Tuesday, February 24, 2015

The shale oil "miracle": how growth may falsely signal abundance

Oil production (all liquids in barrels per day) in the US and Canada. (From Ron Patterson's blog). Does this rapid growth indicate that the resources are abundant and that all the worries about peak oil are misplaced? Maybe not....

Sometimes, we use a simple metric to evaluate complex systems. For instance, a war is a complex affair where millions of people fight, struggle. suffer, and kill each other. However, in the end, the final result is seen in terms of a yes/no question: either you win or you lose. Not for nothing, General McArthur said once that "there is no substitute for victory".

Now, think of the economy: it is an immense and complex system where millions of people work, produce, buy, sell, and make or lose money. In the end, eventually, we think that the final result can be described in terms of a simple yes/no question: either you grow, or you don't. And what McArthur said about war can be applied to the economy, as well: "there is no substitute for growth".

But complex systems have ways to behave and to surprise you that can't be reduced to a simple yes/no judgement. Both victory and growth may well create more problems than they solve. Victory may falsely signal a military might that doesn't really exist (think of the outcome of some recent wars....), while growth may signal an abundance which is just not there.

Take a look at the figure at the beginning of this post (from Ron Patterson's blog). It shows the oil production (barrels/day) in the US and Canada. The data are in thousand barrels per day for "crude oil + condensate" and the rapid growth for the past few years is mostly due to tight oil (also known as "shale oil") and oil from tar sands. If you follow the debate in this field, you know that this growth trend has been hailed as a great result and as the definitive demonstration that all worries about oil depletion and peak oil were misplaced.

Fine. But let me show you another graph, the US landings of North Atlantic Cod, up to 1980 (data from Faostat).

Doesn't it look similar to the data for oil in the US/Canada? We can imagine what was being said at the time; "new fishing technologies dispel all worries about overfishing" and things like that. It is what was said, indeed (see Hamilton et al. (2003)).

Now, look at the cod landings data up to 2012 and see what happened after the great burst of growth.

I don't think this requires more than a couple of comments. The first is to note how overexploitation leads to collapse: people don't realize that by pushing for growth at all costs, they are destroying the very resource that creates growth. This can happen with fisheries just as with oil fields. Then, note also that we have here another case of a "Seneca Cliff," a production curve where the decline is much faster than growth. As the ancient Roman philosopher said, "The road to ruin is rapid". And this is exactly what we could expect to happen with tight oil


  1. Ugo - an article from the FT (sorry not to have taken a link) reported a potentially spectacular production peak for US tight oil - not as US EIA proposes in late autumn but in about 2 months - as projected from rates of closure if drilling and due in large part to the difference between trad and tight reserves.

    In the latter in a downturn the motivation to maintain extraction ALAP because other drillers are sucking out the reserve - is missing.


  2. As individuals, as we grow out of childhood we (some of us) learn to postpone gratification. Observing the behavior of human societies, you wonder whether societies are capable of a similar kind of maturation, preserving vital resources in a sustainable way instead of exploiting them as fast as possible. As far as I know, there are not many examples of societies that lived sustainably for very long. There are many examples of societies that destroyed themselves by depleting a vital part of their natural commons, illustrating Garret Hardin's "tragedy of the commons".

    Just as the Atlantic Cod fishery was destroyed through overexploitation, and just as the tight oil boom is likely to turn into a bust, it appears that global industrial civilization will do the same thing on a grand scale.

    If the Seneca cliff is an appropriate curve for industrial civilization, measured perhaps by industrial output per capita, then we are in for a very rough ride as a species. The 1972 Club of Rome report has already predicted something similar, although with the addition of the Seneca model it might be even worse.

    1. In fact the 1972 limis to growth ouput also shows the Seneca effect for some of the variables considered, typically service per capita and industrial output :

  3. A good summary article in the guardian about north sea oil and gas :

    Where we see that the "stranded assets" rhetoric is one of these "twisted" economists style thing that will fall flat.
    The principle :
    - government will put a too high prices on co2 for the remaining resources to be extracted
    The reality :
    - if anything governments will cut the existing extraction taxes and royalties for the remaining resources to be extracted.

  4. "I don't think this requires more than a couple of comments."

    This one could be number five.

    Emotions get involved. Italy I'm sure suffers from football madness when fans are sure a winning streak will never end. But they do. Growth is like a winning team and irrational exuberance prevails. Defeat, or an end to good times becomes inconceivable. A madness of crowds infects many who should know better. And it is an unfortunate truth that not everybody can think in numbers. Rude barbarians who's mental blindness won't allow them to appreciate the deeper ramifications of growth grow among us like weeds on abandoned land.

  5. This seemingly endless abundance of natural natural resources indeed does have an endpoint. The Seneca Cliff is news to me - thanks for the info!



Ugo Bardi is a member of the Club of Rome and the author of "Extracted: how the quest for mineral resources is plundering the Planet" (Chelsea Green 2014)