Well, if CERA says There Will Be Oil, We Can Just Stop Worrying, Right?

Daniel Yergin in the Wall Street Journal:

Since the beginning of the 21st century, a fear has come to pervade the prospects for oil, fueling anxieties about the stability of global energy supplies. It has been stoked by rising prices and growing demand, especially as the people of China and other emerging economies have taken to the road.

This specter goes by the name of "peak oil."

Its advocates argue that the world is fast approaching (or has already reached) a point of maximum oil output. They warn that "an unprecedented crisis is just over the horizon." The result, it is said, will be "chaos," to say nothing of "war, starvation, economic recession, possibly even the extinction of homo sapiens."

The date of the predicted peak has moved over the years. It was once supposed to arrive by Thanksgiving 2005. Then the "unbridgeable supply demand gap" was expected "after 2007." Then it was to arrive in 2011. Now "there is a significant risk of a peak before 2020."

But there is another way to visualize the future availability of oil: as a "plateau."

In this view, the world has decades of further growth in production before flattening out into a plateau--perhaps sometime around midcentury--at which time a more gradual decline will begin. And that decline may well come not from a scarcity of resources but from greater efficiency, which will slacken global demand.

There's something very anti-climactic about "This specter goes by the name of peak oil." One gets the sense that Yergin was trying to sound impressive, and didn't quite pull it off.

This is the usual nonsense from CERA. Oh, yeah, peak oil was supposed to arrive in Thanksgiving 2005. Right, except, of course, that was one person's guess - Kenneth Deffeyes, not the analysis of every geologist. And as Jeffrey Brown rightly points out, well, we did hit a plateau in 2005. The only way you can argue otherwise is to change the terms of the discussion from oil to "oil" or "liquids" - when you mix in biofuels and a whole bunch of other things that aren't crude oil, you can disguise said plateau. It works rather like my saying "Wow, we're nearly halfway out of beer" and someone else saying "Yes, but that's no problem, look at all the Prune Juice!" It is true that both are edible liquids, but it is also true that there are some noticeable differences between beer and prune juice, and between Crude oil and "oil."

Jeffrey Brown also rightly points out that Daniel Yergin and CERA don't exactly have a stellar record of predicting oil prices, and that despite their cheerful (and historically baseless) statement that efficiency fairies will magically make us consume less oil (Jevon's Paradox unfortunately has held true - as we use less oil in different segments of the economy, we use more oil overall). Indeed, the demand-side story is radically different than Yergin portrays it:

However, the real story is Global Net Oil Exports (GNE), which have shown a measurable multimillion barrel per day decline since 2005, and which are measured in terms of total petroleum liquids, with 21 of the top 33 net oil exporters showing lower net oil exports in 2010, versus 2005. An additional metric is Available Net Exports (ANE), which we define as GNE less Chindia's (China + India's) combined net oil imports. ANE have fallen at an average volumetric rate of about one mbpd per year from 2005 to 2010, from about 40 mbpd in 2005 to about 35 mbpd in 2010 (BP + Minor EIA data, total petroleum liquids).

At the current rate of increase in the ratio of Chindia's net imports to GNE, Chindia would consume 100% of GNE in about 20 years. Contrary to Mr. Yergin's sunny pronouncements, what the data show is that developed countries like the US are being forced to take a declining share of a falling volume of GNE. In fact, our work suggests that the US is well on its way to "freedom" from its reliance on foreign sources of oil, just not in the way that most people hoped.

Our replacement of Oil with "oil" has had considerable consequences. Some of them are ecological, upping the rate of climate disturbance, rendering water toxic and destroying whole ecosystems. Others have been the reinvention of world-scale hunger as biofuels tie food and energy prices together in ways that make the world's most vulnerable more subject to market vagaries. Yergin not only has a long history of erroneous predictions, he suffers from an acute inability to describe even the extant present. There is a hallucinatory quality to the world Yergin describes, in which a bright energy and economic future stands just over the horizon - always just a little out of reach.

Sharon