and the fact that they believe that OPEC will increase the production capacity with 12.9 mbpd is an example of optimism.

The global consumption of oil is now around 31 billion barrels per year and the discovery in 2005 was only 8.95 billion barrels according to CERA and they show that the average world discovery rate the last 11 years is 11.5 billion barrels p.a. The bulk of these discoveries comes from regions that were opened up for exploration after the collapse of Soviet Union and from exploration in deep water. We can now see a decline in the discoveries in these regions and we expect that this decline also will give an overall decline in discoveries worldwide.

Figure 11 gives significant liquid discoveries 2005-06 and one of the listed discoveries is Noxal in Mexico. Earlier this year President Vicente Fox announced that Noxal-1 was a new discovery of the order of 10 billion barrels. This was from just one exploration well without detailed studies. In the end of May a newspaper in Mexico reported that “Noxal-1 was confirmed a failure and there is no hope of realizing a new structure with reserves of 10 billion of oil”. David Shields, a respected consultant working for Pemex, stated this. CERA think that Mexico will have a more or less constant production of 4 mbpd till 2015, even though Cantarell, that today accounts for close to 60% of Pemex’s production, is expected to decline by 50% over the next few years. This is another example of unrealistic over-optimism.

More things can be said about the report, but it is obvious that it is not worth $2,500. Part of the report is based on data not open for the public and the obvious reason for this is that CERA seek to make money from this hidden information. Oil production figures and data on reserves are of greatest importance for the global future and these should be available in the public domain as is the case in Norway and the UK.

Commentary: Chris Skrebowski on OPEC trends and CERA’s new report

[Source: ASPO-USA Peak Oil Review, 14 August 2006]


 

• In 2009 they project production from Uruguay, despite the fact that the Petrobras house magazine (latest issue) says it’s a 2011 start-up for a project they’ve only just sanctioned.

 

 

• BP’s start up in Angola by 2009 is another implausibility zone (among many).

As if that was not enough they have global production several million b/d higher in 2011 than the IEA’s new Medium Term Market Report (this only goes to 2011). As the IEA is usually criticized (correctly) for being too optimistic, CERA’s estimates (which escalate dramatically after 2011) are frankly just plain fantasy.

This raises two immediate questions: First, did CERA just start with the answer — 110 million b/d in 2015 — and then work backwards to fit? Second, on whose behalf or behest are they issuing this nonsense?

Chris Skrebowski, with the Energy Institute (London), has edited The Petroleum Review since 1997. He has spent his entire working career in the oil industry, split roughly two-thirds as an oil journalist and one-third as a planner/market analyst within the industry (for BP, Saudi Arabia, etc.).

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


 

We sometimes read statements like this: “About 98 percent of global crude oil comes from 50 nations, of which more than half have already peaked in oil production, including seven of the 11 OPEC nations.” Our question: since some of these OPEC nations peaked during the 1970s, then deliberately cut production, then lost production, and are now increasing production with more in the works, isn’t the more important issue “which OPEC nations can increase production, from today going forward, and by how much, and for how long,” rather than who peaked when?

 

• CERA projects higher OPEC production than even OPEC claims on its website. In terms of some individual fields they have higher output than OPEC claims.

 

We caught up with Chris Skrebowski for a quick Q&A just as he was preparing to depart for the airport, bound for Australia. He had time to provide quick observations about OPEC’s production trends and CERA’s new report.

POR:

 

1 Comment

  1. didn’t imperial oil make so much money during the initial oil boom as to force anti-trust proceedings to break the company up?

    isn’t there with shrewd business people the same opportunity waiting to exploit the "next big thing". I wonder what the whalers were thinking at the turn of the century when the oil tapes were really turned on… perhaps the same thing current ‘prophits’ of good times ahead oil patch prognostigators are saying… [shrug]

    9/11, mid-east crisis, war in Iraq, Enron, if nothing, these events should have taught us that relying on 1 source of information is a risky gamble… you never know what agenda you are being fed.

    Cheers,

    J.

    Comment by Anonymous — August 16, 2006 @ 10:56 am

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