Saturday, March 22, 2008

Michael Lynch on Peak Oil

Original ASPO-USA article

Energy Bulletin link to article

Peak oil, uncommon ground
by Michael C. Lynch
March 17th, 2008

(Although I have certainly not predicted oil price behavior correctly in the past few years --to put it mildly--I would argue that this is not relevant to the issue of supply forecasting, and hope my views on that subject will be considered in that light.) The prospect of an oil production peak at 100 mb/d, as some in industry now believe, appears unlikely in my opinion, as most of the above-ground constraints should be overcome. Unless there are serious demand side pressures (which I don’t expect), oil production will probably pass 100 mb/d within 12-15 years. Certainly, given that we’ve produced only 10-15% of conventional oil resources and unconventional resources are larger than that, there seems no reason to consider petroleum to be a scarce resource.

And while non-OPEC supply has underperformed, it seems likely to recover soon, as it has done the past two times it plateaued. Indeed, having spent two decades writing about the Malthusian bias to oil supply forecasts, I cannot find any differences with the current set of arguments, whether from resource pessimists, those concerned about flow rates, or senior industry officials, and the predictions of a quarter-century ago.

Instead, we appear to be experiencing a financially-driven oil price bubble, which will eventually burst and leave oil prices much lower than the current $110/barrel. (Prices might not go below $80 this year, but longer term, $45 is more likely the norm.) The industry will once again lament that they “screwed up the boom,” companies with deep pockets will buy up those who are cash short, resource nationalism will recede as will upstream costs, while investors in alternative energies flock to Washington in search of ever more government support.

I found this article fascinating for several reasons. Michael Lynch is one of the best known resource optimists, the article appears by request at a rather strange location (a peak-oil website), I haven’t seen any discussion of the article (including at ASPO-USA), and the only mention of Michael Lynch I’ve seen recently was a rather nasty comment in a silly post by Kenneth Deffeyes.

All that aside, I think that whether or not one agrees with many of these points, the article raises some very important topics concerning forecasting the oil situation and hopefully I’ll have a chance to slowly start picking this apart.

I try to stay away from forecasting and prediction because I strongely believe it is next to impossible to do successfully for reasons I’ll get into. I frequently post articles, reports, and videos by oil-world luminaries making such predictions, not because I agree with any of them but as a way of documenting the things they’ve said, so that later (in many cases years from know) we’ll see if in fact anybody produced a decent record of forecasting.


Anonymous said...

The difference this time is the ~1000% price rise over a TEN YEAR period - this is no flash in the pan!


admin said...

Xeroid -

You are right, that is a significant weakness in his argument. The massive run-up in the price over the last several years being brushed away as simply the result of speculation and geopolitics and the attempt to de-couple price and supply is a shaky postion.


Anonymous said...

From the published production data it looks like the world economy can't afford $110 oil and grow consumption.

So, to go to 100mbpd the price will have to fall somewhat - but we know that at the moment oil companies only want to supply ~75mbpd even at $110 a barrel.

Does not compute! ... or am I missing something?


Anonymous said...

What happen in June 2008? Did oil peak at $147 a barrel and a world production rate of ~74 million barrels a day? Is optimism helping the economy recover? Is optimism finding more oil? Think positive all you want...the fact is reality is neither optimistic nor pessimistic; non-renewable means it cannot regenerate.