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One of the live oaks that bless my home

Friday, April 6, 2012

The World is Finite, Isn't It?

Yesterday I gave a presentation to a group of distinguished business leaders.  In my presentation, I tried to show that the global rate of production of petroleum and the associated lease condensate is at an all-time high or a "peak" that at a greatly expanded scale looks like a "plateau."  I used my published, peer-reviewed extensions of King Hubbert's approach to support my arguments.

Figure 22 in King Hubbert's report "Nuclear Energy and Fossil Fuels," Publication No. 95, Shell Development Company, Exploration and Production Research, Houston, TX, June 1956.

I received a significant push back from several members of the audience.  Their arguments were as follows:
  1. King Hubbert tried to address the question of finite resources and today we know he was wrong.
  2. Even though Hubbert cycles emerge for individual oil provinces, they cannot emerge for the world. 
  3. We have been predicting the peak of global oil production for a long time and it never happened up until now.
  4. Technology will always be ahead of geology and, therefore, we will continue to produce ever more petroleum each year, just from different places, and at a higher price.
  5. Oil shale plays in the U.S. and elsewhere are such technological game changers that they will offset the ongoing declines of the conventional petroleum reservoirs such as Ghawar, Burgan, Cantarell, Samotlor, Prudhoe Bay, and many others. 
    I definitely encroached on the deeply held, personal beliefs of some of the members of my audience, and they became rather upset with me. But their arguments are at the center of the national myth in the U.S., which means that I am in a small and unpopular minority.

    So how does one begin convincing so many people in the U.S. that the Earth is spherical and finite, her crust is very thin, and her fossil fuel resources cannot be produced forever at arbitrarily high rates? Quoting my friend, Dr. Albert A. Bartlett, Professor Emeritus of Physics at the University of Colorado, such convincing is an uphill battle because:
    These people believe that perpetual growth is desirable, consequently it must be possible, and so it can’t possibly be a problem. At the same time there are still a few remaining “spherical earth” people who go around talking about “limits” and in particular about the limits that are implied by the term “carrying capacity.” But limits are awkward, because limits conflict with the concept of perpetual growth, so there is a growing move to do away with the concept of limits.
    "The Physics Teacher," Vol. 34, No. 6, pp. 342-343, 1996.

    Let me try to address points 1-3 above with the graph below. I have digitized King Hubbert's original prediction of global oil production from his 1956 Shell Development Co. report. I have superimposed the actual history of world's production of crude oil (petroleum) and the associated lease condensate liquids in millions of barrels of oil per day (MBOPD). Over the last 8 years, this rate oscillated around 72-74 MBOPD despite of the whole world trying to do its best to meet the ever-growing demand for petroleum.
    King Hubbert's prediction of global oil and lease condensate production revisited 54 years later.  The actual production data are from a combination of EIA statistics and other sources for the early production. It seems that Hubbert got the timing of the plateau (peak) of oil production almost perfectly, and he was off by a factor of two in the production level. He could not have possibly accounted for the offshore production in the North Sea, Nigeria, Angola, Brazil, deepwater GOM, etc.  He had no way of predicting the discoveries and ascent of Cantarell, Tengiz, Majoon, Samotlor, Zakum,  Prudhoe Bay, and many other supergiant oilfields.  Most of these supergiant fields have now been discovered and it is increasingly unlikely that more will be discovered in the future. Hubbert's data said nothing about about the impact of 3D seismic, deviated wells, horizontal wells, massively hydrofractured wells, drilling in two kilometers of seawater, etc. Yet, almost 60  years ago, Hubbert was off by a factor of two in the production level and perfect in the timing of the peak. Now think about an economic forecast for the entire world that is this good after mere 10 years. If you find one, please share it with me and I'll refer to it in this blog.

    Given the incredible impact technology (point 4 above) has had on petroleum production worldwide over the last 60 years, Hubbert's prediction is close to a miracle, demonstrating that the sum of uncorrelated random variables (annual increments of oil & condensate production from all oilfields in the world) with arbitrary distributions and finite variances does tend to a Gaussian, no matter what economists and other laymen say.  Hubbert simply did not have enough random variables in his data set, because these variables were still in the future when he plotted his Figure 22.  In the intervening six decades, technology created by people like me brought these new random variables (oilfields) to life and doubled the production outcome, but did not change the location of the peak.

    Point 5 needs careful addressing beyond the scope of this simplistic blog. Basically, if the power expenditure necessary to produce a resource is greater than the power delivered by that resource, production will stop even if payments are in pure gold.  The large mudstone formations, falsely called "shales," are very difficult to produce and a lot of power must be invested for these formations to produce power as light crude oil.  Thus our ability to produce the low-quality impermeable mudstones at sustained rates reminiscent of  the high-quality permeable oil fields, like Ghawar or Cantarell, is nil. Period.  I'll leave it to the real experts: journalists, economists and fifth graders, to paint a pink rosy picture of the new limitless opportunities.

    Now let me focus on my other favorite subject: demonstration of the cosmic arrogance and limitless ignorance of some economists. My least favorite economist, Dr. Julian Simon, is famous for his belief that there are no limits to growth, and for "defeating" Professor Paul Ehrlich in the equally famous commodity bet.

    Simon also wrote the following nonsense, for which he became a college professor and darling of some policy makers and think (sic!) tanks:
    • Technology exists now to produce in virtually inexhaustible quantities just about all the products made by nature - foodstuffs, oil, even pearls and diamonds...
    • We have in our hands now - actually in our libraries - the technology to feed, clothe and supply energy to an ever-growing population for the next 7 billion years ...
    • Even if no new knowledge were ever gained ... we would be able to go on increasing our population forever...
    As Professor Bartlett dryly observed, even if Simon was off by a factor of 1,000 (economists habitually are off by a lot) in his estimate of duration of the future expansion of humanity (7 million, not 7 billion years), and humanity grew by only 1 percent per year, the number of humans would exceed 10 to the power 30,410. It turns out that Simon's prediction of the number of humans supported by technology and economics is 1 followed by 30,000 zeros times larger (like in 1,000,000,000,000,000,000,000,000,000,000,000,000...) than the number of atoms in the Universe. How does Hubbert's factor of 2 strike you now?

    My other all-time favorite is a 3-day prediction by Irving Fisher, a Yale economics professor, who on October 21, 1929, stated: "Stocks have reached what looks like a permanently high plateau." Three days later, Black Thursday ushered the United States into the Great Depression. Recently, another genius economist from Princeton declared that oil was irrelevant to modern economies.

    My first personal encounter with the high-power economic forecasting was at Shell.  Shell paid a fortune to Goldman Sachs, Chase Manhattan Bank, Deutsche Bank, and a dozen other organizations for the crude oil price forecasts spanning a range from 1 to 30 years.  Shell was very happy with these forecasts, until we plotted all of them together, with several years of starting points.  All the zigzags would start tangentially to the last segment of real data and then would wander off  in every which direction literally covering the entire page like tangled spaghetti, with the predicted end-prices ranging from $5 per barrel to $300 per barrel. We concluded that these very expensive economic guesses had no predictive capability, and settled on a constant low oil price for business planning.  Since the year was 1985, that rough engineering guess was good for almost 20 years and cost nothing.

    I dread to think what the immediate fallout from such hubris might be. The remorseless Goddess of Rhamnous, Nemesis, or Zeus Himself might get angry:
    Seest thou how God with his lightning smites always the bigger animals, and will not suffer them to wax insolent, while those of a lesser bulk chafe him not? How likewise his bolts fall ever on the highest houses and the tallest trees? So plainly does He love to bring down everything that exalts itself. Thus ofttimes a mighty host is discomfited by a few men, when God in his jealousy sends fear or storm from heaven, and they perish in a way unworthy of them. For God allows no one to have high thoughts but Himself.
     History of Herodotus, VII, 10, translated by George Rawlinson (1910).

    Come to think of it, I have not seen recently any economists sacrificing their best rams or bulls as offerings to God, so that He may shine some light on the opaque magic they call forecasting.

    An economic forecaster at work. Now you can see more clearly why we believe the economic dilettantes so much.
    Image source: picsbox.biz/key/magician%C2%A0
    P.S. And here is how the 1972 predictions of the widely discredited Club of Rome look like 30 years later. Did you check them? Not bad for a bunch of ignorant fools those scientists were according to Dr. Simon and every other main-stream whatever.  Now think for one second what will happen if their predictions continue to hold on this finite spherical Earth?  Yes, I can hear you saying : "Why bother thinking about such unpleasant things? We shall always get more, way more of everything with our superior technology. We always did."

    P.S.P.S.  I deeply value wisdom of some economists.  In particular, Professor Nicholas Georgescu-Roegen has changed my life forever.  My two-year study of his magnum opus, "The Entropy Law and the Economic Process," 1971, Harvard University Press: Cambridge, Massachusetts, and the dozens of monographs he quoted there, changed my outlook on everything, and made me a different scientist.  The writings of Professors Filip Mirowski and Herman Daly have also impressed me greatly.  The problem is that these giants of science have been thoroughly ignored by the mere technicians and dilettantes (see the photo above), who also call themselves main-stream economists.