Found via the Volokh Conspiracy, a link to an op-ed in the Times, one touted as “read this if you believe in Peak Oil and there’s a chance you no longer will” by Stephen Dubner on Freakonomics, as well.
Now, personally, I think the whole question of where we stand on the Peak Oil question is moot, so I haven’t spent too much time comprehensively reading about it. Burning hydrocarbons (whether you’re using oil or coal, and to a lesser extent natural gas) is simply not sustainable as a long-term energy plan. Regardless of whether we’re close to crisis or far away, we know we are too dependent on hydrocarbons, we know they’re bad for the environment and they’re bad for us, and we have several possible alternatives that we can explore. Just start doing it, already. As an aside, Mr. Dubner, your claim that energy companies are doing this is both laughable and extremely poor reporting… the major players in the energy field are all publicly held companies. Their financials are available online (here is Shell’s, just to get you started if you want to go look at some really big numbers).
The U.S. Army has expenditures related to international aid missions, that doesn’t make the U.S. Army an aid organization. Shell, Chevron, BP… they all have alternative energy divisions. Look at the numbers, dummy. There’s a reason they’re still called oil companies. Virtually all of their capital assets are oil production facilities, oil pumping facilities, natural gas facilities, pipelines, distribution centers, subsidiaries, you name it. They’re all designed to move oil, refined gasoline, and natural gas around. This is a huge amount of money. What’s their investment in renewable and alternative sources as a percentage of their overall portfolio? I’ll let the reader go and find out, but I’ll give you a hint: replacing petroleum with any other energy source is an economic investment that makes the Manhattan Project look like a kiddie game of Monopoly.
Mr. Dubner’s Freakonomics partner Mr. Levitt offered these two points on a recent post:
What most of these doomsday scenarios have gotten wrong is the fundamental idea of economics: people respond to incentives. If the price of a good goes up, people demand less of it, the companies that make it figure out how to make more of it, and everyone tries to figure out how to produce substitutes for it.
… but, Mr. Levitt, you’re an MIT-trained economist, for Christ’s sake. You must know this is a vastly oversimplified (to the point of being absurd) analysis. Supply and demand is pretty easy to compute when you’re talking about elastic resources like a luxury good. When you’re talking about fuel, there is a point beyond which people can’t consume less (like, say, if you’re in the Northeast during a 100-year blizzard, you turn on your natural gas furnace, or you… ya know… die!) When you’re talking about a basic good that has become coupled to another basic good (about 1/3 of the world depends on food grown via inorganic fertilizer, produced currently courtesy of… the petroleum industry), the elasticity drops critically at the low end of supply. Without “enough” oil, basic life sustaining functionality goes away, and people starve to death, freeze to death, etc. Granted, this will indeed have an effect on demand, driving the price back down (get rid of 5 billion people, our energy resource problem is suddenly a whole ‘nuther ball of wax)… but that’s not precisely the sort of externality we want to ignore.
Another side note: with regards to substitutes, there is the additional problem that the costs of those substitutes are not well understood, because they’re not used on the same scale as petroleum. Bumpin’ things up a notch has some interesting side effects. One example from the Wikipedia page on Peak Oil:
A 2003 article in Discover magazine claimed that thermal depolymerization could be used to manufacture oil indefinitely, out of garbage, sewage, and agricultural waste. The article claimed that the cost of the process was $15 per barrel. A follow-up article in 2006 stated that the cost was actually $80 per barrel because the feedstock which had previously been considered as hazardous waste now had market value.
Say what you like about Wikipedia as a source (and yes, there are problems with using Wikipedia as a source), at least they know how to put links in their articles to source material. Back to Levitt’s piece:
I don’t know much about world oil reserves. I’m not even necessarily arguing with their facts about how much the output from existing oil fields is going to decline, or that world demand for oil is increasing. But these changes in supply and demand are slow and gradual — a few percent each year.
To quote those Wikipedia overlords, “Citation needed”. Even if this is historically the case, past behavior is no guarantee of future performance. This is one of the core principles of the Peak Oil hypothesis: that the changes in demand will steadily grow, but that the change in supply is about to drop precipitously. You can counter this by explaining *why* you believe a precipitous drop will *not* occur, but you can’t counter it by pretending that the Peak Oil folks aren’t claiming it to begin with. It’s pretty hard to claim any credible stance on the issue when you start off by saying “I don’t know much about world oil reserves“. Given that this is the case, how can you make any sort of reasonable claim about supply?
ALL that aside, the original op-ed piece that got me fired up is a classic example of wretched argument. Here’s a deconstruction.
On the whole, I expect economists to understand supply and demand better than geologists. On the whole, I expect geologists to understand the actual geological supply and oil technology better than economists. On the whole, I expect both groups to make higher math errors when trying to model complex related rate problems, as modeling is a wicked problem. The “if it runs out, we’ll just move to something else” idea belies the huge capital infrastructural cost of migration, no economist worth his salt would haul out such a simplified analysis. I’m getting really tired of wide-claiming op-eds and articles that make a number of broad assertions without supplying any sort of credible evidence to back up their claims. From the op-ed, some choice tidbits:
…along comes Fatih Birol, the top economist at the International Energy Agency, to insist that we’ll reach the peak moment in 10 years
Top economist at the IEA sounds like someone who has at least a reasonable claim at being a credible expert. If you’re going to argue against claims set forth by this person, I hope you have some big guns to bring to the fight (spoiler alert: none cited).
Peak oil theory has been promoted by a motivated group of scientists and laymen who base their conclusions on poor analyses of data and misinterpretations of technical material.
What data? Which technical material? On what basis can you reasonably make the claim, “their conclusions are based on faulty data”? You’re not a geologist, whose reports are you reading? What are your sources?
A careful examination of the facts shows that most arguments about peak oil are based on anecdotal information, vague references and ignorance of how the oil industry goes about finding fields and extracting petroleum.
What facts? Under what grounds do you propose that you, Mr. Lynch, have a better understanding of how the oil industry finds and extracts petroleum than people who are geologists? Your snippet bio indicates that you have some claim to credibility, but without knowing more about the Center for International Studies at the Massachusetts Institute of Technology, we don’t know if your background is in management, economics, political science, geophysics, or what. This is obviously a transdiciplinary problem, how do we know you’re not the proverbial blind philosopher trying to describe an elephant?
One leading proponent of peak oil, the writer Paul Roberts, recently expressed shock to discover that the liquid coming out of the Ghawar Field in Saudi Arabia, the world’s largest known deposit, is around 35 percent water and rising. But this is hardly a concern — the buildup is caused by the Saudis pumping seawater into the field to keep pressure up and make extraction easier. The global average for water in oil field yields is estimated to be as high as 75 percent.
This paragraph is utterly meaningless without additional context (see The Law of Diminishing Returns). We aren’t provided any information about the Ghawar Field (here’s some). If the global average for water in oil field yields goes as high as 75%, what does that mean? What is the effect of rising water percentages in the yield efficiency? Are fields that have 75% water return as productive as those with 35%? What is the difference in production costs? Is 75% the cap? Can the Ghawar Field support 75%?
When a new field is found, it is given a size estimate that indicates how much is thought to be recoverable at that point in time. But as years pass, the estimate is almost always revised upward, either because more pockets of oil are found in the field or because new technology makes it possible to extract oil that was previously unreachable.
This is somewhat misleading, and again utterly meaningless without a diminishing returns analysis. Oil fields are usually given two estimates; an overall size, and a recoverable size. The recoverable size limit certainly is revised upward, because new technology does make it possible to extract more oil than the technology that existed when the field was originally discovered. But unless you have credible evidence that oil fields are being regenerated (that is, some geological process is in fact feeding more oil into a field), the point remains that at some point the field runs out of recoverable oil.
Yet because petroleum geologists don’t report that additional recoverable oil as “newly discovered,” the peak oil advocates tend to ignore it.
This may or may not be true. Without some sort of evidence, it’s nothing more than a veiled ad hominem; “they’re lazy and therefore wrong.”
A related argument — that the “easy oil” is gone and that extraction can only become more difficult and cost-ineffective — should be recognized as vague and irrelevant.
If it’s formulated that way, yes, it’s vague… it’s not necessarily irrelevant. Again, you’re missing the context of diminishing returns. This is a foundational principle of economics, claiming that it’s irrelevant casts doubt on your ability to provide a reasonable economic analysis. The argument may be currently *wrong*, because oil exploration technology is advancing fast enough to keep up with the diminishing returns curve for now, but again at some point there is no more recoverable oil in the field. It doesn’t matter how great your extraction process is if there’s nothing there to extract. Oh, and it’s not just Peak Oil theorists that make these statements, oil company execs have said it as well.
When their shaky claims on geology are exposed, the peak-oil advocates tend to argue that today’s geopolitical instability needs to be taken into consideration.
So far you’ve done nothing to warrant labeling the claims on geology as shaky (if anything, your argument has strengthened the other side, as you’ve lacked any sort of substantive evidence). The rhetorical device here is transparent, “See, their last claims stunk! I’ll use coupling to frame the rest of this sentence to imply that their next claim isn’t even relevant!”
When the large supply disruptions of 1973 and 1979 led to skyrocketing prices… All sorts of policy wonks, energy consultants and Nobel-prize-winning economists jumped on the bandwagon to explain that prices would only go up — even though they had never done so historically. Prices instead proceeded to slide for two decades, rather as the tide ignored King Canute.
Historical comparisons are of value only so long as major conditions don’t change, or are accounted for properly in your analysis. Massive industrialization of China and India (represented by huge upswings in those countries’ GDP in the last two decades) has rather changed the game, wouldn’t you say? Or not? I’m not an economist, but if not, can you explain why not? Prices dropping over a 10 year window don’t necessarily indicate anything interesting. Production and consumption are the metrics you need to measure, here. If production exceeded consumption, of course prices would drop in the short term (yes, Virginia, a decade can be regarded as short term). If those “Nobel-prize winning economists” (side note: Who? And why wouldn’t they qualify as an expert?) made a prediction based upon production and consumption, was the prediction actually wrong? Without knowing which faceless Nobel-prize winning economist the author is talking about (there aren’t that many, m’friend, call out the names!), we have no way to research their actual claims. I smell a Straw Man around here, somewhere.
Just as, in the 1970s, it was the Arab oil embargo and the Iranian Revolution, today it is the invasion of Iraq and instability in Venezuela and Nigeria. But the solution, as ever, is for the industry to shift investment into new regions, and that’s what it is doing.
Do I really need to point out the glaring problem with these two sentences? Here’s a deck of 52 cards. I’ll buy any card that you flip over off of you for $1. However, if you flip over a face card, you have to pay me $0.10. You must flip over a card every minute.Sounds like a good deal, right? Anybody would play that game.
Oh, did I forget to mention that when you’re out of cards you have to shoot yourself in the face?
Still want to play? This shell game works as long as there are shells to turn over. Unless you’re going to start talking about the economic feasibility of using Titan as a source of petroleum, you can’t just continue to “shift investments to new regions”… sooner or later, there are no more worlds for you to conquer.
In the end, perhaps the most misleading claim of the peak-oil advocates is that the earth was endowed with only 2 trillion barrels of “recoverable” oil. Actually, the consensus among geologists is that there are some 10 trillion barrels out there. A century ago, only 10 percent of it was considered recoverable, but improvements in technology should allow us to recover some 35 percent — another 2.5 trillion barrels — in an economically viable way.
Like I said up above, I haven’t read a lot of the Peak Oil literature, so I have no way of knowing how accurate this characterization may be (and I’ve already spent too much time on this post as it is). There may be looney bin Peak Oil people who don’t understand the difference between what the economically viable supply and the actual supply. But even if they don’t understand, that doesn’t mean that they’ve introduced a very big error into their analysis. Let us assume that the 10 trillion barrel figure is correct. Let us assume that 100 years ago, 10% was an accurate recovery figure. Let us further assume that today, 35% is an accurate recovery figure. What does that tell us? (spoiler alert, not much, actually)
Well, it tells us that it took 100 years to increase our recovery percentage by a factor of 3.5. Does that mean we can increase that factor by the same rate? Is the rate of recovery change increasing, or decreasing? Will we get another 3.5 factor in another 100 years? Or will it be in 10 years? Or will it take 100 years to change our recovery factor by even an additional 2%? Or is our recovery rate going to go *down*, because we lose capabilities that we currently have? Technological capability isn’t just a matter of engineering, it’s also a matter of politics. You can’t really open pit mine anymore in the United States with the exception of grandfathered sites. How many existing oil technologies might we actually *lose* as their environmental cost becomes better understood? If you’re publishing an op-ed on the subject you should have ready answers to these questions, no?
Mr. Lynch’s premise may be entirely correct. Peak Oil may be a bunch of hooey.
But if this is supposed to be a credible analysis, I’ll eat my foot.
[edited] A piece explaining the other side (relies on an overly heavy personalization voice to get their point across, but at least it isn’t full of cruddy logic).