Oily Pasts and Futures (book review)

Politics and industry make strange bedfellows.  Politics is often short-sighted, with most politicians locked in to the next election, or even the next round of polls, but multifaceted.  Industry, on the other hand, can look over longer timespans but is narrowly focused (“can” is not always “does”). You might hope that the pair could produce public policy that was both broad and longterm, but the reality seems to combine the worst characteristics of each.

Nowhere is this more evident than in peering into the future of oil. Mason Inman’s recent biography of M. King Hubbert, The Oracle of Oil (Amazon link), provides a nice reminder of this interaction from an earlier time. Hubbert’s views on oil, which were made with an eye towards a fully sustainable economy, conflicted with corporate and political motives. Corporations are in a specific business and like to hear that their future is bright, a disastrous approach when the future is changing (see Eastman Kodak’s fall as digital photography bankrupted their film business). Thus there is a tendency within a company to both develop rosy forecasts and believe them (the more pessimistic will tend to leave).  Politicians want happy news about tomorrow–Cassandras don’t tend to get elected. So what happens when unhappy predictions are made?

Inman’s biography is tightly focused on Hubbert’s career-long focus on the finiteness of resources and so his personal life quickly fades into the background, as do things like his participation in scientific societies (while at Shell, he served as President of the Geological Society of America) and other research efforts (while his work on overthrusts is mentioned, other work on fluid flow in porous media and rock rheology gets no mention). This is not really a drawback, as Inman’s focus makes the book’s trajectory an easy one to follow, and the book is quite accessible.

Between his scientific chops and idealistic outlook, Hubbert tried to figure out just how the production of finite resources might evolve early in his life. He envisioned a utopian society where the amount of work necessary to provide comfort to all was a fraction of the modern workweek; providing a stable basis for such a society intrigued him. Finding employment in the oil industry, figuring out oil’s future made sense.  Hubbert began with very simple models and gradually tried to refine them, looking, for instance, for a decline in discoveries as a harbinger of a decline in production. As Inman describes, Hubbert’s results were not trusted and so his approaches were often dismissed as somehow incorrect.  He was, however, largely correct in predicting a peak in oil production in the U.S. about 1970, an event with profound geopolitical consequences. It is curious to note that some of the bitterest fights against the rosiest of outlooks came not from industry but from the independent U.S. Geological Survey.

The massive repeated denials of impending reality echo loudly today. Whereas President Reagan simply asserted that getting government off the industry’s back would produce ever more oil, today President Trump asserts that coal will rebound dramatically if government gets out of the way.  Neither recognized the underlying reality of the situation. Similarly, denials of global climate change are rooted as much in a disbelief that anybody’s behavior must change (e.g., bankrupt some corporations and put their employees on the street) as any actual analysis of the data. Is it possible for governments to learn?

At the other extreme, Hubbert’s curves were often over-interpreted; he noted that the finite resource might play out in a number of different ways. What was surprising in some ways was how resistant his curves were in the face of continued development of more advanced production and exploration techniques…to a point.

What was understated in the book’s text was that peak production would occur at a major economic inflection point: prior to reaching peak oil in the U.S., the cost of oil was nearly constant in constant dollars (in large part through the efforts of Texas government to prevent wild price swings that existed a century ago). Once production could not match rising demand, prices rose and became volatile.  Hubbert disliked what he called the price economy, viewing energy as the basis for all economics. He argued that economic trade-offs were relatively irrelevant to oil production; after all, when the energy cost of pulling a barrel of oil out of the ground exceeded the energy in that barrel, oil as a basis for energy would be irrelevant.

But price does matter; the development of horizontal drilling and greater application of fracking was in part a response to far higher prices; this opened up vast volumes of rock previously excluded from any possible oil reservoir.  Instead of looking for porous rocks that held oil, drillers could exploit fairly impermeable source rocks. This development coincided with a dramatic rise in oil prices in 2008 that seemed to presage the end of oil as the basis for western economies. As demand plummeted in global recession and supply increased from tight oil fields, peak oil suddenly drifted into the future somewhere; the optimists who had been saying there was no end to oil were clearly emboldened. Environmentalists who were seeing clean energy finally gaining an equal footing with fossil fuels were distressed. It seemed Hubbert had blown it.

An epilogue in the book attempts to carry the story forward and see how Hubbert’s work applies to this new world of tight oil and gas.  As described in the text, there continues to be the divergence of estimates from the very rosy to more circumspect–with, on occasion, the same forecasts actually embracing both at once. The reemergence of pre-1969 sunny optimism conflicts with the more pessimistic outlooks of those carrying Hubbert’s world view forward.

For instance, when you look at the oil production curve for the U.S., what stands out is just how steep the recent rise in tight oil production has been:

The sensitivity of this resource to price is quite clear in the drop in 2015-2016, but just how finite is this resource? If you scaled the older curve to fit this data, you’d expect a huge increase in oil production in coming years.  But Hubbert’s point was that the area under the curve would represent a constant; the particular shape of the curve mattered far less: perhaps the incredible increase this decade reflects employment of idle capacity and underutilized infrastructure.  Rapid growth was possible perhaps because there were already a lot of drill rigs, a lot of seismic profiles, a lot of oil pipelines, a lot of refineries. Once the trick was known, its exploitation was relatively easy. If that is why the rise is fast, the decline could be equally abrupt.

Tight shale oil wells are still relatively new; while estimates from some older wells suggest economic lifetimes of 17-45 years, indications are that industry is adjusting their drilling and fracking procedures to increase the overall lifetime production from newer wells. But production eventually declines exponentially (a nice relationship has been demonstrated for tight gas wells), meaning that the increase in production can only be continued by more and more drilling. The number of active drill rigs has yet to recover from the drop after prices fell in 2015.  At the current production rate of about 5 million barrels of oil a day from unconventional oil, the EIA’s estimate of 78 billion barrels of oil from tight oil would indicate a grand total of  15600 days or about 43 years of production at current levels.  Given both the short term increase in development and the exponential decay of production, you’d expect that the peak would come well before that.

So is peak oil a deluded relict? No, but the problems Hubbert faced remain today, especially once you face global estimates.  Because the oil has not migrated in these tight formations, the uncertainty of hitting big new fields is virtually absent: barring some huge overthrusts hiding big sections of sedimentary rock, we probably already have a pretty good estimate of all the tight oil in the U.S.; the main uncertainty will remain how efficient recovery is. The problem in estimating global conventional reserves outlined in a 2005 Guardian article remains true today even if the end of oil has become more remote. Misinformation is desired by many players in industry and rulers of petroleum-producing countries. Whether shale oil proves to just be a wart on the side of Hubbert’s curves or a reset of the whole process remains to be seen.

Hubbert felt that oil would end when the energy cost balanced the energy acquired, but a more likely fate is that facing coal.  In the U.S., coal as an energy source is increasingly uneconomic. When factoring in health costs (as coal is dirtier than natural gas, wind, or solar), coal has been a poor choice for some time. Basically, coal’s costs are too high and it is mainly inertia that keeps coal plants online. The announcement of many car companies that they are shifting to producing electric vehicles (a development Tesla’s stock price would suggest is viewed by markets as a coming thing) foreshadows a similar decline in oil as a raw energy source.  Much as coal is increasingly produced at far lower levels for use in steel manufacturing, oil might shift to being a feedstock for plastics. The roughly 25% decrease in coal production over the past decade was far more rapid than the 25 years it took to rise from that level of production; an equally rapid decline might face oil in years ahead.  The down side of Hubbert’s curve might be steeper than the front end.

Inman recounts Hubbert’s wrestling with the question of what could replace oil.  For many years he championed nuclear power, but the failure to build breeder reactors, the issues with obtaining enough uranium, and the problems with waste disposal and nuclear weaponry caused him to abandon that choice later in life. He instead came to advocate for solar power nearly 30 years before the economics caught up with him.

What isn’t as apparent in Inman’s account is how small an overall impact Hubbert’s studies seem to have had on government or industry behavior.  Although lauded later in life and brought before congressional committees, Hubbert’s forecasts seem to have had little impact beyond that imposed by actual scarcity. We’re now seeing much the same game being played out, with an entire scientific community warning of crises from a warming climate being essentially ignored, vilified, or banished from being heard. In the end, the question might be, how do we as a society want to use people like King Hubbert, who have the skills and drive and knowledge to warn us of future difficulties?

Tags: , ,

One response to “Oily Pasts and Futures (book review)”

  1. Paul Braterman says :

    There is one major difference between predictions based on the finiteness of a resource, and predictions based on the external effects of an industry. Oil scarcity (at a given level of technology) automatically pushes up prices, but unfortunately there is no mechanism by which global warming generates a price rise for fossil fuels, other than willingness by governments to take action.

    Liked by 1 person

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: