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By Robert Rapier on Jul 12, 2012 with 10 responses

Enough Oil to Fry the Planet? — R-Squared Energy TV Ep. 25

In this week’s episode of R-Squared Energy TV, I discuss the recently released paper by former Eni executive Leonardo Maugeri — in which he suggests global oil supplies will increase by 17 million barrels per day by the end of the decade — as well as George Monbiot’s highly publicized reaction to the report.

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Link to Original Article: Enough Oil to Fry the Planet? — R-Squared Energy TV Ep. 25

By Robert Rapier

  1. By Tim C. on July 12, 2012 at 5:08 pm

    “Oil production growth has slowed greatly over the last few years.” 

    Not sure what that conclusion is based on, R-Squared.  The latest BP data shows that total world oil production has been on a steady, linearly-increasing trend from 1982 to 2011.  The graph of global oil production that you had in a recent post showed that.  Can you give some more details around how you conclude that production growth has slowed greatly in recent years?  I agree completely that production growth has not and will not keep pace with demand growth, and so prices will likely continue to rise. 

    Also, Figure 2 in Maugeri’s paper shows that most of the production capacity growth by 2020 will be in the US, Iraq, Canada, Brazil, and Libya.  He does see Saudi production growing, but not by very much. 

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  2. By Robert Rapier on July 12, 2012 at 5:16 pm

    Not sure what that conclusion is based on, R-Squared.  The latest BP data shows that total world oil production has been on a steady, linearly-increasing trend from 1982 to 2011.

    From my essay How Much Oil Does the World Produce — based on the BP data:

    The data show that global oil production grew between 1965 and 2011 by 163%, which represents an average annual growth rate of 2.1%. While many were convinced that crude oil had peaked in 2005, production in 2011 was around 2.7% higher than the 2005 production level. However, the average annual growth rate from 2005 to 2011 was only 0.4%, far below the historical average.

    So yes, production growth has indeed slowed down.

    RR

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    • By Justin on July 13, 2012 at 9:51 am

      Could this be because oil was historically cheap from 1990 – 2003 and not much in the way of discovery was going on during that time. And since discoveries take 5 – 15 years to move onto production, growth was slow the last 7 years?

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      • By Robert Rapier on July 13, 2012 at 1:43 pm

        There is definitely a price factor involved, and a lag time in how long it takes to execute projects. But oil is becoming more difficult and costly to produce, which is why I don’t think Maugeri’s projections come to pass. They require a return to some years of very strong production growth, and while I see growth, I don’t think it will be that strong.

        RR

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  3. By Tim C. on July 13, 2012 at 11:11 am

    “The average annual growth rate from 2005 to 2011 was only 0.4%, far below the historical average.”

    Okay, but from 2009 to 2011, production grew by 3.5%, more than the historical average.  Unless there is some fundamental reason that the 2005 to 2011 period should carry greater weight, I don’t see anything in the data suggesting that production growth has slowed “greatly”, or has slowed at all.   For the period from 1982 to 2011, global oil production rates have increased steadily by 990,500 BPD/yr, with remarkably little deviation.  I don’t think that the production rate of any other natural resource has grown as steadily over that period. 

    A more statistically valid analysis might be to fit the last 30 years of world production data with both linear and 2nd-order polynomial regressions.  If production rate growth is slowing at all, the polynomial should give a significantly better fit.  When I do this with the BP data for 1982-2011, the linear fit correlation coefficient is 0.9811, the polynomial is 0.9817.  World oil production growth has been linear, and is not slowing.   

    There may be a global production peak coming soon, but the recent data does not predict one. 

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  4. By Robert Rapier on July 13, 2012 at 1:41 pm

    Okay, but from 2009 to 2011, production grew by 3.5%, more than the historical average.

    That’s under the historical average, which was 2.1% per year. Look at only years prior to 2005, and the average was higher. This came during a time of record oil prices, when there was great incentive to produce as much as possible. There is certainly a lag time between high prices and production due to the time it takes to execute projects, but because oil is becoming more difficult to produce, I don’t see us returning to the days of +2% annual production growth. That’s why I predict we will fall far short of Maugeri’s projection.

    Unless there is some fundamental reason that the 2005 to 2011 period should carry greater weight, I don’t see anything in the data suggesting that production growth has slowed “greatly”, or has slowed at all.

    2005 is just when production really slowed down. And if we look at the time period since then, we see that indeed production has been much slower. In fact, in no year since 2005 has production grown at the historical rate or above.

    RR 

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  5. By Justin on July 13, 2012 at 2:04 pm

    Has anyone actually parsed the numbers that Maugeri presents in this report? I think Chris Skrebowski did a similar study (oil megaprojects) and came to a different conclusion (tight capacity/near peak). I tend to side more with Robert in that a peak lite senerio is most likely. The peak will happen (who knows when), but it’s the length of  the plateau that matters most.

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  6. By Bob Rohatensky on July 13, 2012 at 2:29 pm

    At about 4:45 you say something referring to your “Long Recession” idea that “oil prices fall, demand picks up” and this causes a long term sluggish economy. I know what you mean, but that comment is a bit simplistic and I don’t think it describes the situation very well. My interpretation of your “Long Recession” idea is: “in a supply constrained market, oil prices rise, the US economy can’t support those prices and tanks, and because the US is such a large consumer, this drops global demand and oil prices fall, limiting oil company capital investment which keeps oil in a supply constrained situation”. I am with you on that concept, but as developing countries become a larger portion of the oil consumers over the USA, I can’t see oil prices dropping as severely as they did in the last US recession.

    Also: As an example, most of Western Canada has seen a booming economy for the last decade (due to oil, potash, uranium) and there isn’t a hint of that slowing, which is driving the highest population increase (ever). I would think that the same is true in Montana and N/S Dakota. I imagine that if the sluggish economy in the US continues for a long period (as in your Peak Lite/Long Recession ideas), you would see a migration of people out of the manufacturing based cities (which might drive another serious real estate flop) into the areas where there are still natural resources to exploit. In other words, cheap oil for the last century had a lot to do with where people migrated to and expensive oil will probably change that.

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    • By Robert Rapier on July 13, 2012 at 2:37 pm

      At about 4:45 you say something referring to your “Long Recession” idea that “oil prices fall, demand picks up” and this causes a long term sluggish economy. I know what you mean, but that comment is a bit simplistic and I don’t think it describes the situation very well.

      I caught that on the playback, but wasn’t going to re-record the whole thing. Yes, it was a short explanation that left some details hanging. 

      Long recession really says that high oil prices contribute to recession, but coming out of recession increases demand and causes high oil prices. When you are supply constrained, this leads to a situation where demand always keeps prices high and in or on the verge of recession. If the U.S. goes into recession, demand falls, prices fall, demand picks back up — back into recession. This is not the case if production can stay ahead of demand; it will only apply in supply-constrained cases.

      RR

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      • By Engineer-Poet on July 15, 2012 at 10:01 am

        it will only apply in supply-constrained cases.

        This is one reason I’m so bullish on electrified transport.  There’s a move to consider alternatives to conventional trucks for the I-710 corridor in Los Angeles, and some of these involve electrification.  Electric transport decouples that part of the economy from oil prices and would insulate it from the recessionary cycle.

        That’s probably not the best example because oil prices affect ocean shipping so much, but you could have similar things in any number of areas.  In the midwest, electrified rail transport for grains and SMRs for process heat would remove a lot of the effect of petroleum and NG prices on food and ethanol costs.  Electrifying major highways in large metropolitan areas would both clean up the air and slash fuel expenditures.

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