102 comments on More on the Systematics of Hubbert Linearisation
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Yeah, yeah — Hubbert math — Whoopee!
Did anybody notice that OPEC will raise their production 0.5 million barrels per day by November 1st? I guess that would apparently obviate any "peak now" nonsense, wouldn't it?
Funny, maybe TOD stands for "The Over-the-top Doomers".
Still, that does not remove us from a very likely peak by 2015 but probably 3 or 4 years sooner.
Have a good one, Euan.
Dave
Dave, please note that in response to the OPEC news, commodities traders raised the price of oil to within fifty cents of the all-time record of $78.77.
They are betting their careers against OPEC's word. My take on this is that a major disruption in petroleum distribution is expected in the next few months, rendering this quota increase moot.
I have a friend who works in a lumber yard. He regularly threatens to "start eating sawdust and crapping 2x4's" but I don't plan on building a house from his "output"
SW
Dave, I respect your posts greatly and value your wisdom, but I don't see how 500,000 barrels, if it is produced, changes anything yet. Most think SA has some spare capacity even if they are post-maximum peak, and the increase still won't break through the plateau we have had the last 1 to 2 years (depending on what liquids you are using and which data set). You are sounding like Hutter. I'm not saying you aren't right about 2012 or so, but this certainly doesn't tell us much one way or the other as far as I can see.
Eric
If you read his articles closely, Stuart Staniford does not believe that Saudi Arabia has any spare capacity.
Do you understand what I just said?
Stuart's view has become the mainstream view on TOD. Nobody else's view really counts. I see that PG believes Stuart's conjectures. HO, who I respect, does not. Look, if you want to deal with reality, read my columns over at ASPO-USA. If you want the doomer "end of the world" view, keep reading The Oil Drum.
Why do you think I resigned?
What makes you think they will actually be able to meet their production goals?
Um, to the best of my knowledge, they are raising the quota, not 'production' - OPEC's members have an extremely long track record of never producing within the set quota, it is at least possible to see this new quota as merely attempting to reconciling the numbers on paper with what is actually being produced. In Great Britain, the process is currently running in reverse - the numbers in such things as revenue for the government budget are being revised downwards - but the same trend can be seen. Reality is starting to overtake all the projections.
Of course, a lot of people here are over the top, and the looming American economic train wreck certainly plays its role in OPEC planning - except strangely, isn't this the sort of situation where traditionally OPEC would be cutting production, to ensure a stable price?
And yet, the price keeps rising, even as 'production' keeps rising.
A real puzzle - though some pieces are missing, it does seem as if a certain pattern can be seen - higher prices, no increase in real production from a number of former exporters (like the UK), and no noticeable increase in export production from countries like KSA or Russia (Russia remaining a puzzle wrapped in an enigma).
Of course, maybe Angola is the new Saudi Arabia, but I'm not holding my breath.
This is how peak looks - we will know if it is in a couple of more years, regardless of anyone's opinions.
The news made it quite clear that they are raising the quota by 1.4 million, and raising production by 500,000 to meet the new quota. So no, they are not just raising the quota and keeping production flat. I sense that they don't intend to raise production by this amount, however.
I haven't the interest to wade through the thickets, but does the statement's details include Angola being brought into the system (or how Angola's expected ramp up in production is to be accounted)? How about Iraq's declining production, which is not subject to quota? Or Saudi Aramco's now confirmed reduced output?
There is a lot of very imprecise data, and much of it is not readily accessible anyways - the call for transparency is actually just the start of beginning to actually figure out what is going on, and then how to deal with it.
However, rising price in the face of flat production does seem to indicate certain shifts in the oil market, ones best explained by geology, in my opinion.
I have little attachment to any particular model or method - to me, peak oil is measured by what is coming out of the pipeline, and these days, it is less than a year ago, and not significantly higher, even as the price seems to have undergone an approximate doubling, since the amount of oil being produced flattened 2005.
In Iraq the oil pipeline meters have been shut off since the invasion, so nobody can say how much oil has left Iraq or where it went. But I bet America had a hand in deciding how much and where.
So far, the data support a peak last year. Until production exceeds that peak, it's impossible to know that peak will happen a few years down the line.
OPEC agreed an increase but that doesn't mean they will produce an increase.
The latest IEA report shows a near 500,000 bpd drop in production last month.
Incredibly, the IEA are forecasting average consumption, this year, of 85.9 mbpd. From memory, I don't think production has ever reached this figure this year (and last month's production was way below that) and yet the report also shows a slight increase in stocks. I don't have all of the data with me but unless last month's figure is an abberation, stocks cannot increase when consumption exceeds production. Can it?
I think OPEC has consistently demonstrated that its production quota announcements are meaningless.
James Hamilton documents this at Econbrowser, and says: "I see the primary role of OPEC today as one of orchestrating political theater."
Khursaniyah was expected online in December of 2007--I expect it will be online in November instead. It is expected to produce 500,000 barrels per day. I expect we'll see a temporary increase of fewer barrels per day than that in overall Saudi production.
Moe - the role of OPEC is a price fixing cartell. For much of its history it existed in a world with over-supply of oil. Quotas were set and members cheated and the oil price bumbed along bottom for decades.
Now the rules have changed - but only recently - and I think OPEC are still playing catch up. I presume they are in favour of as high a price as the world economy can sustain without causing a crash that would reduce demand. They are trying to second guess what demand is in a rapidly changing world (BRIC etc). Some of their members import oil, others are pumping flat out, others want to mess with guest OECD companies (Venezuela) others are being messed up by invading armies (Iraq) and civil / tribal unrest (Nigeria). This is a complex tapestry.
Khursaniyah is indeed due onstream - and yes I'd bet that Saudi production may rise by around 250,000 bpd. Their heritage supergiants are tired and will benefit from rest. But remmeber that Khursaniyah is just the first in a line of new developments.
Didn't the discussions over Ghawar, earlier in the year, point to other new developments that came on stream previously? Stuart's analysis showed that these new developments just caused a blip in a generally declining trend. So Khursaniyah is certainly not the first, and won't be the last, but the question is how much will it affect the overall decline?
What decline? According to the IEA, Saudi oil production has been within 0.08mb/d - 1% - of 8.35 since the beginning of the year.
As much as we may not trust them, Aramco's production has been perfectly in line with their claims all year, and has totally failed to match any of the decline-based predictions made while Saudi production was falling. Like it or not, the available evidence suggests that Saudi production declines were voluntary.
Mmm, perhaps you didn't read Stuart's analysis; it showed that the decline during last year was on an 8% curve and didn't show the mathematical signature of voluntary declines. A quick check of the IEA figures shows 2007 production currently running at an average of about 8.35 mbpd, as you say. This is 6.5% below the average production for 2006. Their levels in the first seven months of the year were 8.42, 8.32, 8.27, 8.33, 8.43, 8.35, 8.35. This seems to indicate that they've halted the decline for now after continuing declines for the first three months. If you'd rather see no decline, that's up to you, but I don't think one can categorically point to an end to the trend. Let's see if they can raise production later this year, and what the final end of year average is.
I read it; he was just wrong.
There's nothing wrong with that - it was a speculative hypothesis, and I believe he said as much. But there is no indication of decline in the last 7 months of production (the slope of the linear regression is positive, meaning the best-fit line is a tiny but statistically-insignificant increase over time) and every indication of production being held in compliance with a quota.
It's just wishful thinking to say anything else at this point. You can speculate about all kinds of reasons why Saudi production is not declining right now, but the fact is that it is not.
Not really wishful thinking, just looking at the data. Wishful thinking would be that SA are not in decline. Of course, that thinking may be correct but, so far, 2006 shows a year on year decline over 2005 and 2007 shows a year on year decline over 2006. The data are not clear but I guess it all depends on how one is hoping that the production trends are going. Until the Saudis can increase production and keep it there (or further improve on it), they would appear to be in decline and struggling to hold production level in a period when oil prices are very high.
No, that would be statistics.
The linear trend of monthly 2007 production values from KSA is positive, but is statistically indistinguishable from zero (F = 0.009, P > 0.97). KSA is showing - statistically speaking - neither a growth nor a decline trend in its 2007 production levels.
Declines happened - for whatever reason - in 2006, but they are no longer happening.
It is wishful thinking because declines have only apparently been halted in the last few months. Last year's decline continued into this year but the production curve has now flattened. It is wishful thinking to say that this means the declines are over. As I've pointed out, year-on-year average production figures continue to show a decline. You may choose to believe that the plateau will continue indefinitely (or for the rest of this year) but if the figures start down again soon (say within the next 6 months), the recent plateau will almost be unnoticed when looking back at the production curve in a few years.
The last 7 months of production data show a statistically verifiable lack of relationship between time and production level; i.e., no decline. You can dispute this all you want, but you are verifiably incorrect. Run the stats yourself if you don't believe me.
KSA's production did decline in the past, but has not been declining recently, and that is the more salient data for predicting production in the immediate future.
You're reading in something I haven't written.
What I have said is that KSA's production this year has not been in decline, and that that lack of decline is statistically verifiable.
I have not said what their production will do in the future, other than to note that since they appear to be in voluntary control of production levels now, it seems reasonable to assume they will have some level of voluntary control over production levels in the near future.
Based on that, my guess is that they'll fulfill their increased production quota starting in November. If they couldn't, I don't see why they would have allowed the quota to be increased; news reports suggested that KSA was the main voice in favour of a quota increase, strongly suggesting they could have nixed it if they'd wanted to.
"I read it; he was just wrong." Wrong in that it wasn't declining at 8% at the time? It certainly was. Or wrong in projecting it to continue indefinitely? I made no such claim and specifically pointed out that Saudi production was unlikely to continue to decline at that rate indefinitely. Would you care to point to a specific statement I actually made that you think is wrong?
"didn't show the mathematical signature of voluntary declines" is the claim I'm saying appears to have been wrong.
I don't recall whether you explicitly made that claim, much less a claim about continuing declines, although both I and the previous poster got that sense from your articles. If you didn't make either claim, then my apologies for suggesting you had.
Both claims do seem to be widely-believed and incorrect, though, regardless of who bears responsibility for making them.
EDIT: ahh, found the speculative hypothesis I was referring to. From Saudi Arabian oil declines 8% in 2006:
You made the speculative hypothesis that KSA production is in decline - from the phrasing, you appeared to be saying permanent decline - and appear to imply that it will decline at a rapid rate. You reinforced that hypothesis at the beginning of A Nosedive Toward the Desert:
i.e., KSA is currently undergoing rapid decline. As in, that is a present and continuing situation as of March 2007.
Obviously, I disagree with that hypothesis: KSA was not in the middle of a decline - rapid or otherwise - in March of this year, as the 2007 production numbers show. Moreover, I disagree with your other hypothesis:
2006-2007 production has been a sharp decline until reaching the quota level, and then no decline at all thereafter. That is just what one would expect from a voluntary decline, but it seems unlikely that an involuntary decline would conveniently stop at a chosen quota level.
"Declines are rather unlikely to be arrested, and may well accelerate." was clearly wrong and an overhasty extrapolation. By the next piece, I was more careful, saying "has entered rapid decline of their oil production, at least for the time being". I also in that piece pointed out that "However, it's very hard to believe that declines would continue at that rate. Eg, if they continued all the way to zero after ten years, that would only be another 16 billion barrels of oil production. No-one is that sceptical of Saudi oil reserves. Eg Hubbert linearization suggests there's about another 80gb or so of oil there. ASPO estimates 170gb still to produce (though based on a fairly generous recovery factor)."
There was no good evidence of stabilization in March. The data available at that time would only go through Jan-Feb, and all series were still dropping. I continue to believe the declines in 2005-2006 were largely or entirely involuntary and likely reflected at least in part depletion in North Ghawar. However, I also continue to believe that there is a sizeable fraction of reserves remaining in Saudi Arabia, and the declines probably reflect a failure to anticipate the depletion of Ghawar (and maybe other fields), and not a complete lack of anything else to develop.
Yes, of course. I'm not saying you did anything wrong - as I said, you made a speculative hypothesis, and it turned out to be incorrect, and there's nothing wrong with that. Happens all the time when people are trying to figure out something tricky. All I'm saying is that current evidence suggests that hypothesis was not correct. No biggie.
It's not yet clear, though, what the nature of last year's decline was. I'd argue that 2007 production gives strong evidence that at least some of it was voluntary, but we don't know whether all of it was. There's probably a good chance you're right that some of it was involuntary - your analysis of North Ghawar was very solid, although it's somewhat speculative how heavily KSA was relying on the region - but there's also a good chance we'll never know.
Wikipedia on Signal to Noise Ratio.