Sunday, December 1, 2019

What's wrong with the oil industry? Too many claims of abundance start sounding suspicious

Above: the Financial Times of Nov 29th, 2019. Has the US really become energy independent?

Peak oil theorists have always been the favorite punching ball of mainstream oil pundits but, recently, the attacks against the peak oil idea have started becoming so loud and widespread that I am starting to think that there has to be something wrong with the oil world nowadays. As an especially bad example, I may cite a recent article on Forbes by Michael Lynch. I understand that some people have a bone to pick and they want to pick it clean, but this is a little too much -- there are limits to how nasty one can be, even in a heated discussion. 

Yet, some claims of great oil abundance seem to be based not just on the pleasure of denigrating peak oil theorists but on data said to be real. Just as an example, see a recent article on the Financial Times where we can read that,
The US has cemented its status as a net exporter in world oil markets, a sharp reversal from past years that could affect its ties to foreign allies. 
You may wonder the logic of using the term "cemented," that carries the meaning of consolidating something already existing. Indeed, claims of the US having reached "energy independence" in terms of crude oil had become common after that the US production had exceeded imports -- that meant nothing, of course, it was pure dry-holing. At that time, the US had, and still has, a deficit of nearly 3 million barrels of oil in terms of import/export balance, as you can see in the figure below. (image from SeekingAlpha)

The EIA data for crude oil confirm that in November of this year the US had a DEFICIT of 2.7 million barrels per day in the import/export balance. So, how can the FT claim that the US is a net exporter, then? Simple: under the category of "oil" they sum crude oil and oil products. The latter include refinery products such as kerosene, diesel fuel, lubricants, etc. And, indeed, recently the sum of the exports of these two categories has touched and slightly exceeded the curve of the crude oil imports. 

Does that mean that the US is now "energy independent" in the sense that it exports more oil than it imports? Not at all. That would be true ONLY if the exported products were wholly made with US oil -- which obviously cannot be the case. The US production, nowadays, comes in large part from shale oil, which is light oil. But refineries prefer to use heavy oil, which is imported from Canada and other regions outside the US. The refined products made from this oil can be counted as "oil exports" but it is not oil that was produced in the US. If what counts is the US energy independence, then it is obvious that it is just a trick to make the US look like it is producing more than it does. 

It is true that the US oil production keeps increasing, so far, but for how long can it continue growing? Indeed, there seems to be a suspicious excess of glee in these claims of oil abundance. Could it be an attempt to cover some big problems? Hard to say, but one thing is impressive: 2019 should the first year in a decade -- since the great recession of 2009 -- when the world oil production declined (data by Ron Patterson).

The story of peak oil has been a war of opinions and we know that wars are won by those who win the last battle. Mr. Lynch is surely convinced that his opinions on peak oil have been vindicated, but it may be too early for him to take a victory lap. 

Are we looking at the other side of the growth curve


Ugo Bardi is a member of the Club of Rome, faculty member of the University of Florence, and the author of "Extracted" (Chelsea Green 2014), "The Seneca Effect" (Springer 2017), and Before the Collapse (Springer 2019)