Welcome to the age of diminishing returns

Monday, July 30, 2012

Oil revolution? Really? Strahan demolishes Maugeri


Image above from University of Minnesota.



David Strahan is a British journalist, known among peak-oilers for his book "The Last Oil Shock". He doesn't mince words in his attack to Leonardo Maugeri's recent, very optimistic report titled "Oil: the next revolution."

Whereas most commenters have criticized the report for its general approach and conclusions, Strahan has been more aggressive and has looked for the details, finding a true mathematical howler in it. At first, I didn't want to believe it, but I went to check and Strahan is right. At page 20 of the report, you can read:

From 2000 on, for example, crude oil depletion rates gauged by most forecasters have ranged between 6 and 10 percent: yet even the lower end of this range would involve the almost complete loss of the world’s “old” production in 10 years (2000 crude production capacity = about 70 mbd). By converse, crude oil production capacity in 2010 was more than 80 mbd. To make up for that figure, a new production of 80 mbd or so would have come on-stream over that decade. This is clearly untrue: in 2010, 70 percent of crude oil production came from oilfields that have been producing oil for
decades.


Nearly unbelievable: Maugeri tries to demonstrate that most forecasters have been wrong in the past by noting that a 6% depletion rate would lead to the complete loss of the world's production in 10 years. How can that be? As Strahan correctly says, the loss would be 46%, definitely not "nearly complete" as Maugeri says. Even with a 10% yearly decline, after ten years you would still have more than 30% of the original production.

Strahan then rubs salt into the wound by reporting that:

When I put this to him, Mr Maugeri seemed genuinely confused, and tried briefly to persuade me the loss was much larger. “If you have a 6% decline each year over a 10 year period, the loss of production is close to 80%”, he said, but then the penny dropped. It looks to me as if he compounded 6% in the wrong direction – for growth, not decline. “Maybe on this you are right”, he conceded sheepishly. 

Strahan's post highlights how vulnerable most people are to fell victim of their own entrenched beliefs. It is called "confirmation bias", it is what happens when people gather or remember information selectively, or when they interpret it accordingly to their biased view. Here, Maugeri clearly fell for the idea that "past forecaster have always been wrong," something deeply entrenched within most cornucopian views of the future.

Of course, it is not a single mistake that can demolish a study and, apart from this misinterpretation of the decline rates, Maugeri's report contains valid data and valuable insights. However, it is also true that there exists something that I call the "Bailey Effect" which consists in destroying a whole study by finding a single mistake in it, no matter how minor or marginal it may be. It is because of this effect that "The Limits to Growth" 1972 study was demolished, as I described here.

Will Maugeri's study survive Strahan's demolition? Probably not, but it is what it deserves for plenty of other reasons (see e.g. here, here, and here,).


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Here are some excerpts from Strahan's article

Monbiot peak oil u-turn based on bad science, worse maths
Posted on Monday, July 30th, 2012


...

Plenty of ink has already been spilled by oil depletion experts exposing some of the wildly optimistic assumptions contained in Maugeri’s report. More damning is that the work is shot through with crass mistakes that render its forecast worthless.

When I interviewed him, Mr Maugeri was forced to admit a mathematical howler that would disgrace the back of an envelope, and it also became clear he did not understand the work of the other forecasters he attacks. It also looks as if he has double or even triple counted a vital component of his predicted oil glut.
Maugeri claims this looming glut has three legs: booming upstream investment by the oil industry; the rise and rise of unconventional production such as US shale oil; and a tendency among forecasters to over-estimate massively the rate at which production from existing oil fields declines. The first point is uncontroversial, the second is moot, but the third is the most important; without it, Maugeri’s glut evaporates.
...
Maugeri cherrypicks numbers from the IEA study and misrepresents them to claim that “most forecasters” work on decline rates of 6 to 10 percent. He then argues this is incompatible with the observed growth of the oil supply over the last decade – and therefore must be wrong – and uses this conclusion to justify his inflated oil production forecast. But the whole thing is a straw man; an email he sent me revealed he simply doesn’t understand the IEA numbers. The IEA’s global decline rate is actually 4.1%, and CERA’s broadly agrees, at 4.5% (see here for more detail).
Even if we were to accept his 6 to 10 percent range, Maugeri has got his sums horribly wrong. In the key section of the report, he claims that even the lower end of the range “would involve the almost complete loss of the world’s “old” production in 10 years”. But this is laughable. A 6% annual decline over 10 years leaves you with 54% of your original production, because each year’s 6% decline is smaller volumetrically than the previous one. So over a decade the decline is 46% – and very far from an “almost complete loss”.

When I put this to him, Mr Maugeri seemed genuinely confused, and tried briefly to persuade me the loss was much larger. “If you have a 6% decline each year over a 10 year period, the loss of production is close to 80%”, he said, but then the penny dropped. It looks to me as if he compounded 6% in the wrong direction – for growth, not decline. “Maybe on this you are right”, he conceded sheepishly.

.....

5 comments:

  1. The problem I find with Mr. Maugeri's analysis is the same as with many others. All of them focus on oil supply, not oil's energy return.

    For the most part, we mine hydrocarbons for *energy*. Hydrocarbon mining must be both energetically and economically profitable for it to occur. In the 1960s, Oil's energy profitability was in the 1:100 range. It took the energy of one barrel of oil to get 100 barrels of oil out of the ground. There was so much slack in the system that even as that energy return declined, prices did not rise and there was plenty of excess energy to find more oil AND run civilization.

    Fast forward to 2005. Energy returns are declining. 1:10 is now seen as a good energy return, but there's no more slack in the system. It now takes much more money and energy to produce the same amount of hydrocarbon based energy than it did in the 1960s (e.g. Deepwater rigs, Bakken, et. al.).

    Short term result? Prices that don't decrease even during a recession.

    Long term result? Prices eventually get so high that even sustaining hydrocarbon mining becomes untenable. Long before that, however, the interdependent web of just-in-time supply chains that supply the planet with good and services will see some distinctly non-linear breaks.

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    Replies
    1. I totally agree with this analysis, but it is way too complicated to be understood by the general public or by politicians. What they can understand is something like, "Hey, this guy, Maugeri, made a silly mistake in his study. So, it has got to be bullshit"

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  2. Well, I for one can say that Georges Monbiot never fooled me :) I guess that there's indeed enough oil, but to fry Monbiot.

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    Replies
    1. Poor Monbiot.He is a smart guy, but we all have our limits. Peak oil is not his thing.

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  3. I think we should be grateful to David Strahan for having read the report to at least page 20 ! Because, well, the reasoning is so twisted that I had to read and re-read and re-re-read the few lines at stake again and again before I understood what was in Maugeri's mind...

    Anyway, as you note, even a hurried politician or decision-maker has enough time and background to understand that losing ten times 6 percent doesn't get you to lose 80 percent of what you had. And this is good !

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