Be Scared; Be Very Scared
A Commentary on the Global Energy Doomsayers
by Steven Schafersman
October 10, 2002 "Be scared; be very scared." That was the message given to us by Kenneth Deffeyes and Henry Groppe, participants in the UTPB Distinguished Lecture Series on October 3. They predict that that the oil production downturn has occurred or will occur this year or the next, and that this will lead to a global oil shortage, higher prices, a world economic upset, and possible political and military disruption as countries cope with the global economic effects brought about by a world energy shortage. This viewpoint has been labeled alarmist--a doomsday scenario--by the great majority of petroleum geologists and energy analysts who have investigated the issue. This large majority includes Guy Caruso and Michael Economides, the other two speakers at the Distinguished Lecture Series. Listeners who are not familiar with the problems of estimating petroleum resources and reserves might have come away from the roundtable discussion believing that the problem of an oil shortage is imminent and their own livelihoods might soon be seriously affected. Audience members were presented with two such diametrically opposed interpretations of the evidence that some confusion would be understandable, and the gulf between the two points of view is so vast that one can legitimately wonder how the "experts" could disagree so dramatically about this issue. In fact, as we shall see, by allowing the alarmist, doomsayer faction to present their case evenly with the optimists (as the alarmists/doomsayers term their opponents) or realists (as they term themselves), an uninformed listener might come to believe that there is a legitimate debate about the issue in industry and government, when in fact there is not. It was fair to give both sides equal time in such a setting, which after all is supposed to present a provocative or controversial, and thus interesting, topic for discussion, but inevitably the spectacle was misleading.
This doomsday or alarmist viewpoint, so ably advocated by panelists Deffeyes and Groppe, is shared by several other proponents, most notably by Colin Campbell and Jean Laherrere, both very experienced former petroleum company geologists who are now petroleum industry consultants. Their writings and much additional information about the oil depletion and energy shortage problems can be found at Energy Crisis (http://www.energycrisis.com/) and Oil Crisis (http://www.oilcrisis.com/), so we must give credit to the doomsayers for their excellent marketing techniques. These two websites are the product of EcoSystems, an environmental advocacy organization. Also, see the site Die Off (http://www.dieoff.org/), which covers this issue and complementary ones in great detail. These two consultants, joined by Kenneth Deffeyes, have made recent careers of writing articles, giving talks, and participating in debates and round table discussions about the impending global oil decline and energy shortage, and the dangers that face every person on the planet. They have been called modern-day Cassandras, and while most petroleum experts do not believe them, their alarmist presentiments and doomsday scenarios have found favor among many individuals, especially environmentalists who advocate greater conservation of energy resources and use of alternative and renewable fuels, but also for many other people who are merely concerned about air pollution, the price of gasoline for their car, or the security of their electricity supply.
Historically, the popular appeal of a doomsday forecast of declining world oil supply never seems to disappear, but why this should be the case is a mystery. Petroleum industry history books recount numerous times during the last hundred years when petroleum and geological experts predicted the imminent demise of civilization due to our planet running out of oil. Every one of these bogus predictions has been so thoroughly refuted by the spectacular increases in petroleum production over the past century, that such a prediction has become something of a joke among most petroleum geologists and engineers. So why should the present prediction of Campbell, Laherrere, and Deffeyes be any different? For most petroleum experts, the modern depletion prediction is not different--they believe that the three gentlemen-Cassandras are victims of self-deception, since there is no genuine scientific or economic reason to believe that oil depletion is right around the corner. Let's examine this issue in more detail, and present the primary opponents to the doomsday viewpoint--three eminent geologists--none of whom were present to defend the interpretation most representative of the petroleum industry and federal government, although Guy Caruso and Michael Economides did a credible job of defending that interpretation.
First, a few facts. Oil is indeed a finite, limited resource that will eventually be depleted and decline. But will we ever run out of oil? The answer is NO! As oil becomes scarcer, its price will rise until only the very wealthy can afford it, so there will always be some available at some price, although this fact may not be reassuring to most of us. Right now--and historically--oil is plentiful, and the price is low (current equilibrium oil price is $23 a barrel). After world oil production reaches its peak and begins its inevitable decline, it will necessarily become scarcer and thus more expensive. The greater expense--not the unavailability--of oil in the long term is what gives the doomsayers cause for alarm, since an irrevocable price increase in this most valuable of commodities will certainly negatively affect all national economies based on oil as an energy resource, and that includes the United States. The doomsayers calculate that the peak and subsequent decline are upon us now, but the evidence for that is extremely thin as we shall see later. In fact, the peak will probably be reached several decades from now, closer to the middle of this century.
Furthermore, when the peak and decline are reached--as must inevitably occur sometime in the future--why shouldn't the decline be gradual and steady, thus allowing economies to slowly but steadily transition to alternative and renewable energy resources? The doomsayers predict, again with no or little evidence, that when the decline begins the price surge will be enormous and chaotic, thus leading to political upsets and territorial wars. The alarmists apparently believe that there are no buffering effects in national and global economies, such as, for example, when the supply of oil decreases with a constant demand, the price will rise proportionately, causing demand to decrease until supply and demand are once again in equilibrium. Of course, some will experience a decrease in their standard of living, but major depression and war? I don't think so.
Next, the doomsayers universally ignore petroleum resources other than oil. Coal and natural gas remain abundant in the world, and the former can be converted to oil (synthetic fuels) and the latter is now replacing it on ever greater scales. No one is predicting that these will run out soon. But in addition, oil can be profitably produced today using modern technologies from oil sands and heavy oil deposits (tar sands), and proven reserves of these in Canada, Venezuela, and Russia equal or exceed all the crude oil produced until the present. In addition, liquified natural gas (gas liquids) resources are believed to be enormous and their exploitation only just begun. That leaves gas hydrates (clathrates) in oceanic sediments and oil shale (actually, kerogen in shale that can be converted to oil). These petroleum resources are simply colossal, although they cannot be exploited with today's prices or technology, but that could change. All of the doomsayer arguments rest on the decline in crude oil alone, and their arguments fail to the extent that other petroleum resources are able to replace oil as an energy source. Since the amount of these additional petroleum resources is many times greater than the proven crude oil reserves, the doomsayers' arguments fail quite readily, indeed.
Now we come to alternative and renewable energy sources--wind, solar, biomass fuels, etc.--and modern energy technologies--hybrid gasoline/electrical engines, hydrogen fuel cells, etc.--that are slowly but steadily increasing their importance in the energy mix of our country. Yes, these are proportionately small now, but they are increasing faster than most people are aware. In fact, they are increasing so rapidly that many energy experts believe that they will significantly supplant fossil fuels in specific circumstances in the coming decade. The unit energy per cost factor of these alternative and renewable energy sources already equals coal and will soon equal petroleum in many cases. Once again, a decline in oil availability would not significantly affect total energy availability, as other energy sources replace the use of oil. This will happen naturally now, even before there is a decline in oil availability, since the alternative energy sources are cleaner and potentially less expensive. In fact, they would be less expensive now if they were given the appropriate tax credits due them (or fossil fuels--especially coal and crude oil--were taxed at higher than present rates) under a credible, rational, and coherent national energy policy. At this point we can add future new nuclear energy to the mix, since I have long believed that nuclear power will make a comeback. This will surely be an unhappy event for many anti-nuclear activists, but ultimately a welcome event if it can be accomplished safely and helps to end our national addiction to fossil fuels.
Next, we must make clear that the doomsayers argument rests with long-term oil depletion. Short-term upsets and restrictions in supply due to political events, which are certainly possible and even likely under some circumstances, don't count in favor of the doomsayers' arguments. If oil prices spike upward due to war in the Middle East or due to deliberate oil cutbacks by oil-rich Persian Gulf countries, of course the economic consequences to us will be severe. But this is not the alarmist scenario put forward by the doomsayers. For their forecast to be true, short-term disruptions can't be counted, since the oil supply will return to normal levels after the political event has ended. If the doomsayers point to chaotic price surges in the wake of political disruptions to oil supply as evidence that they are correct, they will be further misleading and alarming the public.
Finally, let's look at the main pillar of the doomsayers' argument, that crude oil has reached or soon will reach its peak, and the decline will result in invidious economic effects. Is this true? No! William Fisher, professor of geology at the University of Texas, former director of the Texas Bureau of Economic Geology (the state geological survey), and a distinguished petroleum consultant and analyst, has investigated the issues thoroughly and written many papers about the subject of oil depletion. He supports the conclusions of the USGS and the major petroleum companies, that "traditional energy resources, chiefly fossil fuels, are adequate to meet likely global energy demands as the transition to a hydrogen and renewable energy economy is made over the next three to five decades." For this to happen, "long-term trends in efficiency in energy development, use, and conversion will continue and be enlarged."
Two other geologists can be named as public supporters of the realist (or "optimist" or "cornucopian") view that I endorse, Thomas Ahlbrandt, World Energy Project chief of the USGS and principal author of the USGS World Petroleum Assessment 2000 (available at http://greenwood.cr.usgs.gov/energy/WorldEnergy/DDS-60/), and Peter McCabe, also of the USGS, who wrote an outstanding analysis on world energy resources for the 1998 Bulletin of the American Association of Petroleum Geologists, and then replied to separate letters from Campbell, Laherrere, and R. C. Duncan in the 2001 AAPG Bulletin. The USGS world petroleum estimates and predictions are totally at odds with the doomsday advocates, yet they are the most accurate analyses that we have. They have been overwhelmingly accepted by both the petroleum industry and by our federal agencies charged with administering or making policies affecting energy supplies. Independent analyses performed by the major petroleum companies, and reported upon by Fisher, largely agree with the USGS conclusions. In what follows, I must condense the separate arguments of these geologists in a form appropriate for readers.
Fisher and his colleagues are harshly critical of Campbell and Laherrere (and by implication of Deffeyes and Groppe), pointing out that these writers make a number of false assumptions:
1. Future oil production will be controlled by production constraints.2. Hubbert's analysis and curve accurately describes the trajectory of world oil production.
3. Stated proven reserves reported by various countries and national oil companies are substantially discounted.
4. A future conventional oil discovery barely one-fifth that calculated by the USGS.
5. Further technological advances in oil discovery and production will either not occur or will not result in increased oil production.
6. Oil field reserve growth is an illusion, i.e. once a field is mapped, defined, and evaluated, no further oil reserves will be proven in that field.
If these assumptions were true, then the doomsayers would be correct, but the assumptions are not true, and they explicitly or implicitly underlie all the doomsayers' arguments. (I note that Shell Oil recently admitted that its reserves were stated inaccurately and over-estimated. This fact does support the doomsayers' case, but does not prove it.)
Future oil production will be demand driven, not controlled by constraints. This is the view of many in the industry, and the result will be more oil production than that predicted by the doomsayers. Some present-day constraints, such as the number of refineries, the existence of political problems in oil-producing countries that restrict production, etc., can be overcome. Also, future efficiencies of oil use, substantial displacement by natural gas and other forms of energy, a decline in use of the internal combustion engine for transportation and replacement by hybrid engines, better and more forceful national conservation policies, etc., will decrease oil demand to levels not predicted by the doomsayers.
M. King Hubbert's analysis and curve has been consistently misinterpreted and misapplied by the doomsayers (for their interpretation, go to http://www.energycrisis.com/hubbert/). Hubbert's curve is not a normal curve, but a plot of oil production plotted over time; therefore, predictions from statistical tests applied to this curve are invalid. While Hubbert correctly predicted the peak and decline of U.S. oil production with his curve, his attempts to do the same with both U.S. natural gas production and world oil production failed. Fisher points out that a major flaw in using a symmetrical life cycle curve to predict future production is its static nature: it assumes a known amount of an ultimate resource, and does not allow for resource expansion due to technological advances or economic demand pressures. Ahlbrandt advocates a production-plateau model of oil resources rather than the traditional Hubbert curve, because the former better represents the real-world conditions as we understand them now.
Deffeyes, Campbell, and Laherrere go to great pains to discount reserve estimates reported by foreign national oil companies and countries. Fisher, Ahlbrandt, and McCabe, on the other hand, accept these estimates because they believe they are valid as tested by their own analyses and models. Furthermore, the major international oil companies accept these figures. The doomsayers greatly underestimate the potential for new oil discoveries according to the USGS estimates (naturally, the doomsayers claim that the USGS is grossly overestimating the prospects of future discoveries). Fisher, whom I follow, agrees with the USGS. (The details of this disagreement are too complicated to discuss here.)
The realists point out--correctly I believe--that technology will drive the future discovery and production of oil. These technologies include deep ocean drilling and production, 3-D and 4-D seismic, 3-D stratigraphic workstation modeling of reservoirs, horizontal drilling, advanced reservoir stimulation and tertiary recovery, and stratigraphic reinterpretation of old field reservoirs. These technologies have proven greatly successful in the Unites States, and history has shown that--with time--technology expands the resource base. For example, Fisher points out that in 1950 the remaining oil resource base in the U.S. exceeded cumulative production by 500 billion barrels, but in 2000 it exceeded cumulative production by 2310 billion barrels, a five-fold increase in oil resources attributed almost entirely to better technologies. In the U.S., estimates of ultimate oil recovery historically have outpaced cumulative production, and the difference has increased through time. The U.S. amazingly accounts for 80% of all petroleum wells drilled in the world, and as the rest of the planet is explored at this level of intensity, Fisher expects ultimate world oil recovery to also increase far past cumulative production.
Perhaps the most egregious error propagated by the doomsayers is their denial of field reserve growth. To make their numbers match their predictions, the alarmists insist that the proven reserves of explored and mapped oil fields will not grow. Yet such growth has occurred time and time again as both science and technology improve. Fisher states that, "Campbell and Laherrere's denial of reserve growth potential other than that already included in proven reserves is, from my long experience in analysis of field growth, a serious error." The West Texas Geological Society meeting in Midland last week featured talks by Robert Sneider, who has made his living in the last decade by buying old oil fields and reevaluating them to find more reserves. New stratigraphic interpretations using better and more sophisticated models and better 3-D seismic and geological analyses using computer workstations find new reservoir accumulations that were overlooked in the past, and better-designed secondary and tertiary recovery methods are able to recover more oil than before. Oil field reserve growth is a fact, but the doomsayers won't tell you forthrightly that they ignore it in their calculations. One has to be able to understand their figures and analyses to discover what they omit, and what they omit is telling.
The United States has long had a de facto national energy policy. This policy is the same as the energy policy of the world's major petroleum companies--whose policy will prevail in the absence of a rational, coherent, and comprehensive federal energy plan. (I must point out that the Bush-Cheney Energy Plan is not rational, coherent, or comprehensive, so this federal energy plan would not be an improvement; in fact, this plan was essentially written by the major petroleum companies, so its defects are both intentional and understandable.) The major international petroleum company policy has been to pump out as much oil as fast as possible and sell as much of it on the market as fast as possible, because oil in the ground does nobody any good, while pumping and selling as much and as fast as possible maximizes their profits. As it is, our de facto national energy policy has been a disaster, addicting the U.S. to oil, wasting an enormous amount of energy, and causing massive air pollution in our major cities. The U.S. uses one-third of the world's total energy, and each American citizen uses twice the amount of energy as a person in Europe or Japan, places that have a similar or greater personal productivity and standard of living.
Why does the U.S. have this de facto national energy policy provided for us by the major oil companies? Because as vertically-integrated enterprises--with both production (upstream) capabilities and refining and petrochemical (downstream) assets--the giant multinational oil companies make a profit regardless of whether the price of oil is high or low. If high, their upstream producing enterprises make a big profit, but if low, their downstream refining and petrochemical enterprises make a profit due to low feedstock costs. In fact, the lower the price of oil, the greater the profit can be, because in addition to the low feedstock costs of refinery and petrochemical plant operations, low oil prices encourage domestic consumption (high oil prices encourage conservation that significantly lowers sales and profits), thus selling the maximum amount of oil as refined product. Even worse, under conditions of constant or high demand (that is, if higher prices do not dampen oil demand), the vertically-integrated petroleum companies can make enormous or windfall profits, since pump prices can be much higher than reasonable or justifiable due to psychological demand pressure on price. If the demand-supply market remains constant, a rising cost of oil should not affect profits of companies selling refined products, since higher feedstock costs should offset the higher price of gasoline. The price of a barrel of oil is a world price, not under the control of US petroleum companies, but a function of international demand and supply. But the price of a gallon of gasoline is a domestic price that certainly depends on the price of oil and taxes, but also on more subtle causes.
Giant, multinational petroleum companies return the greatest amount to shareholders when world oil prices are as low as possible, since there is greater profit in having greater petroleum through-put and producing value-added refinery and petrochemical products than in exploiting high initial oil prices (which also mean high initial costs). Therefore, major oil companies maximize their profits by producing, refining, and selling as much oil as fast as they can and keeping oil prices as low as possible to reduce initial costs and encourage consumption. They have absolutely no reason to conserve oil (up to producing an amount that would damage their reservoirs). Our economy, addicted to cheap oil, depends on its low cost to continue its high productivity. This explains why the federal government always acts so quickly--using political, economic, and diplomatic means--to seek lower oil prices when the price rises even slightly. In addition, this explains why environmental concerns of air pollution will never be solved until the United States adopts an energy policy that increases the cost of oil by taxing it, thereby encouraging conservation and reducing emissions. Our current capitalist economy has a built-in incentive to produce, burn, and waste as much fossil fuel as possible, and this will persist unless removed by government regulation and taxation, the policy that is instituted in every modern industrialized country on Earth except the United States. We have a regulated free-enterprise system, a "mixed economy," not a laissez-faire capitalist system, but our political system has been hijacked by oligarchs and plutocrats, who manipulate our economic system for their benefit rather than for ordinary citizens. Ordinary citizens need to understand what is happening to them and start voting for different public officials so we can soon obtain a beneficial national energy policy, not one that favors only a few companies and their shareholders.
The United States is the only industrialized country on Earth that does not have a national energy plan created by its government. Such a plan would set standards for energy efficiency, energy conservation, alternative and renewable energy, and environmental protection, as well as energy production. Presidents Nixon, Ford, and Carter all attempted to create a national energy plan, but they failed. The reason they failed is little appreciated by the public: the major, multinational oil companies opposed it. They naturally preferred their own de facto national energy policy. Presidents Reagan and Bush had no interest in standing against the oil companies, and President Clinton, by now, knew it would be a lost cause to attempt to create such a policy. The current proposed national energy plan of the Bush administration--the Cheney plan--is a massive giveaway to the giant multinational oil companies (and no giveaway at all to small, independent oil companies, such as we have here in the Permian Basin, whose profits are constrained by the low international price of oil, and whose interests are in no way shared by the giant vertically-integrated oil companies), since it emphasizes petroleum production and minimizes energy efficiency and conservation, and the use of renewable and alternative energy resources. The only effect if it passed would be to write into law that which has been the case for many decades, so for the giant oil companies it is irrelevant whether the plan passes or not. The Bush-Cheney Energy Plan will do absolutely nothing to lower energy costs, conserve energy, or help US citizens survive economically in the face of overwhelming gasoline costs, since the plan was designed to transfer an immense amount of money to the major energy corporations: petroleum, coal, and electricity. It is vital that the Cheney energy policy does not pass, and instead we create and pass an erergy policy that is realistic and citizen-friendly.
We have enough oil and other petroleum resources right now to safely and inexpensively transition to non-fossil fuel energy sources over the next fifty years. But this transition must be planned and regulated by a rational, informed, credible, and comprehensive national energy policy. The terrible waste of oil must be addressed, since all Americans are paying a high price for the extra energy we consume over what we really need. The money we waste on excessive energy consumption could be invested in other more productive concerns that better enhance our standard of living (rather than create extra air pollution as is the case now). We need significant tax credits for development and use of alternative and renewable energy resources. Furthermore, the best way to prevent petroleum waste is to tax fossil fuels at higher levels, and tax the gas-guzzling, heavy vehicles that have such poor gas mileage. This would have the triple effect of encouraging conservation, diminishing air pollution, and creating more revenues that could be used to fund research and development into better alternative and renewable fuels and greater fuel efficiency. A fourth benefit would be to gradually remove the large, unnecessary, poor-mileage vehicles that are dangerous to both their occupants and to others.
We have a window of opportunity to safely and reliably transition to a non-fossil fuel economy, a process that will take at least half a century, and can presently ignore the claims of the doomsayers and alarmists. But if we don't start this process now in a planned and orderly fashion, regulated by a moderate, intelligent, and coherent national energy plan, then I am afraid that the predictions of the doomsayers will come to pass, and we (and our children and grandchildren) will face a difficult future, with energy shortages, economic disruptions, lowered standards of living, and probable wars over national resources. Every citizen should be concerned about the U.S. national energy plan and work to ensure that it promotes alternative energy, energy conservation, and allows a rational and scientifically-planned transition to a post-fossil fuel energy economy. The current Bush Administration plan does not do this--indeed, it does just the opposite and would be a disaster for the future generations of people of both our country and the world. The doomsayer predictions must ultimately come true if we do nothing or do the opposite.
The author is an experienced petroleum geologist who is knowledgeable about this issue. He is also an environmentalist and skeptic who is unafraid to oppose both the plutocrats of the right and the doomsayers of the left. He notes, in fairness to the political left, that he agrees wholeheartedly with their concerns about human over-population and the environmental destruction that directly results from it. This essay merely expresses his disagreement with them about the timetable of energy depletion and global economic collapse due to resource destruction. He gives current civilization about 50 years rather than 5 years.
Steven Schafersman of Bad Geology at infoATbadgeology.com. (Help stop spam: substitute @ for AT before mailing.) "Sapere Aude • Dare to Know!" Last updated: 2005/09/06