The next issue of The Economist has a front cover that says, “The future of oil – Yesterday’s fuel”. 14 years ago, on 4 March 1999, the front cover had a completely different message. Then, the editors of the Economist published an article titled, “Drowning in Oil”. They wrote that “The world is awash with the stuff, and it is likely to remain so”. They thought that cheap oil from the Middle East would reduce the then price of $10 down to $5 per barrel.
One year earlier Colin Campbell and Jean Laherrere wrote in an article in Scientific American that cheap oil would reach peak production in around 2004 (read the article). It was the flow of this cheap oil that, according to The Economist, would force the price down to $5 per barrel. We now know that, according to the International Energy Agency (IEA) cheap oil reached maximal production in 2005 and the shortage of cheap oil subsequently forced the price up to over $100 per barrel.
On the 3rd of August 2013 the next issue of The Economist will have a front cover showing a dinosaur holding a dripping fuel bowser nozzle. It is interesting that the Economist should choose this image since in my book, ”Peeking at Peak Oil” we describe how the greatest amount of oil was formed during the same period that the dinosaurs roamed the Earth.
When we began writing the book we also had a dinosaur to symbolize “Peak Oil” and the image on the front cover of The Economist gives me reason to show you this depiction.
The Economist does not believe that a shortage of oil is causing the stalling of production growth. “This is not the “peak oil” widely discussed several years ago, when several theorists, who have since gone strangely quiet, reckoned that supply would flatten and then fall.” The reason why The Economist believes that that we in ASPO, The Association for the Study of Peak Oil and Gas, are silent is because leading newspapers such as Wall Street Journal, New York Times, The Guardian and The Times no longer accept our articles for publication. We have no wealthy oil companies to back us. Instead, what we have seen in the past half year is that everything in the press has focussed on how “fracking” will solve all our problems. Personally, last year I published “Peaking at Peak Oil” and I encourage the editorial staff of The Economist to read it as a counterweight to all those articles that say we have nothing to worry about.
The Economist’s comment, “in the rich world oil demand has already peaked: it has fallen since 2005” is interesting and should be explained. Figure 19.3 in my book shows that the volume of oil available for export reached a maximum (i.e. a peak) in 2005. Since then the world’s wealthier nations have seen consumption (or “demand”) fall. The fact that the oil price rose from $10 per barrel in 1999 to over $100 today should give every faithful economist reason to believe that we are now experiencing an oil shortage.
It is my hope that the article in The Economist will reactivate the Peak Oil debate.
(Swedish below)
Nästa nummer av The Economist har en framsida som säger: The future of oil – Yesterday’s fuel (artikeln). För 14 år sedan, den 4:de mars 1999, hade framsidan ett helt annat budskap då ledarredaktionen för The Economist publicerade ett inlägg med rubriken ”Drowning in oil”. Man skrev att ”The world is awash with the stuff, and it is likely to remain so”. Man trodde att den billiga oljan från Mellanöstern skulle kunna flöda så att priset som då var $10 per fat kunde sjunka till $5 per fat. (Här är en länk till artikeln för intresserade läsare.)
Ett år tidigare hade Colin Campbell och Jean Leherrere i en artikel i Scientific America skrivit att den billiga oljan skulle nå maximal produktion runt 2004 (läs artikel). Det var flödet av denna billiga olja som enligt The Economist skulle pressa ner priset till $5 per fat. Vi vet nu enligt International Energy Agency, IEA, att den billiga oljan nådde maximal produktion 2005 och att bristen på billig olja pressade upp priset till över $100 per fat.
Den 3: je augusti 2013 kommer nästa nummer av The Economist att ha en framsida där en dinosaurie håller i en droppande slang från en bensinpump. Det är intressant att The Economist väljer att ha en dinosaurie som håller i bensinslangen för i min bok ”Peeking at Peak Oil” visar vi att den största mängden olja blidades just då dinosaurierna vandrase runt här på jorden.
Då vi började skriva boken hade vi också en dinosaurie som markerade ”Peak Oil” och bilden från förstasidan på The Economist ger mig nu möjlighet att också visa denna bild. Årtalen 2009 till 2013 kommer från Colins och min artikel om Peak Oil från 2003.
The Economist tror inte att det är brist på olja som orsakar en produktionstopp: “This is not the “peak oil” widely discussed several years ago, when several theorists, who have since gone strangely quiet, reckoned that supply would flatten and then fall.” Anledningen till att The Economist tycker att vi inom ASPO, the Association for the Study of Peak Oil and Gas, är tysta beror på det faktum att ledande tidningar som Wall Street Journal, New York Times, The Guardians och The Times inte accepterar de artiklar som vi skriver. Vi har inga rika oljebolag som backar upp oss. Vad vi sett det senaste halvåret är att all som skriver att ”fracking” skall lösa alla problem har fått stort utrymme i pressen. Personligen publicerade jag förra året boken ”Peeking at Peak Oil” och jag rekommenderar nu ledarredaktionen för The Economist att läsa den som en motvikt till alla de artiklar som säger att vi inte behöver oroa oss.
Kommentaren ”in the rich world oil demand has already peaked: it has fallen since 2005” är intressant och kan förklaras. Figur 19.3 i min bok visar att den volym olja som är tillgänglig för export nådde ett maximum 2005 och då det är den rika världen som importerar olja är konsekvensen att konsumtionen eller “demand” minskar i den rika världen. Det faktum att priset på olja ökade från $10 per fat 1999 till över $100 per fat borde få varje rättrogen ekonom att förstå att vi nu har en brist på olja.
Det är nu min förhoppning att artikeln i The Economist skall aktivera Peak Oil debatten.
Tom S
August 2, 2013
Kjell,
It appears that the Economist article from 1999 was quite wrong about future oil production and prices. However, predictions by peak oilers from that era were also quite wrong. Most peak oilers were predicting a peak of all liquid hydrocarbons, followed by declines, starting in the mid-2000s or so. For example, I find the following graph (from Colin Campbell) predicting that all liquid hydrocarbons should have declined by more than 20% by now:
Back then, peak oilers were claiming that future oil production could be predicted using curve-extrapolation techniques such as Hubbert Linearization. In retrospect, it appears that such methods break down completely when prices change or when new technologies are developed.
Methods such as Hubbert Linearization didn’t work even when predicting regular, conventional crude. Such methods may have predicted an increase in prices and an end to production growth. However, they also predicted substantial declines of production which have not occurred.
Those incorrect predictions may explain why newspaper editors are reluctant to publish articles by peak oilers. Newspaper editors may think it’s the “same old theory” which is now discredited.
I think that peak oilers need to modify their theory in light of new evidence. Also, they need to explain clearly what they got wrong, and why the new theory avoids those mistakes. If they do so, and they produce a “new peak oil theory”, then they might re-ignite the debate.
I’m not saying that peak oilers are the only ones who got predictions wrong. It’s difficult to predict future oil production and prices. Almost nobody got it exactly right, and some people got it quite wrong. With that said, some things about peak oil theory are mistaken and need to be modified, in my view.
Best,
Tom S
Tom S
August 3, 2013
Kjell,
There may be another reason why peak oil theory is ignored. Soon after Campbell and Lahererre issued their predictions, a peak oil doomsday group appeared in the US, and grew very rapidly. Before long, the peak oil doomsday group was much larger and louder than the original peak oilers.
Back in 2007, you could read the comments below almost any newspaper article about energy, and find a rash of comments by peak oilers that civilization was about to collapse, that we must all learn to make our own clothes from animal hides, and so on.
The peak oil doomsday group is pure nonsense, and it’s embarrassing. It’s pure quackery. They use all the techniques of doomsday groups, and it’s obvious. Being associated with them is just poison. People in the USA know to ignore it whenever some strange small group says the world will end, because we have experience with such groups. Perhaps you have the same thing in Sweden; I don’t know.
The legitimate peak oilers never made much an effort to distance themselves from the doomsday group. That was a mistake, in my opinion. To outsiders, it may not seem like there’s much of a division between the doomsday movement and the peak oil movement as a whole.
I think it’s important for you to post something on your blog that “civilization is not collapsing” or something similar. Be bold about it, because the doomsday members will always be bolder than you are. They will argue with you. They’re very confident, and will ask how you can fail to understand anything so obvious as our inevitable destruction. They’ll say you’re in denial because of the sheer terror of thinking about the inevitable collapse. They might even drop you as a source. That’s a good thing.
-Tom S
Michael Lardelli
August 3, 2013
I think the two posts here by Tom S are very interesting. Colin Campbell (?) does indeed appear to have labelled the graph Tom points to as “All liquids”. However, I imagine that the prediction in that graph was based predominantly on the behaviour of conventional oil? If so then it was an error to use the “all liquids” descriptor since at that time the behaviour of the system (and the predictions derived from it) would have been dominated by conventional oil and the consequent predictions would have really have addressed conventional oil which did, in fact, peak in 2005.
On Tom S’s point on the peak oil doomsday commentariat, I would also agree but not completely. A decade ago there was very great concern that peak oil would mean a breakdown of our economic system so people were extremely worried. Also, the connection between oil prices and economic behaviour was not fully appreciated which meant that it was common then to expect oil prices to rise to hundreds of dollars a barrel – something we know now probably will not occur (at least in inflation-corrected terms) since high oil prices lead to recessions that kill demand and decrease oil prices. But as I have commented under The Economist article, I believe the current move against Peak Oil is part of the campaign by the fossil fuel industry to maintain the confidence of investors. Climate change threatens consumer demand for fossil fuel products while peak oil/gas/coal threatens future supply to producer companies. Both look bad to investors and the oil industry requires hundreds of billions of dollars of investment a year. Of course they will oppose the idea of peak oil since it threatens investor confidence (and share prices).
Tom S
August 3, 2013
Michael,
Perhaps the label “all liquids” was made in error, as you indicate.
Even so, the predictions of peak oilers were too pessimistic, in my opinion. They did not foresee that higher prices would prevent subsequent declines in regular, conventional oil. They did not foresee the fracking boom.
I’m not claiming peak oilers were all wrong. Their predictions were accurate (more accurate than anyone else’s) on the left hand side of the Hubbert curve. They correctly predicted when conventional oil production could not be expanded any further. That is important.
However, their predictions about what would happen after the peak, were notably less accurate. They underestimated the effect of higher prices in forestalling any declines in production. They were caught off-guard by the massive, rapid, unprecedented capital investment in fracking.
Peak oilers’ predictions about the economy, were much worse than their predictions about future oil supplies. They did not correctly anticipate how industrial society would respond to more expensive oil. For example, they wrongly predicted that ocean shipping would end or be curtailed, that food production could be disrupted, etc. Even Colin Campbell sometimes made predictions like those.
It was a mistake for peak oilers to make predictions about the economy, in my opinion. I think peak oilers should refrain from making such predictions. Economics is not easy. All kinds of things which seem intuitive or obvious, are actually wrong. Peak oilers are making a big mistake if they assume they already know more about economics than economists do.
-Tom S
Michael Lardelli
August 4, 2013
Tom, the problem I have with economics is that mainstream economic theory does not provide reliable predictions of economic behaviour and so it is not valid “science”. However, the human economy must obey the laws of nature including the energy laws which are some of the most thoroughly tested of all scientific theories. The behaviour of the human economy is far more predictable when energy flow is considered. This is covered in the book, “Energy and the Wealth of Nations: Understanding the Biophysical Economy” by Charles Hall and Kent Klitgaard. Colin Campbell did, in fact, predict the global economic crisis in 2005 – you can see it in a YouTube clip:
The news on the fracking side is not good either. The “boom” looks to be pretty much over by 2020 (see the http://www.shalebubble.org website) and that will be a real problem because we cannot see much else that is expandable to fill the gap it will leave as the conventional production continues to decline. We should hope that the decline rate in oil production is slow on the other side of the current plateau but that is unknown.
Not everyone predicted that ocean shipping would be immediately curtailed by peak oil. In fact, since shipping is the most energy efficient way to move goods and since it relies on the heaviest grades of fuel some predicted that it would be least affected. In contrast, Aleklett and others have pointed to the severe fuel-price sensitivity of aviation and we can see what a mess that industry is in now. In Australia we have seen what looks like an effective takeover of Qantas by Emirates and with the Middle East as the last large supplier of crude oil that makes strategic sense.
In the end the performance of the economy will always reflect the physical limitations placed on it by what is possible in terms of energy production. In the shorter term, there will be relatively rapid fluctuations in activity as predicted by Nicole Foss but the longer term performance must adhere to the limits imposed by nature and peak oil/gas/coal.
Bodis
August 4, 2013
Jag väntar fortfarande på den Svenska översättningen på Peeking at peak oil har du någon hum om när den kommer?
Tom S
August 4, 2013
Michael, you said:
“Tom, the problem I have with economics is that mainstream economic theory does not provide reliable predictions of economic behaviour and so it is not valid “science”.
In my opinion, economics is a science even if they don’t have everything figured out. The word “science” doesn’t imply completion or perfection. Obviously there’s more to learn.
You said:
“However, the human economy must obey the laws of nature including the energy laws which are some of the most thoroughly tested of all scientific theories.”
Of course the human economy must obey the laws of physics. I don’t think there is anything in economics which contradicts those laws. (Ignore anything you hear that economics is based upon infinite growth or anything like that). If there is something in economics which is physically impossible, then of course you should point that out. Beware of a trap though: many people in the peak oil movement learn what economists think from each other.
-Tom S
Michael Lardelli
August 4, 2013
To be a science, a discipline must follow the scientific method. This involves rejecting theories that do make reliable predictions. Economics has failed to do this and so it is not a science. There is a very clear description in Hall and Klitgaard’s book of how conventional economics violates the laws of nature and this has also been covered by others such as in Davies’ book “Economia” and even in an article in Scientific American:
http://www.scientificamerican.com/article.cfm?id=the-economist-has-no-clothes
Tom S
August 4, 2013
Michael, you said:
“Colin Campbell did, in fact, predict the global economic crisis in 2005 – you can see it in a YouTube clip:”
Colin Campbell has predicted all kinds of disasters. Right now, I’m looking at his essay from around 2000 called “The Imminent Peak of Global Oil Produciton”. In the conclusion of that essay, he predicts the following things: 1) the inequality between rich and poor nations would increase; 2) agriculture is at risk of decline because of declining oil supplies; 3) the global market could wither from high transport costs; 4) countries would need to become more self-sufficient; 5) the risks to the climate could recede (presumably because of lower carbon emissions?)
All of those things were wrong. Emerging economies have converged upon developed economies, contradicting point #1 above. Agriculture has not declined, contradicting point #2. The global market has not receded, and the value of trade between the advanced economies and china has increased, contradicting #3. Countries have not become more self-sufficient, except perhaps the US because of its fracking boom, which is not what Cambell was predicting, so this contradicts #4. Carbon emissions continue to increase, contradicting #5.
As for the video. He predicts both a recession and a severe slump of the stock market. However, the last few years have been fantastic for the stock market everywhere.
He may have predicted a recession, but that prediction is so imprecise that it’s not worth anything. If you say “we’ll have a recession in the future”, you’re 100% certain to be right because recessions are periodic. Of course it will end up to be true, sooner or later, but that doesn’t mean the theory which implied it is correct.
-Tom S
Tom S
August 4, 2013
Michael, you also mentioned Nicole Foss in your post. You said:
“In the shorter term, there will be relatively rapid fluctuations in activity as predicted by Nicole Foss”
That prediction by Foss’s is so imprecise that it’s not worth anything. There are often rapid fluctuations in stock markets, financial markets, and so on. Anyone can predict that, because it’s always happened. That’s like saying “the wind will blow hard, some time in the future”.
The question is, has she made any more specific predictions.
I remember reading an interview with Nicole Foss in 2010. Let’s take a look at what she was predicting back then. A few years have passed, so we can tell by now, if the things she predicted have come to pass. (The interview is available here: http://transitionvoice.com/2010/12/nicole-foss-extended-interview/)
From the interview:
“They have to get through the deflationary period if they are going to retain the freedom of action to deal with those crises.”
Repeatedly throughout the article, she refers to a serious upcoming deflationary period. That did not occur, quite the opposite.
“We will be swimming in energy for a couple years while demand is low [after another crash]. But this also means there will be no additional investment no exploration no maintenance…”
That was exactly wrong. The opposite happened. There was massive capital investment in oil and gas extraction, by far the largest ever, after she was claiming there would be “no” additional investment.
“The measures appear to have worked because there was a stock market rally to support them… But this rally is topping and is now very close to a sharp move in the other direction and that is going to undercut support for government policies.”
That was exactly wrong. The opposite happened (again). There hasn’t been a sharp decline in stock markets. Quite the opposite, stocks have increased to all-time highs.
“Prices [for oil] could go down quite sharply as low as $20 a barrel.”
Prices of oil have not declined to $20 a barrel after 2010, quite the opposite.
“If anything, the fact that I am not a formally taught economist carried more weight with many who were there at the ASPO conference.”
That much may be true, unfortunately…
“I would argue now that cash is what will hold its value while property and other assets will not.”
That was exactly wrong. Cash and equivalents have done poorly while other assets have done well. It would have been better to dump cash and buy stocks, which is the opposite of what she was prescribing.
“They [Chicago school economists] define money too narrowly so they don’t understand why deflation is coming.”
Deflation has not come. Instead, we’ve had mild inflation.
“They may bring in rationing programs but it could be delayed.”
It’s been 3 years now, and there have been no rationing programs.
“But because property [real estate] has further to fall…”
Again, the exact opposite occurred. Real estate has rebounded.
“I think suburbia is a trap. [In urban areas] you are more likely to have services like power and heat and gas. Suburbia could easily become slums: you would only live there if you had no other”
Suburbia continues to have power, heat, and gas. Suburbia has not become a slum.
“I do think they need more of a sense of urgency than they have.”
She not only predicted disaster (in 2010) but saying we must prepare URGENTLY. Presumably, she was not talking about a “slow decline” here.
…So there we have it. All of those predictions are taken from a single, brief, 8-page interview.
I have never seen so many predictions that were exactly wrong (nearly the opposite of what occurred, in most cases) in such a short period, outlined in such a short piece. It must be some kind of record.
Nicole Foss doesn’t know what she’s talking about, and she seriously misunderstands these issues. I don’t know how to put it any nicer than that (and I can think of less nice ways of putting it; I had to revise that sentence several times). She would be better served if she studied and understood what others have discovered and written about this topic. Foss does not have as good a grasp of these issues as a typical 1st-year undergraduate in economics.
Nobody who understood these issues would have made any of those predictions. I’m not saying economists have things 100% right, or even close to it, but they would have easily avoided all the errors she is making.
In my opinion, this is precisely the reason for the severe credibility problem which the peak oil movement has. They didn’t just predict peak oil. They predicted a whole list of other things, none of which have occurred. Many of their predictions were just drastically wrong. They have nearly a 100% failure rate of prediction, except when their predictions are so broad (“there will be a recession in the future”) that it was obviously inevitable anyway.
I consider this trend to be most unfortunate, because I believe that peak oilers have some important things to say. For example, their Hubbert linearization technique, and other kinds of curve extrapolation, did correctly predict that conventional oil production could no longer grow. That’s very important information.
The problem is, the legitimate scientific theory is drowned in a sea of quackery. Every time one of their economic predictions fails drastically (which happens often), people outside the movement say to themselves: “peak oil weirdos got it wrong again”. It leads to a severe credibility problem, and might explain why Aleklett is having trouble getting peak oil stories published these days. I realize that Aleklett never participated in any of that nonsense, but he might be tarred with the same brush.
If peak oilers had confined themselves to predicting future oil production, their reputation would be vastly better than it is.
Best wishes,
-Tom S
Michael Lardelli
August 4, 2013
It is strange that you should be so harsh on the peak oil commentariat Tom when mainstream economists also make a myriad of different predictions many of which are wrong and some of which are right simply because, with so many different predictions out there, some of them chance to be correct. And yet you do not criticise them but you expect the peak oilers to sing as a harmonious choir and make precise predictions about the future. Certainly the predictions of blog writers etc have been inaccurate but you would find the peer-reviewed scientific literature to be more consistent – focussing as it does on oil production rather than economic effects. Many of the predicted effects of peak oil are predictions regarding decreasing world production, not flat production as we have now.
There are many who would point to the current economic situation as reflecting massive money printing rather than growing economies with increasing oil use. Some of Nicole Foss’ predictions do appear premature but then the economic rules have been altered so radically – e.g. banks not required to “mark to market” their assets, massive secret loans from the US Federal Reserve to European banks, etc. Personally, I am quite amazed by the ability of the world financial system to be held together by such games but none of the underlying problems have been solved – the debts remain and increase in size, the ability of the western nations to compete for the stagnant oil production declines meaning their economies cannot grow. Unemployment among the youth in Spain has now topped 70% ! etc. etc.
I agree with Foss that urgent preparation for energy decline is required. Since governments will not do this it is up to individuals to do what they can. You probably do not think so and so you will make your choices and live with the consequences just as I will. You may think that I am misguided and that I am wasting my time and money but that is my choice.
David B
August 14, 2013
>>what we have seen in the past half year is that everything in the press has focussed on how “fracking” will solve all our problems.
When any new technology with some promise is introduced, the media always tends to cover it ad-nauseum and over-hype it. Sometimes this muddles the reality behind it. I wonder if the whole hoopla about Shale and Fracking may be along the same lines here.
Trust me, I’d love for this technology live up to its hype because it would likely mean that our dependence on Middle East oil would be significantly lessened. And we needed that yesterday!