I've Got to...Keep...Control: Dancing the Time Warp to Explain Away Peak Oil

(Yes, I will eventually explain this ;-))

I don't usually participate in the Huffington Post bashing that goes on at science blogs. Not because I don't often agree with it, but because my colleagues seem to have it covered when it comes to autism/vaccine links and dubious medical studies. Still, Raymond Learsy's column about Wikileaks did catch my attention, and it seems to have all the best qualities of a bad HuffPo piece.

If it's in Wikileaks, it's got to be true. Certainly it was a moment of triumphal satisfaction for the Peak Oil Pranksters. There it was in "cloud" black and white embedded in cables released by WikiLeaks and headlined by the the Guardian, "Saudi Arabia cannot pump enough oil to keep a lid on prices," going on to report that in November 2007 the U.S. Consulate General, subsequent to a meeting in Riyadh with a former Saudi Aramco "oil executive," cabled Washington that reserves of the world's biggest oil exporter were being overstated by nearly 40%. Really?!

Firstly, how competent was this Saudi informant, Sadad al-Husseini, and on what basis was he authorized to speak? His credentials seem legitimate enough, but his message was curious to say the least.

Second, the Saudis have been stubbornly opaque about the extent and size of their reserves. They have steadfastly refused to disclose their reserve estimates, nor have they permitted any independent agency to audit their oil reserves. This, in spite of the vital role Saudi Arabia plays in supplying world markets.

Thirdly, the 300 million barrels of Saudi oil reserves that, according to the Embassy cable had been overstated, are highly suspect to begin with. Without specific confirmation, the Saudis have let the world believe that their reserves range in the area of 260 billion barrels, a figure generally accepted by the field and held as maximalist gospel by the peak oil crusaders, such as the late Matt Simmons. Yet, deducting 300 million from 260 million doesn't make much sense.

Well, that's a bit old pile of frankly, rather sleazy innuendo here. Note that Learsy doesn't actually answer his own questions, even though they are eminently answerable. Who is Sadad al-Husseini, whose credentials seem to be "legitimate enough?" Well, if Learsy actually had answered the question, the whole innuendo wouldn't have worked, since al-Husseini is the retired head of Exploration and Production for Saudi Aramco - ie, the guy who figured out Saudi Arabia's reserves. His credentials don't just "seem legitimate" - they are utterly legitimate, and he knows more about Saudi world reserves than almost anyone in the world.

He's also been saying this stuff quite publically for some time before today - in a 2005 interview with Steve Andrews, my predecessor at Peak Oil Review, in reference to a feature article he wrote in the New York Times Magazine, al-Husseini said:

Given the current outlook in terms of global exploration and development, the rate of investments in the oil value chain, energy prices, and the prevailing legal and political investment climate, I believe oil production will level off at around the 90 - 95 mmbd by 2015. This plateau can be sustained beyond 2020 at continuously higher oil prices and with rapid improvements in overall energy efficiencies throughout the world.

A rapid global refinery expansion program that eventually matches an increasing oil demand rate of 1.5 - 2.0% per year cannot be achieved before 2015 at the earliest and is highly improbable in any case.

Therefore my answer is: under the current circumstances and outlook, oil is likely to peak at a 95 mmbd plateau by 2015 and can then be sustained well beyond 2020 at increasing real oil prices.

What's interesting about this isn't al-Husseini's numbers, which are wholly consistent with al-Husseini's previous comments, it is that the US government seemed to be taking him seriously.

Raymond Learsy apparently sees his speaking out on this issue as "curious to say the least" and goes on to imply that al-Husseini is being disingenuous and was part of a conspiracy to crash the world economy by spiking world oil prices. That's quite a convoluted dance - I wonder if he knows how to Madison?

The question needs be asked, what was the purpose behind Sadad al-Husseini passing along his information to the American Embassy in Saudi Arabia in November of 2007? The perception of shortage and inability to meet demand is one of the bedrocks of the oil producer's pricing propaganda, thereby rationalizing ever-steepening prices and massive profits to the OPEC cartel and their oil industry allies. Passing on self-serving information about oil production constraints to U.S. State Department channels of the oil-addled Bush administration, the Saudis could be confident it would not be analyzed with a critical eye and would serve as an underpinning of what lay ahead. Six months later, oil was to hit $147 a barrel, and we were paying $4/$5 per gallon at the pump, helping crash the economy a few months thereafter.

That's an impressive conspiracy theory (and it will get better later on). Besides being an excellent case of assuming zebras rather than horses, it simply doesn't make a lot of sense. In 2007- 2008, when oil prices spiked reached record highs, if this were the case, one would have expected Saudi Arabia to dramatically increase production - after all, it got what it wanted, right? So it must have been taking full advantage of this, right?

Oh, wait, no - in 2007, Saudi Arabia announced "voluntary" production cuts, So either we have to believe that Saudi Aramco is the first corporation in human history that didn't want to make as much money as it could, or we have to wonder why the Saudis didn't up production in response to high prices and high demand.

What would be a "horses" rather than "zebras" explanation? Well, the most logical one for al-Husseini's long history of speaking out on oil reserves if this - just as when retired military men and women use their retirement to come out and criticize military organizations in ways they could not have while still in service, or where public servants writing their books reveal the real story that the public wasn't permitted to know about our policy decisions, it seems reasonable to see al-Husseini as, in fact, a retired expert in Saudi Reserves speaking out - rather than a secret agent acting for the Saudi government in a Grisham-novel like conspiracy.

That also has the elegance of answering Learsy's second point - the Saudis have, indeed, been stubbornly silent about their reserves, however, what we know about them generally comes from Saudi oil industry insiders - ie, geologists like al-Husseini.

Third point - should we subtract 300 billion from 260 billion - ummm...no...duh? In fact, Learsy talks about why this isn't the case - the Saudis inflated their reserves in 2007 by ummm. a lot - up from historic levels to 716 billion and maybe a trillion. And this wasn't the first time that the Saudis have done this - they doubled their oil reserves in the 1980s as well, based, as far as anyone can tell, by how much oil they'd like to have. In this case, Learsy is using very selective data in reminding us of Saleri's announcement that Saudi Arabia has many times more oil than it thought it did.

Learsy skips over the sudden and rapid backpedalling done by Saudi Aramco executives after that change. It seems odd, at best, that Learsy would cite the idea that technologies could treble or quadruple oil production more or less instantly, and take as credible one person's unauthorized (and rapidly quashed) speak out on this, while inventing an elaborate conspiracy theory for al-Husseini's warnings. Husseini's initial warning seems to have been the observation that the recent 300bn barrel increase announced by his former company was not correct, and that indeed, Saudi production was declining. Indeed, the US embassy seems to have understood Husseini's point clearly in the cables, while Learsy does not seem to have understood it:

Our Mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period. The May announcement of a 300,000 bpd increase in production barely dented price escalation. It appears unlikely Saudi Aramco could muster the million or more barrels which appear to be needed to make a dent in the normally upwards price trajectory. Saudi Aramco's ability to sustain such a production increase for a year or more raises serious questions.

Those inconvenient facts, at the very least contrast with Learsy's conspiracy theory. At best, combining his view of al-Husseini's speak-out and Saleri's, both presumably acting for their government, gets you a picture of a nation that hasn't the faintest idea what it wants to say, not the elaborate and careful manipulations that Learsy wants to see. Most of their public strategies have been heavily focused on making Saudi reserves seem stable and secure, or inflating them, but Learsy's theory is that the Saudis are best served by supporting peak oil, because, after all, that causes unwarranted price rises.

But, of course, it is all about the conspiracy theory - and this is a theory with lots of players. Fatih Birol of the IEA who has been warning of increasing demand and production difficulties for some years to come, we are told, "was employed by OPEC." I've yet to meet a petroleum geologist of any significant stature who has never been employed by an OPEC country. Now it is certainly possible that Birol and al-Husseini are engaged in a vast conspiracy to deflate reserves, along with us evil peak oil people, and thus drive up prices and crash the world economy (Ilargi over at The Automatic Earth is going to kick my ass for leaving that part of the claim alone, but I'm going to do it anyway, but let's just point out that not everyone thinks that oil prices alone collapsed the world economy - and I'd think if the Saudis had that as their goal, they could probably just restrict exports and get the job done faster...but what do I know?).

Finally, there's Learsy's faith in technology. 2007 in his view, is just a whole 'nother world from now - look at all the flying cars! He writes:

That was then, this is now. In the more than three years since, there has been a time warp in the application of new oil drilling technology. Extraordinary strides have been made in drilling for oil and gas. In the United States alone, because of new drilling techniques, shale gas has been accessed, and the gas reserves of the United States have increased five fold over the past five years alone, enough to cover our domestic needs, and making the United States a potential exporter of natural gas. A further example is the growing oil production from shale oil drilling techniques in the Bakken formation of North Dakota and Montana that will be producing millions of barrels/day in the years ahead.

To prove his point that there's been a time warp in the last few years, and to prove this, he cites a New York Times article from 2007 that claimed that there had been a revolution in drilling technologies "in the last decade." I wonder if I can be forgiven for wondering if the kind of Time Warp Learsy is doing involves "the pelvic thrust that really drives you insaaaaaane..." Maybe he's been staying out a little too late at the local Rocky Horror show, because that makes no sense at all.

If four years of radical technological progress have transformed the oil landscape, we should be able to see the results, right? Flying cars for everyone! Well, let's take a quick look at the numbers. Here's a lovely chart by Gregor McDonald:

In making up this chart, McDonald offers four possible interpretations:

As we look at the chart of Saudi Arabia crude oil production, I like to consider the following propositions:

1. This is a chart of the central bank of oil, with lots of spare capacity, that works to dampen oil price increases.

2. This is a chart of the central bank of oil, with lots of spare capacity, that works to perfect oil price increases.

3. This is a chart of what had once been the central bank of oil, as it transitions to a secondary role.

4. This is a chart of an oil producer doing its best, within technical and geological limits, to maximize its profit.

Regardless of which we choose among these possibilities (or others), it's clear that Saudi Arabia has been a very different kind of oil producer than Russia, in the past ten years. I would encourage readers to think about, in particular, the period starting in late 2005 through late 2007 when against a backdrop of steadily increasing prices Saudi Arabia production fell by nearly a million barrels per day.

None of the possible reasonable interpretations is "this is the portrait of an oil producer demonstrating wild new gains in oil production from new technologies." So the question becomes, why is it that the Saudis haven't benefitted from these miraculous new flying-car oil technologies? Perhaps they can't afford to implement them....oh wait, that's probably not the answer. Perhaps they are saving them for a special day in the future when they will want to produce not less, but more oil...hmmm, that doesn't make much sense either. Perhaps these technologies only work in America, where stunning technological improvements have totally change the US oil picture, reversing our declines...oh, wait.

It doesn't look like much of a flying car to me - woot, tiny uptick that in no way reverses overall decline! But wait, aren't we producing billyuns and billyuns of barrels from the Bakken Shale like Learsy suggests? It turns out we aren't. The Bakken production numbers are well, hypothetical as yet, rather like the Saudi production numbers that Saleri announced, and then rapidly retracted. Learsy's assumptions are based on unproven projections - and a lot of convoluted thinking. It appears on the same day that IEA warns of increasing global demand that bolsters its concerns about supply issues, and when BG Group, a major gas developer, warns that the gas "glut" may be a mirage:

The global energy industry faces a "huge supply" challenge to bring online enough new gas to meet demand, according to BG Group's chief executive.

Frank Chapman said the industry would need $2,000bn (£1,240bn) of investment to find and develop gas supplies equal to 20 times the current production of Norway to 2020.

The difference between Learsy's vision and the vision of the "peak oil pranksters" as he calls us is that he takes on faith the most optimistic of projections for production - indeed, he takes them on such faith that he actually implies that such projections have already transformed the landscape. This is ummmm...an error at best. What we know is simply this - world liquids production is fairly stable, on a plateau, but only because of that word "liquids" in which things that are not oil have been used to substitute for things that are oil.

Now a case could be made that this substitutability is proof that peak oil doesn't matter (never mind that Learsy's arguments simply aren't coherent enough to even imply such a comparatively subtle case). But we also know that many of these "substitutes" aren't terribly scalable over further declines, all of them have substantial ecological and environmental impacts, and that many of them are only productive at extremely high prices - EVEN if we take as true all the most optimistic projections. There are plenty of people who will give you clear and coherent examples of *why* we ought to take all optimistic projections as serious, but even if we do, we come out with an obvious and clear story - one in which crude oil supplies are declining, in which we are bringing on substitutes as fast as we can but still failing to keep oil prices reasonable and stable, in which price volatility and economic boom and bust cycles tied at least superficially to oil are the norm, and in which we are fairly clearly going to be struggling to keep up with the declines over time.

I find it interesting that Learsy has to create such a bizarre and elaborate conspiracy theory, while impugning al-Husseini's credentials and competence by implication and also magnifying the actual results of technological impacts. Peak oil theorists are sometimes accused of making up conspiracies. In fact, our case is far simpler than the elaborate dances one has to go through to imply that there's simply no problem with oil and energy. If you've got to dance the Time Warp in order to make the facts fit, you probably have a problem with your reasoning.

Sharon