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By Robert Rapier on Sep 17, 2015 with 54 responses

Peak Oil is a Function of Oil Price

Tags: peak oil

The Origins of Peak Oil Awareness

The scientific study of peak oil began in the 1950′s, when Shell geophysicist M. King Hubbert reported on the evolution of production rates in oil and gas fields. In a 1956 paper Hubbert suggested that oil production in a particular region would approximate a bell curve, increasing exponentially during the early stages of production before eventually slowing, reaching a peak when approximately half of a field had been extracted, and then going into terminal production decline.

Hubbert applied his methodology to oil production for the Lower 48 US states and offshore areas. He estimated that the ultimate potential reserve of the Lower 48 US states and offshore areas was 150 billion barrels of oil. Based on that reserve estimate, the 6.6 million barrels per day (bpd) extraction rate in 1955, and the 52.5 billion barrels of oil that had been previously produced in the US, Hubbert’s base case estimate was that oil production in the US would reach maximum production in 1965. He also estimated that global oil production would peak around the year 2000 at a maximum production rate of 34 million bpd.

Hubbert calculated a secondary case that if the US oil reserve increased to 200 billion barrels (about which he expressed doubts), peak production would occur in 1970, a delay of five years from his base case. Oil production in the US did in fact peak in 1970, so Hubbert is widely credited with precisely calling the US peak, but few know that he was actually skeptical that the peak would take place as late as 1970.

The US has now surpassed Hubbert’s most optimistic estimate for US oil production. Through 2014, cumulative US production stands at ~ 215 billion barrels, with a remaining estimated proved reserve of 48.5 billion barrels (but with the caveat this reserves estimate is based on crude prices near $100/bbl).

The Modern Peak Oil Debate

In the ensuing decades since Hubbert’s original work, discussion of peak oil ebbed and flowed. But the modern peak oil debates really heated up a decade ago. In 2005 the late Matt Simmons, an investment banker to the oil industry, published Twilight in the Desert. The book argued that Saudi Arabia had overstated its oil reserves, that its oil production was on the cusp of terminal decline, and that prices were set to soar.

Oil prices did in fact rise sharply in the 2nd half of 2005 — aided by Hurricane Katrina which hit Gulf Coast oil production in late summer. Oil production in Saudi Arabia also showed signs of slowing. This provided fuel to the fire for Simmons’ argument that the world was about to face terminal oil shortages. (My counterargument at the time was that the Saudis were purposely restricting production).

Simmons published his book in June 2005, and according to Google Trends searches for the phrase “peak oil” peaked in August 2005, but spiked again 2006 and 2008 when oil prices jumped:

Peak Oil Trends
Google Trends of Searches for the Phrase “Peak Oil”

Peak Oil Camps

At one extreme of this debate was the camp that believed peak oil was happening at that time (~2005), and that it was going to spell the end of civilization. This camp was often referred to as “doomers”, because they believed that humanity was doomed. (And many haven’t changed from that position).  At the other extreme were those who believed technology could continue to squeeze ever more oil out of the ground. This camp was sometimes referred to as the “technocopians.”

Most of us were somewhere in the middle. In 2005 I felt like we still had a few years to go before we reached peak oil. My general position was that we were 3-5 years away at that time, and I spent a lot of time debating the evidence with the imminent peakers. I wrote a number of articles addressing the topic of peak oil (e.g., Five Misconceptions About Peak Oil). My view was that peak oil would cause great hardship, but humanity would survive. We would muddle through and find our way.

Overconfidence in these discussions over peak oil (and peak natural gas) was prevalent. For instance, in 2003 Matt Simmons predicted, with “certainty,” that by 2005 the US would begin a long-term natural gas crisis for which the only solution was “to pray.” This sort of confidence was prominent in the debates. If you had argued at that time that by 2015 US and world oil production would be where they are today, you would have been deemed certifiably insane.

In hindsight, our view on peak oil was pretty naïve. Global oil production was not about to fall off a cliff. The potential for increased production was hand-waved away. But higher oil prices had a much bigger impact on production than most of us would have projected.

I had this idea bouncing around my head that higher prices would spur more oil production, but I agreed with those who argued that there were limits to this and we had to take steps to address the risks. The limits wouldn’t necessarily be technological, but would rather depend on the amount of energy required to extract and process the oil. At some point it simply becomes too energy-intensive, and even if you are using a cheaper source of energy to do the extraction, there comes a point that the cost of energy inputs exceeds the cost of energy extracted. Since the energy inputs and outputs are related via price, it’s a pretty good argument.

It’s Not That Simple

Jeff Rubin - the former chief economist at CIBC World Markets - eventually crystallized in my mind the relationship between peak oil and oil prices. I saw Rubin give a presentation in 2011, and he said something like “Peak oil is a moving target. I think peak oil is in a different place if oil is $150 versus oil at $100.” Then the notion crystallized. You can’t talk about peak oil without talking about oil prices. Why? Because this is what the real world looks like. From a 2012 research note from Goldman Sachs to clients:

 

GS_OILBREAKEVEN

Breakeven Price for the World’s Top 360 Oil Projects. Source: Goldman Sachs 

The graphic is pretty busy, but the bottom line is that there is a lot of oil that will come online at higher oil prices. How much is truly unknown, but it is estimated to be in the 10′s of millions of barrels per day. (For those who believe this is unlikely, think back to 2005 and how much chance you would have given for the current levels of oil production). Similar graphics have been produced for the break-even price in shale oil plays, and the message is similar: Higher oil prices will spur oil production in more marginal areas.

So we should really talk about peak oil as a function of oil prices. In that case, we can say with a pretty high degree of certainty “The world has passed peak $20 oil.” If we could magically freeze the price of oil at $20, we would see the sort of peak that the imminent peakers projected. That doesn’t mean that oil prices will never again fall to $20, as supply/demand imbalances do wildly swing prices at times. It just means that $20 isn’t a sustainable price for meeting current global demand. That also means that the average price of oil in the future will be much greater than $20, which is why I downplay those predictions of very low oil prices.

But has the world passed peak $100/bbl oil? The answer to that is clearly no. When oil was at $100/bbl, supplies were still rising. Now that prices are less than half that level, global production looks like it is set to fall. So maybe we have past peak $50/bbl oil.

The peak oil story turned out to be more complex than most of us who were debating it could have imagined back in 2005. What many thought was peak oil at that time was just one more cycle in the gyrations of the oil industry. When prices are rising, oil producers spend money as fast as they can to build out capacity. New oil plays become economical. Inevitably, supply outpaces demand and the price crashes. Capital spending slows, marginal oil plays are shut in, and demand catches back up to supply, which drives the price back up.

But what we have seen in this most recent cycle is that the trough isn’t as deep as it has been in the past. This time oil didn’t drop to $10/bbl, but it did spend a lot of time at $100/bbl. That is a sign that we are using up the cheapest oil supplies. The world is highly unlikely to return to an era of $20 oil. The floor has moved higher. Peak oil has moved past the $20 threshold, and most likely the $50 threshold.

Conclusions

To conclude, I want to make one thing clear. Even if there are sufficient oil supplies for several more years, there are many other good reasons for curbing our oil consumption aside from the danger of building a society based on an unsustainable resource. I have covered many of those reasons in other articles.

So don’t mistake this article for advocacy that growing oil supplies invalidate the concerns raised in the peak oil debates. The concerns are still correct. It’s just that the argument itself was too simplistic, and premature. Even though I tended to argue against the imminent peak position, my expectations about peak oil in the decade after 2005 also turned out to be much different than the reality that transpired.



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Link to Original Article: Peak Oil is a Function of Oil Price

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  1. By Joe Clarkson on September 17, 2015 at 3:53 am

    While maximum oil production is indeed a function of the price of oil, the price of oil that people can afford to pay is a function of the EROEI of oil extraction. As the oil extraction industry gets to be a larger and larger part of the overall economy, all the other parts of the economy suffer from the diversion of resources to oil production, limiting the ability of would-be oil purchasers to pay higher prices.

    At some point, the price needed to stimulate new production will exceed the price purchasers can afford to pay. That will be when we see the peak of production. $100 oil may very well be incompatible with robust world-wide economic growth. If so, we will know that we have passed peak oil when oil prices again rise to record highs (over $100/bbl) and production fails to respond and exceed the volumes that were produced the last time oil was $100/bbl.

    What really worries me about passing the peak is the economic consequence of having a critical mass of people come to the realization that we are indeed past peak oil. If the substitutes for oil are by then insufficient for economic growth, people will realize that the world economy will henceforth be subject to continuous recession, rising unemployment and increasing poverty, with no remedies in sight. If they haven’t happened already for other reasons, debt deflation and financial panic will then exacerbate all our other resource depletion predicaments. It won’t be pretty.

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    • By Robert Rapier on September 17, 2015 at 5:36 pm

      “people can afford to pay is a function of the EROEI of oil extraction.”

      Not entirely. I alluded to this point, but it depends on the cost of the energy input. You wouldn’t use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline. So EROEI is something that tells us about the relative efficiency, but it doesn’t address the economics. Nor does it include a time factor. I could run a society on a process with an EROEI of 1.1 — as long as I returned that on a daily basis.

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      • By Advocatus Diaboli on September 19, 2015 at 10:59 am

        Robert,

        “You wouldn’t use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline.”

        You are right as far as the EROEI of oil is concerned, but I believe that Joe’s comment is valid in a broader sense, expanded to the EROEI of the total energy supply. What you seem to argue is that the EROEI of gasoline (or any particular energy carrier) may not have absolute limits. However, the EROEI of the economy on the whole does matter, as the economy needs free energy to operate on. Your example assumes that coal will continue to have a much higher EROEI than (marginal) oil, but to the extent oil needs to be cross-subsidesed in energy terms, it ceases to be an energy source to the economy, it just becomes an expensive energy carrier. And the more we subsidise oil with coal (in energy terms), the faster will the EROEI of coal decline and more of society’s resources will have to be invested int the energy sector.

        “I could run a society on a process with an EROEI of 1.1 — as long as I returned that on a daily basis.”

        Let’s assume you can run your economy on the “right kind of energy” (let’s call it gasoline) that has an EROEI of 1.1 I.e., every day you need to invest one unit of this energy to get 0.1 unit available to (and sufficient for) the rest of the economy. But if you need three units of the “wrong kind of energy” (coal) to produce one unit of this gasoline (meaning that gasoline has an EROEI of 1/3, i.e. it is not a net “source” of energy) and the actual process you are running the economy on (coal production) has an EROEI of 1.1, then returning that every day would only give you 1/30 units of gasoline a day, which is only a third of what you need for the rest of the economy. You would therefore have to return the 1.1 coal energy not on a daily basis, but every 8 hours to get your fix of gasoline. That would mean having to triple the throughput of coal, meaning three times more mines, rail tansport, power capacity, etc.

        Joe’s argument may have been simplistic, but I think it is clear that there are limits that monetary cost cannot represent. Measuring the price of oil in dollars seems to assume that somehow dollars can represent a value independent of the cost of oil, which is questionable. Higher oil price cannot postpone peak oil indefinitely, as it can just crush society’s ability to maintain the complexity needed to maintain (let alone increase) oil production from increasingly difficult places.

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        • By Glen McMillian on September 21, 2015 at 11:09 am

          It is unlikely but it is possible that the cost of generating solar electricity might fall to down to a cent or two per kilowatt hour and that we WILL be able to afford solar farms measured by the square kilometer.

          If some large, powerful and rich country or a few countries allied together were to put as much half as many resources into such an endeavor as are currently put into their military budgets, it might be possible to escape the energy trap you have outlined so clearly.

          Getting over the “hump” to the point solar farm output would be high enough to enable the exponential growth of solar farms using solar energy as the primary input would be tough- but maybe not impossible.

          People and industries have moved many times in the past to take advantage of optimum conditions in new environments.

          There is no reason to believe that a giant solar farm industry might not come into being in the American southwest that can provide enough power to run solar pv factories on the grand scale- all the way back to the mining of the necessary minerals. Mining is easily electrified, and rail roads are easily electrified. Factories of almost any sort are already electrified. .

          This is not a conceptual project that would have to start from scratch. Many tens of millions of automobiles exist that will eventually be scrapped – due to a lack of fuel- the necessary steel exists already.

          Pressure treated wood- or even untreated decay resistant wood lasts a VERY long time in a desert environment, centuries or longer. Nearly all the necessary racking could be made from wood.

          There is PLENTY of coal- burning a few more hundreds of millions of tons to jumpstart a big enough solar industry would be bad for the environment to be sure- but not as bad as burring it ANYWAY, which imo is sure to happen when the public is faced with the choice of the lights going off or the environment getting wrecked.

          There is no shortage of land- and as far as the labor is concerned- well , history indicates that in tough times, people by the millions will be put to work on make work jobs, which might as well be USEFUL jobs.

          And let us not forget that getting by with less is a hell of a lot more desirable option than not getting by at all. If the grid goes down and stays down due to a lack of fossil fuel……………. or because we don’t build nukes by the HUNDREDS………..

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          • By Advocatus Diaboli on September 21, 2015 at 4:27 pm

            Thanks. I agree that solar seems to be the best scalable energy source. My point was not to spell gloom and gloom. I just wanted to reflect on two assertions:
            1) an energy source (or, rather, carrier) can play an important role even if it has an EROEI <1and
            2) a very small EROEI can be viable if it has a quick turnover time.

            Both are theoretically true, but interrelated, and the lower the EROEI and the more cross-subsidy needed the more difficult it will be.

            I believe that solar can be scaled up significantly and it can provide significant amounts of raw energy, more than enough to power aviation. But it is the wrong kind, and I am not convinced that it could regenerate itself AND power free air capture AND conversion of CO2 into jet fuel. So many individual limitations can be overcome, but not necessarily their combinations.

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          • By davidgmills1 on September 27, 2015 at 2:31 pm

            I guess its high time on this board that people learn about Liquid fluoride thorium reactors (maybe you do but you don’t act like it). This was the nuclear power we should have had and never got because a decision was made by the US government to breed Uranium 238 instead of breeding Thorium 232. We proved at Oak Ridge that breeding 232 was feasible. But Uranium 238 won out because it could be used to make bombs easily while breeding thorium couldn’t make bombs easy. Using uranium we got a two-fer. But a number of Uranium 238 breeder reactors were built and no one ever made them work successfully. By then though, the Oak Ridge program had been shut down and all of the developers of the program were either dead or retired.

            People need to know that this form of energy is available to us, and it is capable of powering the world for thousands of years.

            Ten major attributes of thorium:

            http://energyfromthorium.com/2012/12/30/energy-from-thorium-top-10-attributes/

            Solar and wind are fine for many applications, but if you want to power ships or go to deep space or even colonize the moon or other places, there are many times they just don’t work.

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  2. By Forrest on September 17, 2015 at 6:37 am

    The post is good reason to force innovation, technology, and R&D efforts outside the economic box. We need to develop pathways or solutions to future energy needs. Better and cheaper to have time to accomplish this. To that impetus the country is acting very responsible. Think of the Energy Department investments within an array of promising technologies. The biggest challenge, for our country is to quell the irrational fear mongering of GW and those whom attempt to stampede country to political movements and poor solutions. Nobody has the solution, even Algore nor NASA scientist that work the political speaking circuit. As Robert’s historical post depicts the much studied subject of oil production, scientist were making educated guesses and had an inferior understanding of the dynamic markets and advancing technology. So, You extrapolate the business of science to a much greater magnitude of both complexity, time, and change nobody knows the future damage of GW nor the solution. One could guess on technology of fuel cell, nuclear, cost of petrol, biofuel, wind turbines, solar, and greatly improving efficiency that would make GW a moot subject. It’s fairly certain that autonomous driving technology will quickly develop. Following that advance very light cars that empower battery technology. Efficiency of metro transportation would shoot up dramatically. Heavy trucks already slated for autonomous driving with elimination of air drag per convoy spacing. Ethanol production is a reality and will make steady increasing production from a variety of feed stocks and do so across areas of the globe that had no fossil fuel resources. Wind energy continues to develop and should make large inroads upon our power production. Solar should continue to advance technology per lower cost and higher efficiency. Same with battery technology and development of hydro power and hydro energy storage. Nuclear will advance and fuel cell is already advancing as the premium solution above that of battery energy. R&D efforts working on development of hydrogen fuel and ultra high conversion and energy storage that would make wind turbines, power plants, solar, and nuclear ultra efficient as well as cogen of home power and heat. Read up on developing technology and understand their is a whole new world of energy production poised to presented into the mix. Better to ease into these forward leaning solutions as no one has a crystal ball for future. The markets and sum total intelligence of society will slowly move to the solution. No need for a grand gov’t plan to force elitist solutions.

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  3. By Sam Taylor on September 17, 2015 at 6:37 am

    Robert,

    If peak oil is a function of oil price (a stance which I largely agree with) then the key question becomes, what is the highest oil price that the world can sustain. In the advanced economies around $100 seems sufficient to cause stagnation or decline in demand, but in China or India demand seemed able to grow robustly at these prices. Presumably because filling your only moped with petrol gets you more utility than filling up your second SUV. So perhaps somewhere in the $100-150 range represents a ceiling, for the moment.

    Then the question becomes, when do we reach this ceiling? Peak $20 oil was perhaps around the early 2000′s, and maybe peak $50 is around now (inflation adjuested). The costs facing the majors appear to be accelerating quite rapidly, and if that breakeven chart is accurate the price curve seems to accelerate quite steeply, so perhaps an optimistic estimate might give us a decade or two.

    And what with the more rapid decline rates of newer wells (deepwater and shale decline more rapidly than onshore conventional) depletion rates will probably accelerate. I think that perhaps the frequency of booms and busts in the oil price is going to accelerate a bit, as cycles of overinvestment lead to more gluts, then the price collapses, then underinvestment leads to shortages which manifest sooner, and so on. Does this sound plausible to you?

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    • By Robert Rapier on September 17, 2015 at 5:33 pm

      “what is the highest oil price that the world can sustain.”

      I think that’s going to be different for different parts of the world. Ironically, $100 oil caused demand to decrease in the U.S., but it kept growing strongly across the developing world.

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      • By Dipchip on September 18, 2015 at 12:28 pm

        The reason is: If the retail price of oil is $4/Gal, the daily per capita consumption price in the USA is About $11.00 In India the daily per capita consumption price is about 61 cents. 2.7 Gallons versus 2.5 cups.
        10% increase for one is $1.10 the other is 6 cents per day. A 5% increase in world consumption will bring back $100 oil. Who do you suspect will cause the increased consumption, developed or undeveloped nations?

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        • By Robert Rapier on September 18, 2015 at 12:34 pm

          Of course. I have written lots on this. A decade ago I thought poor countries would be priced out of the market. As prices rose, I saw that it wasn’t impacting demand in developing countries. I also went to India in 2008 and saw 7 people on a motorcycle. And what you wrote above hit me: It’s such a low per capita consumption in developing countries, and just a little more has a big impact on their lives. So they will drive future consumption.

          It was an example of the data causing a 180 degree shift in my opinion.

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          • By Dipchip on September 18, 2015 at 1:57 pm

            R Squared: The first time I ran across your name was back in 2005. I was having a disagreement with some Minnesota renewable fuel agency folks, when suddenly you came into the conversation. They were trying to say that ethanol was more efficient to produce than Gas; after reading your comment I decided to let you take over, as you seemed to be someone from the tail end of energy production and I was on the front end.

            Been following your opinions ever since. Seems the internet is a good way to keep from becoming obsolete since retiring twenty years ago. Thanks for your years of effort to inform.

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            • By Robert Rapier on September 18, 2015 at 2:02 pm

              I remember that. It was one of those things that inspired me to start writing more. So much misinformation. I actually got the state of Minnesota to change that claim on their website after having several exchanges with them.

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          • By Glen McMillian on September 21, 2015 at 11:14 am

            A gallon of diesel fuel burnt in a tractor or irrigation pump generates hundreds of times more economic return than a gallon burnt fetching beer in an oversized pickup truck.

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            • By Forrest on September 22, 2015 at 8:08 am

              What’s the return on Prius owner driving coast to coast to demonstrate against use of oil? Maybe she or he is smoking pot and wrecks an expensive asset that cost the environment dearly. So, the multi use pickup driving to neighborhood grocery not so bad after all. The pickup utilized in providing services and supplemental income. The pickup life cycle extends multiples of the Prius and powered upon environmentally friendly fuel that per gallon provides more jobs and economic stimulus. The fuel supply will never diminish per continued use of processing plant and solar powered feed stock. No need to be on a continuous search and development cycle of diminishing supplies of raw material.

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  4. By LuapLeiht1 on September 17, 2015 at 2:09 pm

    I agree that peak oil is a function of price rather than raw supply numbers.

    However, I think that drawing conclusions from the price is still a bit naive. Prices spiked in the late 70s, early 2000′s, and early 2010′s. What do those three time periods have in common? The Middle East was on fire in all three periods (Arab oil embargo, Iraq war, and the “Arab Spring”).

    Peak oil isn’t just a factor of supply as Hubbard proposed. Nor is it a function of price as the author proposes. It is a wobbly stool of both these factors couple with the third leg of political stability.

    Like most things in life, reality is much harder to predict than theory would indicate.

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    • By Robert Rapier on September 17, 2015 at 5:29 pm

      “However, I think that drawing conclusions from the price is still a bit naive.”

      This a point I made. Just because we have passed $20/bbl peak oil, that doesn’t mean we will never again see that price. But my point is simply that you can’t talk about peak oil without also talking about price. If you say “We have reached peak oil” then the question needs to be “At what price?”

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      • By Glen McMillian on September 17, 2015 at 9:43 pm

        It seems perfectly obvious to me that the cost of extracting oil from ever smaller newly developed oil fields as the old legacy fields deplete will soon put an end to increasing oil production for geological reasons.

        You can’t produce oil that simply is not there, or keep going to smaller and smaller new fields that are harder and harder to develop and deplete faster and faster. Geology is apt to “trump” economics at some point in the not so distant future.

        Tar sands and tight oil are one thing, they can be produced at a price we can pay, using physical resources that do exist in sufficient quantity at currently affordable prices. Kerogen in shale deposits in places where water is extremely scarce is another thing altogether.

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  5. By Ed Dodge on September 17, 2015 at 2:13 pm

    Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models (genius even) for conventional oil production, but that his models do not include unconventional production and the advance of technology. Most of the world’s historically large oil fields have gone into decline in the 21st century as Hubbert predicted. But new technologies, partly driven by higher prices, have opened up vast new resources such as shale that were not considered producible before. Unconventional resources are quite large and that is why reserves have gone up despite that accuracy of Hubbert’s models.

    There are more unconventional resources to be tapped, so reserves can continue to grow. Tight oil recovery rates are very low with huge margin for improvement. CO2-EOR opens up billions of barrels, methane hydrates are massive and yet to be tapped (gas not oil but the point remains), and synthetic fuels can be produced from coal, biomass and garbage.

    I agree that prices drive development, and obviously environmental concerns are huge, so we must be smart and manage carbon emissions and everything else, but we are certainly not about to run out of hydrocarbons though they would not be as cheap as they once were.

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    • By Robert Rapier on September 17, 2015 at 5:27 pm

      “Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models…”

      He was WAY off on his numbers. He vastly underestimated future production rates. So his peak predictions are based on production rates that were much lower than they actually were. If he had plugged in what the numbers actually ended up being, he would have forecast peak years earlier than he did.

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      • By Cracker on September 30, 2015 at 5:40 pm

        Robert, I suspect he underestimated reserve growth (increase of proven reserves over time) in US oil over those decades, as well. Variables and unknowns are why long term numbers are seldom correct.

        One thing I might add to your excellent analysis is the substitution of other hydrocarbon liquids for crude oil, yet calling it and counting it as crude. Global crude oil production has been pretty flat since 2005, while production of natural gas liquids, condensate, etc. has increased. It is interesting that while these do not have the energy content or utility of crude, they are counted as such.

        I see this, along with tar sands and light tight oil (LTO, shale) as scraping the bottom of the barrel, with declining energy profits as you appropriately point out. The peak so far has been an undulating plateau for ten years, with the world’s oil industry exploring itself into financial distress during that time trying to find new sources of quality crude, with little to show for it. Instead we have synthetic crude from Canadian tar sands, dumbbell crude from tight rock, Saudi Arabia develops its probably last field of heavy sour crude that no one wanted before, and on and on. Clearly we are chasing the dregs of oil. What else should peak look like?

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  6. By Rob Andrews on September 17, 2015 at 3:22 pm

    Peak Oil is also a function of demand, if alternate energy sources create an energy price that is lower than the $20 peak oil price you may end up with a lot of trapped oil that not extractable. Of course research on both sides seeks innovation to beat the floor price of the competition

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    • By Robert Rapier on September 17, 2015 at 5:25 pm

      “if alternate energy sources create an energy price that is lower than the $20 peak oil price ”

      True, but that’s a situation I completely discount. I see virtually zero chance of that happening.

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      • By davidgmills1 on September 27, 2015 at 2:49 pm

        Maybe not today. But China has begun work on Liquid Fluoride Thorium Reactors which we pioneered in the 60′s. They hope to have one operational by 2020.

        See my post about 4 comments above and the link I cited.

        If the world starts to make them in the 2020′s, by 2035 or 40, the world will drastically change from what it is now. The thorium age will be vastly different from the fossil fuel age.

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    • By Adam Grant on September 18, 2015 at 2:24 pm

      The “fuel” for a battery electric vehicle is already significantly cheaper than gasoline, and this will only improve with time as oil becomes more expensive and wind / solar reduce the cost of electricity. The high capital cost of electric vehicles is also on a decline curve due to innovation and increasing economies of scale. At some point the total cost of ownership will tilt decisively in favour of battery-powered vehicles. It’s at this point that the price floor Rapier has identified for oil becomes relevant. If oil can’t reliably sink below $50 / barrel, then all vehicles will eventually become electric if they can be operated for the equivalent of $49 / barrel.
      Mind you, the fluctuating nature of gas prices may push people in the electric direction before that if only to avoid the occasional highs.

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  7. By Over the Hill on September 17, 2015 at 5:20 pm

    I agree that the issue with “Peak Oil” isn’t that we’re going to run out of oil. The issue is that we are running out of economic benefit that is achievable given the cost to extract the oil. That is the current drag upon the world economy. And I really think that we will eventually be able to plot that economic benefit / bbl of oil as a function of time, and it will likely be a very familiar curve. That economic drag will increase no matter what new extraction technologies come online.

    It won’t be the end of the world. It will be a different world that we will have to make a commitment to adapt to, however.

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  8. By fozzydabear on September 17, 2015 at 8:54 pm

    “Oil prices did in fact rise sharply in the 2nd half of 2015″ – Don’t you mean 2005?

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    • By Robert Rapier on September 17, 2015 at 9:02 pm

      It seems that no matter how many times I proofread an article a typo always makes it through. Thanks for that. It’s fixed.

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  9. By Glen McMillian on September 17, 2015 at 9:33 pm

    Robert , what is your personal opinion on the minimum necessary energy return on energy invested as a practical matter given the nature of our present day economy?

    I have seen figures as low as four to one and as high as ten to one or even higher.

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  10. By Harquebus on September 17, 2015 at 9:50 pm

    The global economy can not afford $100/bl oil and producers can not
    increase production without it. It is debt that has filled the void and
    that too is peaking. Next will be peak population.

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  11. By Forrest on September 18, 2015 at 6:25 am

    Some of the commentators, share the idea that the days of no compete high cost of oil products may be numbered. This is juxtaposed with alternative energy decreasing in cost over time. This is new phenomena with no historical path to predict new trends. History is full of examples of supply problems such as war, threat to environment, high cost of capital, etc that impacted price. The economic ramifications always shot oil prices to extreme as traders worked the pricing to new highs. This threw the economies of the world into harsh inflation of energy costs that dampened economic growth. Oil was the economic life blood and took much military investment to ensure the supply. Also, because of the crucial need for ample supply, gov’t artificially amped up supply per subsidy such as regulated by tax code. So, are entering into a brave new world without this holdup reliance of corp oil supply? Appears so, with a positive trend line of diverse and renewable energy supply. Currently, most consumers do have some choice at the pump. Limited, but economic analysis have studied this “competition” and have found a powerful dampening effect of gasoline per the U.S. ability to produce a million barrels of ethanol a day. It’s not limited to FFVs either as the driving public have learned to utilize higher blends within entire light vehicle fleet. Also, diesel engine testing with ethanol describe a path way if diesel fuel price zooms up. Adding a alternative E85 fuel system to offset the diesel fuel consumption per intake air injection. Apparently, a quicker lower cost alternative as compared to CNG conversion. Ethanol processing plants have stored feed stock that can come to the rescue for short term increase supply needs. BEV’s play into this alternative choice as consumers are increasing expected to have one of these vehicles sitting in garage. Same with small ultra efficient cars sitting next to the SUV that can take over transportation needs upon high price of fuel times.

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  12. By Advocatus Diaboli on September 19, 2015 at 11:23 am

    Robert,

    I wonder what (if any) assumption Hubber made on oil prices. I don’t know his writings, but I do not suppose that he would discount the possibility that higher efforts could shift his curves. Isn’t is so that ha assumed (explicitly or implicitly) that prices would remain relatively stable. That would have been reasonable for his analysis of the US production, as he could assume that the (presumably much larger) production of other regions could take over. In that case the US would essentially be a price taker, and its production would develop along a depletion curve as he predicted (although not necessarily at that level).

    Such an assumption of relative price stability would be more difficult to assume for the global supply (with no alternative sources of oil). However, optimists who believe that other energy sources (renewables or CTL) would fully substitute oil above a certain price level could still assume a relative oil price stability at the global level.

    I believe that the problem comes in when oil is considered critical and not practically substitutable. Then demand becomes inelastic and prices get volatile, represented by boom-and-bust cycles with an increasing overall trend, as you describe. However, I take this volatility as a sign of instability.

    Is it not so that Hubbert was largely correct in predicting what would happen in a world of stability, but he failed to take into account the economic instability caused by oil depletion itself? Which would be quite understandable, as he was a geophysicist, not a social scientist. Not as if social scientists could predict what will happen when our oil-based society is deprived of its fuel….

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    • By JonathanMaddox on February 2, 2016 at 7:43 pm

      I believe Hubbert mentioned a few places that he considered relatively inexpensive nuclear energy to be the natural successor to oil as the main source of energy for the economy, though he didn’t go into great detail. Certainly his analyses of individual national and oilfield production curves were all made in the presence of comparable, competing, cost-competitive energy sources (namely other oilfields and other countries) and if we expect the production curve of *global* petroleum resources to match at the grand scale, it would make sense that we have an equivalent underlying assumption: that other comparable energy sources are in competition with petroleum.

      The Peak Oil scare — that there’s some global petroleum production cliff off which we’re about to fall, leading to economic collapse on the grandest possible scale — is based mainly in the assumption that no other energy source can meaningfully substitute for oil (and/or fossil fuels in general).

      Hubbert didn’t make this assumption, and I for one think it’s not a valid one. Oil is certainly a special resource, but not so special that substitution hasn’t already been occurring for a long time in its more flexible applications like building heat and electricity generation (for which, after all, it was originally an attractive and inexpensive substitute for coal), and there’s every reason to expect that substitution will proceed steadily into all the various niches of which oil is presently the uncontested king.

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      • By Advocatus Diaboli on February 4, 2016 at 10:43 am

        Thanks for the detail on Hubbert’s assumptions. Perhaps I should read his work.

        Whilst we seem to agree on what is likely to happen if substitutes are (or become) available at a comparable price and fast enough, I am less optimistic about the chances of that happening. I don’t see oil being easy to substitute even if we disregard climate constraints.

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  13. By Glen McMillian on September 21, 2015 at 10:31 am

    I think a lot of regular readers would like to see you update some of your older articles now that the costs of renewables have fallen so much in the last few years.

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  14. By Benjamin Cole on September 24, 2015 at 4:09 am

    Ther

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  15. By Benjamin Cole on September 24, 2015 at 4:14 am

    Also remember price and Peak Demand.

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  16. By Optimist on October 1, 2015 at 7:01 pm

    More to the point, Peak Oil is bunk, thanks to markets.

    When production dips below demand, price increases until either demand drops or supply increases (or both). May take months or years, but that’s inevitably how it works. There are many options for adding to liquid fuel supply that have not even been seriously explored and therefore remains available as future options, including gas-to-liquid, coal-to-liquid, biomass-to-liquid, etc.

    The main threat to the system are foolhardy politicians, a species that seem to be out-breeding the other kind at a most disconcerting rate. When, and only when, one of these dimwits attempt to put a ceiling on fuel prices, shortages ensue.

    At least we still have Nixon to kick around, jackass…

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    • By Advocatus Diaboli on October 3, 2015 at 3:33 pm

      Are you suggesting that the Earth has infinite reserves of oil? If there is no peak oil, then oil production would need to increase monotonously forever. That is only possible if the Earth has infinite amounts of the stuff. The volume of the Earth is finite, and most of it is not oil (consider the core, the mantle, most of the crust, etc.).

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      • By TimC on October 5, 2015 at 10:36 am

        “The volume of the Earth is finite, and most of it is not oil…”

        Okay, so how much of it IS oil?

        Modern drilling equipment can reach a depth of about 12 thousand meters beneath the surface of the earth. This makes the volume of the portion of the crust that can be explored by drilling about 6.2×10^18 cubic meters, equal to 3.9×10^19 barrels. The earth’s ultimate recoverable reserves (URR) of oil has been estimated at two trillion (2×10^12) barrels. If that URR estimate is true, then the pre-industrial concentration of oil in the earth’s crust was about 51 ppbv, or fifty-one parts per billion by volume.

        It isn’t possible to quantify any concentration accurately near the detection limit of the quantitative method. No one knows how to analyze the earth’s crust to accurately quantify the concentration of recoverable oil remaining. It could be 25, 50, 100, 200, or 400 ppbv. When petroleum engineers or geologists estimate the global oil URR value, they use crude accounting methods that have very poor sensitivity, so the estimate that they produce is at or below the detection limit of any analytical method. Instead of two trillion barrels, there may be four trillion, or eight trillion barrels of recoverable resources yet to be discovered.

        You are certainly correct that the earth’s crust can only contain a finite quantity of fossil hydrocarbon resources. But that quantity may be so large that production can continue to climb monotonously for decades, or even centuries.

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        • By Advocatus Diaboli on October 5, 2015 at 4:52 pm

          “But that quantity may be so large that production can continue to climb monotonously for decades, or even centuries.”

          Whether decades or centuries; it will peak (=reach an all-time maximum) at some point (if it hasn’t done so already).

          Rereading my earlier comment, I have to correct myself: a monotonous increase would not be necessary to disprove PO, as production could fluctuate or stabilise. But it would need to be infinite, which it won´t be.

          Climbing for “decades” would not make PO “bunk”, it would only make Hubbert´s estimate “a bit” more inaccurate and drag the decline out by a generation.

          Climbing for “centuries” would probably require our understnding of the climatre system to be proven wrong. I´d welcome that, but doubt that we are that lucky. I consider it more likely that we shall give up going after oil way before that, either deliberately (less likely) of for the lack of ability to maintain production.

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          • By Optimist on October 5, 2015 at 6:33 pm

            Basically, as far as your lifespan is concerned, the supply of oil is infinite. It’s just a matter of developing the technology that enables us to tap into those supplies. This is where the markets serve as an active encouragement to research when demand exceeds supply.

            But let’s take a step back and look centuries or millennia down the line, to the point where we really have exhausted all the planet’s available oil: at this point oil prices increase, until some smart inventor, probably working for Big Oil discovers a process for converting ________* into liquid fuels. Crisis averted yet again. PO believers repeat their claim that PO will destroy civilization in the next 25 years. Some things never change.
            * For _____ insert your choice of coal, natural gas, agricultural waste, solids municipal waste, sewage sludge, the one energy crop that might make sense: algae grown in the open ocean or any combination of the above.

            Claims of Peak Oil, Peak Soil, Peak Water, etc. all rely on two assumptions: (1) we keep our consumption at the same levels as in the past and (2) we aren’t able to expand supply beyond what we use today. Both are foolish assumptions. Both ignore the impact of markets on innovation.

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            • By Advocatus Diaboli on October 6, 2015 at 1:57 am

              You seem to ignore even the possibility that clima change may play an important role in our ability to cope or choice of energy. That alone disqualifies you from a civilised discussion. Not because climate change is a certainty (I think it is as certain as it gets, but it is always legitimate to ask questions), but to ignore a vast body of evidence that has made even stalwart sceptics shut up or even convert is simply not serious or honest (yoir choice).

              But even ignoring climate for a second: Humans have not evolved much in the past millenia. The only thing that differentiates our 200-yr-old industrial society from previous agrarian ones is the reliance on abundant and cheap fossil fuels and, for the past century, oil. If you think that depleting oil will not hurt, think again.

              Everything you eat comes frpm soil and oceans. Oceans are wrecked, even cornucopians don’t predict an increase of food from the oceans. You’d better respect soil. Or suggest you eat your coal.

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            • By Forrest on October 6, 2015 at 7:28 am

              Diaboli, Optimist is right on this one. Your premise is correct, “the earth is finite”, but given the scale, technology, etc. a poor restriction or arbitrary talking point. Just to many unknowns and the power of the market will make the transition automatically and effortlessly. Your 2rd premise of eating coal, totally wrong. We’re actually upon a great historical revolution that is yet to be named. Every aspect of societal need is currently being evaluated, improved, reinvented. Think of the current magnitude of change upon us. All of it is very positive, unless one is a suffering pessimist. Farming is just entering the beginning stages of empowering the biological world by design. Agronomics, GMO, global positioning, drone workers, robotic workers, soil engineering, fungi exploitation, and the rest. Their is no limit in sight for improving production per acre, quality of food, and fuel feed stock. Most of it directed to negative carbon rating.
              Metals and metallurgy continues to accelerate progress. Nuclear physics continue to accelerate, engineering skills and tools continue to accelerate improvements. Think of the short time span predicted for autonomous vehicles and resulting light vehicle fleet. Miles per energy unit will no doubt be a magnitude improved. Heavy transportation and distribution equally being radically improved. Same for grid and green power. Fuel cell and bio energy chemistry making strides that will gradually offset petrol. Hydroponics, aquaponics, fish farming, and the rest already enable privatization of food production for those so motivated. Even to the extent of power and fuel supplies for those so motivated even upon small suburban house lots. The biggest threat to humanity is radicalism of terrorist that attempt to destroy society or destabilize. This will limit invention and progress and result in suffering. Same with radical ideals of “change” per some perceived danger. Politics can be very destructive if citizens lose historical understanding and clamor for quick solutions that require no work.

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            • By Advocatus Diaboli on October 6, 2015 at 11:05 am

              I agree on the ” privatization of food production”. You should have added water.
              As for the rest, I cannot quite tell whether you are being sarcastic or you really believe all this, but if the latter: dream on.

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            • By Optimist on October 6, 2015 at 2:07 pm

              Forrest is serious. And right.

              The main challenge for mankind is the fact that democracy is giving us the leadership we deserve. Worldwide the results are utterly depressing…

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            • By Optimist on October 6, 2015 at 2:06 pm

              Wait, you are going to exclude people from the discussion who don’t have the same priorities as you do? I hope you like talking to yourself.

              Nice bait and switch, by the way. We were talking about Peak Oil and suddenly you want to exclude me for not mentioning climate change. The point remains: Peak Oil is bunk.

              Climate change is a different topic. No doubt it needs some attention. We need to find a way to beam more heat into outer space. Where is NASA when you need them? Stop fooling around on Mars, already!

              Food production is yet another matter. Japan better get used to importing rice, because sushi is going off the menu fast, as you point out. It is unfortunate that some cultures are so short-sighted, but what are you going to do? Have the US navy sink fishing boats taking more then their quota? The good news is that nature has a capacity to rebound.

              BTW, who needs soil? Ever heard of hydroponics? There are even plants being developed that can grow using seawater while producing normal food. Hard to keep up with all the science, I know.

              And, you’re right future generations may eat coal, though I suspect natural gas would be the first fossil fuel to be converted to food. Basically you’d do a conversion of methane to something more biodegradable like methanol or one of the volatile fatty acids. Grow some fungus on that mix (think of it as related to mushrooms) and viola…

              Science won’t limit the future of mankind. If science was the only concern the future would be exceedingly bright.

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            • By Advocatus Diaboli on October 6, 2015 at 3:30 pm

              Science is just science, a way to understand nature, and perhaps use it better.

              The limitation is not imposed by science, but by the laws of nature, the limitations of our natural endowment and the needs of humans. Science can help us live better within the constraints, but cannot lift the constraints. Science allows us to understand and make use of the laws of thermodynamics, but it will never allow us to change those laws. It is utterly unscientific to expect that it would. Science can tell us about the role of phosphorous, it can help us find deposits of phosphorous, but cannot create those deposits.

              I won’t go into detail on your points as I do not have the time and don’t see the point. Don’t take it personally. I think you are delusional, but I wish you were right.

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            • By Optimist on October 6, 2015 at 3:33 pm

              That’s OK.

              Typical, when a pessimist can’t make his point, he just claims the optimist is delusional. End of argument.

              You’ll excuse me if I remain unconvinced.

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            • By Advocatus Diaboli on October 6, 2015 at 3:55 pm

              No. All I dared to suggest was that science can tell us about the laws of nature, but cannot change the laws of nature. You and Forrest seem to believe otherwise, as suggested by your last comment (dismissing my argument) and a number of your expectations from science, which are unscientific. Beaming more heat into space without warming the planet? You don’t even need NASA for that: Simply reducing GHGs in the atmosphere would do that. Too bad that you want to ‘beam’ so that you can continue releasing CO2.

              Science tells you to to stop digging, and you propose buying a bigger excavator.

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  17. By Forrest on October 4, 2015 at 8:23 am

    Would it be more accurate to say oil production is a factor of price? As the market will be energized by future profits that in turn will spur innovation, technology, investment, R&D, tax incentives, etc.. I just read an article on technology that will boost deep ocean recovery something like 30%. A device that utilizes the ocean’s depth water pressure to increase pressure differential at oil recovery zone. Also, articles on future robot technology that is proving itself per drilling equipment that makes deep water drilling safer and easier. Technology continues to make drilling, recovery, processing, and oil detection more efficient. I can think of no reason the petrol fossil fuel supply will run out. It will get more expensive, but the earth makes a good storage container as such the supply will quietly and safely sit in place until needed. I remember reading of natural gas reserves of 100 or 200 years out, depending on exports and consumption. That’s the known (current) recoverable reserves of which should increase. Also, coal was rated the same. Maybe GW concerns will eliminate or limit the fuel source, but the enthusiast of such planet killing phenomenon seem to be fickle bunch that only concern themselves with political leadership and solutions of their choosing. For example they claim corn ethanol is worse than gasoline per CO2. The EPA follows suit with outdated data and unproven penalties and utilize illegal rule governing power to limit the production of the fuel. Contrast this with Energy department’s evaluation of ethanol fuel upon GW very positive as compared and gaining strength wile the EPA buries it’s head to avoid reality check. Think of the taxpayer cost and politics invested to promote wind and solar energy without accurate analysis and comparison. Think of the same costs and quality of evaluations of BEV. Then compare the taxpayer cost of the ethanol fuel solution and hydro power already in the position of solving problems and reducing cost. What’s the holdup if as they say GW will destroy the planet. Shouldn’t environmentalist be shouting for joy, for example, that a new auto company utilizing all American built material is about to debut it’s 2016 production and drive a spike in auto pollution problems. A simple low cost safe and reliable auto that’s rated at 84 mpg. A $6,800 vehicle that needs no taxpayer subsidy and should replace a large segment of the used car market. A market of 90 million clunkers that average less than 20 mpg. I don’t hear shouts of joy? Why is that? You could double the GW emission benefit of this vehicle with mid level blend ethanol fuel. An easy move up to E85 fuel engine that would decrease carbon pollution 85% if fueled with cellulosic ethanol. The Energy Department’s rating of Miscanthus grass ethanol drives the carbon rating to negative. Meaning you actually improve. Shouts of Joy per not needing horrendous taxpayer investment and no need to lose citizen and private market freedoms per government regulation should soon spout. Don’t hold your breath as they will attempt to kill such solutions not aligned with their ideals.

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