Summary: Perhaps our #1 obstacle to our preparation for Peak Oil is our ignorance. Energy research — both collection of data and its analysis — is grossly underfunded, so even our top experts are reduced to inspired guessing. In past articles I have illustrated it using larger issues; this post will examine one small but critical example. We can do better. The funds required to better fund DOE and private researchers is a pittance compared to that squandered on our Middle Eastern wars and bailouts of Wall Street.
The elephant was great and powerful, but preferred to be blind.
— David Halberstan, The Best and the Brightest:
Everyone familiar with the literature about oil knows that national reserve figures are considered state secrets by many nations, including Saudi Arabia. What few know is that this is also true of oil export numbers. So where do those precised numbers come from that we see in reports, and analysed and extrapolated to ten decimals in posts on The Oil Drum (that’s an exaggeration, of course)?
I asked this question in several posts, and received only one answer. MFP, who runs the data-rich blog Net Oil Exports, correctly said that this data comes from networks of agents who track tanker traffic. More precisely, there are several sources of data about Saudi exports. Too bad they do not agree.
- The Joint Oil Data Initiative (JODI) — data straight from the source, but there are questions about its accuracy.
- Tanker traffic monitors: such as Petrologistics (the best-known, the most mysterious), Lloyds, and Oil Movements.
- Analysis of oil imports, refining, and consumption.
- Data leaked by the Saudi’s, valuable but of uncertain origin.
Petroleum Intelligence Weekly, the EIA, IEA, BP, the CIA — each collects these scraps of data and estimate the total. The totals are precise, but do not agree with one another. Often by substantial amounts. Which is right? Only the Saudi’s know. Despite Matthew Simmons’ pleas for data transparency, the Saudi’s see this as more of a global poker game than a camp fire sing-along (“Kumbaya, my Lord, kumbaya“).
Speaking of Simmons, an astonishing amount of our oil-related insights come from him (an investment banker). Here is his illustration of the fuzzy numbers, from “The 51st State: Peak Oil Denial“, 26 October 2006 — Slide #28.
SAUDI OIL PRODUCED 2001 2002 2003 2004 2005
BP Statistical Report 9.26 8.97 10.22 10.50 11.00
IEA Saudi Oil Supply 7.70 7.38 08.48 08.60 09.06
Saudi Aramco Annual Report 7.60 6.80 08.10 08.60 09.10
SAUDI OIL EXPORTS
IEA Member Country Imports 4.38 4.16 04.65 04.56 04.55
Saudi Aramco Annual Report* 5.97 5.20 06.46 06.79 07.19
Implied Exports Outside IEA +1.59 +1.04 +1.81 +2.23 +2.64
* total crude exports
This uncertainty about the quantity available of the vital input to the world economy has had significant effects. There was the disruption of oil markets due to the “missing barrels” in 1998. This summer oil prices dropped in part because of rumors about a flood of oil heading to the US, a fleet of oil tankers that never arrived.
I have not even found an analysis comparing these numbers to rate their relative accuracy.
This is just one illustration of a serious problem hindering our preparation for peak oil. Unfortunately for us, there are many more examples. We can and must do better.
Note: due to time pressure, I have not verified this post to my usual standards (such as they are). Corrections are appreciated.
Please share your comments by posting below. Please make them brief (250 words max), civil, and relevant to this post. Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).
For more more information
Some posts about unconventional and alternative energy sources
- Links to articles and presentations of some A-team energy experts , 11 November 2007
- The most dangerous form of Peak Oil , 8 April 2008
- The three forms of Peak Oil (let’s hope for the benign form) , 23 April 2008
- The world changed last week, with no headlines to mark the news, 25 April 2008
- Fusion energy, too risky a bet for America (we prefer to rely on war) , 4 May 2008
- Peak Oil Doomsters debunked, end of civilization called off , 8 May 2008
- When the King of Saudi Arabia talks about oil, we should listen , 2 July 2008
- Red Alert: the Saudi Princes have annouced the arrival of Peak Oil , 11 July 2008
- Good news about oil, but for our grandkids – not us , 14 July 2008
- The secret cause of high oil prices , 6 August 2008
A series about energy myths
- Our massive reserves of unconventional oil.
- We’ll run crash programs to solve peak oil, just as we mobilized for WWII.
- Demand creates supply, by raising prices.
- Oil is Oil, even if it is not oil
- Demand creates supply, from new technology.
- The greenest of energy: inedible biofuels
Here is an archive of all my articles about Peak Oil.
To see studies about energy — including oil, coal, nuclear, and alternative energy – see the FM Reference Page: Peak Oil – Other Resources.
Seems like we will reach peak oil without knowing it. Maybe it is time to seek more transparency in this field , but is more transparency an accepted measure by the Oil Lobby , and how could it be enforced worldwide?
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Fabius Maximus replies: As Matthew Simmons has shown, peaking is usually recognized only afterwards. Also, how does transparency benefit oil producers? I have tried that at my weekly poker games, asking the others to show me their cards in the interest of tranparency (we are all in this together). It never works.
Also, the “oil lobby” as a global force is a thing of the past. The global oil supply is increasingly controlled by the governments of the major oil producing nations. The large international oil companies control neither supply, distribution, nor technology.
This is an important issue and more difficult than you indicate.
I recently spoke with a guy who was hired to audit Department of Energy reports in the 1980’s. He found considerable discrepancies between the reports for everything including the amount of oil received in the US for a given week. He drilled down into that number and determined that the discrepancies came from the fact that each bureau had its own (very different) definition of what is “crude oil” and of when the oil arrived in the US (do you count the amount in port or in the refineries? Do you count it if it is in a storage tank in Puerto Rico? What about security concerns around the Strategic Petroleum Reserve, do you count that or not?). What do you do when a port fails to report on time? Do you fudge the number and deliver the report on time with potentially bad information or do you delay the report for the good information? He said it was such a nightmare that the audit was eventually cancelled by the people who had requested it.
Trying to solve the strict definition of the problem that Fabius presented, can we arrive at each country’s production numbers by asking customers how much oil they received, when, and from whom?
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Fabius Maximus replies:
“This is an important issue and more difficult than you indicate.”
On what basis you say that this is “more difficult than” I indicate.
Back in July I made an interview (more than two hours long) with a Danish expert from the Energy Department in Denmark about the oil crisis, our national oil reserves and the question of peak oil. At that time I was convinced that war with Iran was imminent, which is why I requested the interview. I was stunned when he said that to avoid any oil shortages the only country which could do something about it was Saudi-Arabia. He was confident that they had a lot of untapped oil fields left – perhaps for more than a hundred years. I asked him how he could possible be sure, since Saudi-Arabia is as closed as the Kremlin was back in the Soviet period. Well, that was a reasonable question, but he was still confident that they had the oil the world needed. I then asked: Even if they had that much oil left would they be willing to share it with us? Would it not be more reasonable for them not to pump too much oil into the market in order to preserve their oil fields for future generations? To rise prices, earn more money and preserve their oil fields? He was certain they would sell the oil, because the world would need them to do so.
What I really considered to be shocking was the fact that we are so dependent on Saudi oil and nothing remotely can replace it. Not even Russia (just in case we wanted the Russians to replace the Saudis). He made that quite clear. Even if they have all the oil we would need (today and in twenty-thirty years time) we would still be at the mercy of a regime that created Wahhabism and helped to create Al Qaeda. Since I am very far from being certain that they have the oil we need things seems even more serious.
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Fabius Maximus replies: Until recently the plan was to rely on the Middle Eastern nations to increase exports as fields faded elsewhere. This is clearly seen in EIA and IEA forecasts. Several years ago Saudi representatives began hinting that this was neither realistic nor in their best interest. The King’s statement in April just made this official. The world has not yet adjusted to this new reality.
This post and the comments so far are an excellent first look into the topic. I’ve seen it discussed elsewhere, but never in a more succinct and rational manner. I have much more to say on the topic, but I just saw this and need to get to bed. I should probably email you tomorrow.
There is one problem that I need to point out. The BP numbers don’t belong in that grouping. They measure “all liquids” (I’ll go into detail about that if need be). All liquids is basically 9.0-9.5 million barrels per day of “C+C” (Crude + Condensate) plus 1.44 mbpd of Natural Gas Plant Liquids (“NGPL”, or “NGL”). Yielding the 11.0 mbpd that you see. The other agencies/sources typically don’t include that.
NGPLs only contain 50-60% the energy value of straight crude oil and are not a viable source for gasoline/kerosene (although they are integral to the overall petrochemical industry). I’ve learned this from Simmons.
This is important because frequently reporters don’t understand the difference and when it comes to discussing projected Saudi “capacity” it becomes even more confusing. Usually statements from the Saudis don’t do much to clarify what “oil” they are referring to. The result is that people debating the issue are often on two different pages.
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Fabius Maximus replies: I did not want to bring this post to that level of detail, as it was intended for a general audience. However, that is an important and confusing aspect of reporting of all oil-related numbers: the large number of definitions for “oil.” Sometimes even meaning “all liquids” — including biofuels. The Oil Drum status reports do an excellent job distinguishing between these numbers, but their example is followed too seldom.
Two concepts re: this post.
1. Easy part. Demand is flexible. How do the producers know the relationship of price to demand? Increasing prices reduce demand but not linearly. It’s an exponential curve. Some components are elective. Some components are necessary. Good luck figuring out where the corresponding lines are drawn without relevant experience. The two cross somewhere in America’s blind spot since the average American is very bad at mathematical constructs. What the foreign producers count on is they have an autocratic system which allows them to light balance supply based on free market feed back. For our control we rely on those average Americans. (Not to act like an elitist, I would on average bet on an American over the long run over anyone else on the planet, but those autocrats only care about how much $ they suck up. They’re not betting on their neighbors. They’re planning on moving to the U.S. or Europe when the gravy train runs out)
2. Hard conceptual experiential part: Lets say I’m a businessman. I have roughly 5000 stockholders and a world dominant resource extraction business. My entire world depends on that extraction. My biggest customer spends at most 10% of his income on my product. I am very wealthy due to my product, but potentially very vulnerable because its my only product.
My product will eventually run out. Would I not spend anything I can to get the world’s best minds to tell me how to stay ahead of the curve and make every dime I can off my product?
M. Simmons is a true American genius. In the Ben Franklin sense. But though he’s a billionaire he did his writing about peak oil in his spare time. I think the Saudis have his contemporaries, and many of them working full time. And it isn’t their hobby. Nor are they writing books.
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Fabius Maximus replies: I do not agree with most of this; I am not sure I understand much of it.
Is Simmons a billionaire; if so, from doing what? What has he done that shows genius? On what basis do you make this hostile evaluation of the Saudi Princes? Do you know any? I could go on, but in brief this comment looks quite specualtive.
fm,
Don’t avoid MFP’s detail. It’s so important. I’ve been telling people for years drilling oil is like cutting wood in a forest: you don’t get what you want you get what the forest yields. Much of it may be marginal as far as meeting demand. Most people don’t understand you can drill oil and get asphalt and gas. What good is it if you get miles of asphalt and no gas?
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Fabius Maximus replies: I am not ignoring it. In fact I wrote about this issue in a different context: “An urban legend to comfort America: oil is oil, even if it is not oil.”
But there are practical limitations. Readership drops rapidly as posts exceed roughly 1,000 words (which most of mine do, probably why I get no offers from advertisers). Also, while this is an important technical distinction — it is secondary to the core message of my post.
Re: my comment #5: Fair enough. I’ll explain better another time.
Re: my comment #6: “” “” I want your blog to stay on line.
Hey Fab, that bust looks a lot like Cato. If so, excellent choice of moniker!
Regarding running out of oil, or cheap oil that we can afford, it matters not what what will be produced or exported from oil exporting countries, it matters if you can afford to purchase it. Read a little over at Club Orlov. This financial crisis will soon transpire into a global debt and monetary crisis. If no one trusts the currency, then we’ll be reduced to offering other, hard assets, or services, or we will have no choice but to take by force what we can no longer afford to buy. Wanna bet what we’ll end up choosing to do?
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Fabius Maximus replies: Extreme outcomes are easy and fun to play with, but historically rare. Over thirty years I have seen hundreds of confident predictions of doom — none of which have come to pass.
The US dollar’s decline to date has already sparked a rapid rise in exports, helping us earn funds to pay for imports. If the major nations cooperate, which is in the best interests of all, then we can manage this transition with minimal pain.
What is a global monetary crisis? There is not global currency, no global central bank.
A perfect summary of this post, from a summary on The Oil Drum of Day 2 of the ASPO-USA conference:
“Jeremy Gilbert tried to sound a Wake-up call. He noted that in many reports of the remaining reserves and production the only reliable numbers are often the page numbers.”
You know Fab, I sincerely want you to be correct. I wouldn’t bet against oil depletion as being a major societal discontinuity, though. And, I agree that international cooperation is in everyone’s best interests. It’s easy to slip up and get wars started, though. As to international finance, I’m no expert, but it seems Americans may have a difficult time traveling abroad in the future, like in the old USSR days with the Russians.