Peak Diesel or no Peak Diesel? The Debate is Ongoing

In a recent post, Antonio Turiel proposed that the global peak of diesel fuel production was reached three years ago, in 2018. Turiel's idea is especially interesting since it takes into account the fact that what we call "oil" is actually a wide variety of liquids of different characteristics. The current boom of the extraction of tight oil (known also as "shale oil") in the United States has avoided, so far, the decline of the total volume of oil produced worldwide ("peak oil").

Shale oil has changed a lot of things in the oil industry, but it couldn't avoid the decline of conventional oil. That, in turn, had consequences: shale oil is light oil, not easily converted to the kind of fuel (diesel) which is the most important transportation fuel, nowadays. That seems to have forced the oil industry into converting more and more "heavy" oil into diesel fuel but, even so, diesel fuel is becoming gradually more scarce and more expensive, to the point that its production may have peaked in 2015. In addition, it has created a dearth of heavy oil, the fuel of choice for marine transportation. In short, the famed "peak oil" is arriving not all together, but piecemeal -- affecting some kinds of fuels faster than others.

Turiel's proposal has raised a considerable debate among the experts, with several of them challenging Turiel's interpretation. Turiel himself and Gail Tverberg (of the "our finite world" blog) discussed the validity of the data and their meaning. Below, I reproduce the exchange with their kind permission. As you will see, the matter is complex and at the present stage it is not possible to arrive at a definitive conclusion. In my personal opinion, I would say that it is understandable that many of us are afraid of being criticized for having called wolf too early, but that it is nevertheless worth reporting one's data and discuss them on the basis of what we know. Then, as attributed to John Maynard Keynes, "When I have new data, I modify my conclusions. What do you do, sir?"
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Gail Tverberg


Dear Ugo,

I don’t know if you have noticed, but data by type of refined fuel is available from various standard sources of energy data. EIA data has a lot of detail data for the US; BP has regional data for a number of breakdowns. There are no doubt other sources for oil consumption by country. I think of JODI as voluntary data; it is not really clear (to me) which countries are in or out, for which periods.

The information you are showing in your recent post seems to show a fairly different pattern from what BP shows (Dist. means Distillates).



According to BP, Middle distillates consist of jet, heating kerosenes, gas and diesel oils (including marine bunkers).

Within Medium Distillates, there is a further breakdown for recent years, showing a category called diesel/gasoil separately from jet/kerosene. It shows a fairly similar pattern.

It is the “fuel oil” category, which seems to be the heavy distillates, that shows the big downturn in consumption. This is consistent with what we see in the US. Refineries can make a lot more money if they crack heavy oil and refine it into lighter products than if they sell it in close to the unrefined state. In the US, much road construction has changed from asphalt to concrete. Concrete is a coal product in some parts of the world.



In the US, petroleum coke has also shown a big downturn.





With respect to what EIA calls distillate fuel oil (which I think of as diesel), in the US, there indeed were two big steps down.




The first downturn in consumption, in 1981 (when interest rates were raised), was when a lot of home heating and also electricity generation was switched from diesel to other energy products. The second downturn occurred in 2008, when even more homeowners switched away from using diesel for home heating. Also, on the industrial side, some new techniques were developed for drilling oil wells, using natural gas instead of diesel. Natural gas is usually produced in the same field, and is much cheaper for oil producers to use, rather than purchasing diesel. Note that the percentage downturn is far smaller in the "distillate fuel oil” chart than for the other two EIA charts I showed.

To me, it is very difficult to figure out exactly what is happening, with such similar names for different products. Also, there seems to be a lot of shifting of use around the globe. All of this makes the situation confusing.

You might want to backtrack a bit on what you said about diesel. The evidence doesn’t seem as strong, looking at other sources. Perhaps a different post, looking at some new data as well, would be in order. BP data can be downloaded from this link: https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html The tab you are interested in is Oil - Regional Consumption.

Best wishes,

Gail

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Antonio Turiel


Dear Gail,

As for any other peak, some years must be spent to be completely sure that we have passed them. So any evidence so far must be taken, always, with a bit of caution, and in that sense I agree with your warning.

Regarding data, I prefer to use JODI because JODI data is better grounded than EIA data - EIA data contains a lot of "inference", typically spawning from six months in the US up to a couple of years in other countries. JODI data, on the contrary, tend to be more timely (and when there are significant time lags these are reported). Notice also that EIA, IEA and BP use JODI data as one of their sources.

Another significant difference is that in your first graph you represent consumption, while I always represent production. The difference is significant, as I am mainly interested in the refinery throughput because this is the problem I want to characterize (the difficulties to increase the output). The use of stored stuff explains the difference between both.

Some readers have pointed out that the slowdown and even decrease in diesel production, if real, could be a consequence of a lowering demand. This is the same situation as for peak oil: you can always argue that there is not enough demand for that oil, and it is true in any instance: the problem is one of affordability, as you have explained many times.

Regards,


Antonio

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Gail Tverberg
Hello Antonio,

I think that there is a real difference between the kind of data a person wants to look at when that person is examining the indications for an individual country or a subdivision within a country and the information a person wants to look at for world level indications.

When a person is looking at detail level data, then I agree that there is very often a big difference between production and consumption. Looking at data such as JODI data, along with other indications, can be helpful for putting together the true indications for that small grouping. A person has to be pretty aware of particular patterns for individual countries or other smaller groupings. I know, for example, that Texas shale oil data seems to be reported much more slowly than North Dakota shale oil data. Some countries are notorious for trying to exaggerate their production. This is why OPEC shows two sets of numbers, in its monthly reports: “from secondary sources” and “as reported by the producer.” The “from secondary sources” numbers are generally viewed as the more accurate ones.

When a person is looking at small segments of data, corresponding more or less to how the data is reported, then it is fairly easy to see major mistakes. For example, does it look like the "diesel” (or some other grouping) accidentally got reported as “fuel oil,” for some period of time? Does it look like some categories are simply missing, or the amounts have been misinterpreted? If I am looking at detail data, then I can look for mistakes. By the time aggregations occur, the big problems, like missing whole sets of data from some small countries, will be difficult to see. If I am looking at aggregate data, especially on a world basis, I really want someone to have looked at the data in detail, and to have figured out what pieces were missing. They have no doubt made some estimates of the missing pieces, but if I am making estimates of trends, making estimates of the missing pieces is absolutely essential.

I personally have no experience working with JODI, but I have worked with an awfully lot of other data sets (in the insurance world previously, and now in the energy world). I am very much aware of the fact that the initial coding is likely to have a lot of flaws, especially if it is voluntary, and doesn’t have to balance to published financial data.

There is indeed some difference between production and consumption, but when we get to a world basis, they mostly offset. For the purpose of determining trends, what we want is well-massaged data–data that is as free from errors and omissions as possible. I would be willing to believe EIA, IEA, or BP data for this purpose. I would much prefer using well-massaged consumption data to look at trends, rather than a summation of individually reported data of questionable validity.

I have at least a little background on what is happening. I know that there is a fair amount of flexibility in the distribution of finished oil products that can be obtained from a barrel of oil. In general, it is possible to “crack” long hydrocarbons to make shorter (and thus lighter) hydrocarbons; it is close to impossible to go from short chains to longer chains. I was involved in discussions in 2008, when oil companies wanted to increase the refining of what had been products such as asphalt and petroleum coke, because, with high oil prices, oil companies could make a much larger profit from refining heavy oil into higher-price products such as diesel and gasoline. Concrete could be substituted for the asphalt. The US has a natural advantage in cracking long molecules because it has an abundant supply of low-cost natural gas. That keeps the cost below what a similar process would cost in Europe. Heavy oil, such as that from the oil sands, also tends to sell at a substantially lower price than light sweet oil, making the process profitable in the US under a range of price scenarios.

When I see two different trends, one in the JODI data and a different one in the BP data, I am inclined to believe the BP indications.

A Different Diesel Problem

I think that Europe may have a different diesel problem than the one you are thinking about. Europe has tended to use diesel to power its private passenger automobiles as well as its trucks. This is an awfully lot of “demand” to put on one segment of refined products from a barrel of oil. The US and many other countries have spread out demand, with private passenger automobiles using gasoline, instead of diesel. This allows for demand to match up better with what comes out of a barrel of crude oil. According to BP data, in 2017, Europe consumed 7.7% of the world’s gasoline supply and 24.4% of the world’s supply of a subcategory it calls diesel/gasoil. (These are subcategories for recent years that I don’t show on the chart above.) I suspect that there is no oil, anywhere, that could be refined to provide the overly heavy diesel mix that Europe requires. No one in Europe stopped to think, “If cars and trucks both run on diesel, we will need to import an awfully lot of diesel from the world market. We are asking for problems. If the world has barely enough to go around, our demand will raise world diesel prices.”

At this point, there is no sense in adding a whole lot of refining capability for heavy oil in Europe; Europe lacks the cheap natural gas to process it. The same BP report mentioned previously also shows data on Europe’s refining capacity and its refinery throughput. Refining capacity and throughput both seem to be falling, as available North Sea oil falls.


Best wishes,

Gail Tverberg


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Antonio Turiel

Dear Gail,

Sorry for my late response - I'm presently attending an important conference in Rome, and the previous days I was very busy preparing my presentation.

Regarding your comments, if I understand correctly your point, you prefer EIA, AIE and BP data as they have better quality, apart from the fact that they integrate diverse sources of data. The key point is that they apply a better quality control and the result is, let's say, better.

This is a reasonable point, but something that I anyway call into question: are those data really better? As a matter of fact, both EIA and IEA suffer political pressures to make up their data, and this kind of thing is much worse than having an error: it is a bias. Random errors (unexpected data failures, data flow interruptions, occasional double accounting, etc) do not really change the trend, just increase data volatility, something that can be compensated by for instance averaging (e.g., the sliding window of 12 months we apply). But biases can change trends, and that's is quite crucial.

Your point is that maybe what is called diesel has changed along JODI series, something that I am not absolutely aware of, and in fact such a "sudden removal" of diesel from that category should result in an increase the other middle distillates, the "Other fuel oil" category, which is not the case. Besides, removal as such typically shows up as steps in the graph, something that is not observed either. So such hypothesis seems to me very unlikely.

Coping with noisy data with unknown uncertainties is something physicists are used to do, because this is our bread and butter (data from the real world are always noisy and uncertain).

So let me tell you what I propose to solve this issue:

I'm a specialist in a technique called "Triple Collocation" that allows an intrinsic characterization of errors and biases of three sets of different measurements of the same physical quantity. Therefore, abusing of your kindness, if you could provide me different data series of data of what you could name "diesel" or "medium distillates" or whatever you feel more confident of (or even better, all of them!), from different data providers you trust the most (EIA, IEA, BP, whatever) and I will include the data from JODI and make all possible triples (if we have EIA, IEA, BP and JODI we have 4 possible triplets), I can estimate the calibration factors, biases and standard deviations of the random errors for each triplet, then compare the 4 possibilities to see if the results are consistent.

This exercise could be very informative for all us and provide a better insight about where we actually are right now.


Regards,

Antonio

For Whom is Peak Oil Coming? If you own a Diesel Car, it is Coming for you!

At the beginning, the idea of "peak oil" seemed to be relatively uncomplicated: we would climb from one side and then go down the other side. But no, the story turned out to be devilishly complex. For one thing, there is no such a thing as "oil" intended as a combustible liquid -- there are tens, perhaps hundreds, of varieties of the stuff: light, heavy, sour, sweet, shale, tight, dumbbell, and more. And each variety has its story, its peculiarities, its trajectory over time. Eventually, all the oil curves have to end to zero but, in the meantime, there is a lot of wiggling up and down that continues to take us by surprise. Mostly, we didn't realize how rabidly the system would deny the physical reality of depletion, much preferring to "legislate scarcity" on the basis of pollution.

Here, Antonio Turiel writes a fascinating post telling us how the peak is coming "from below," affecting first the heavy fraction of crude oil: diesel and fuel oil. That's already causing enormous problems for the world's transportation system, as well as for the owners of diesel cars, and the situation will become much more difficult in the near future. The light fraction, the one that produces gasoline, seems to be still immune from peaking, but that will come, too.(U.B.)

The Peak of Diesel Fuel: 2018 edition. 

By Antonio Turiel (translated from "The Oil Crash")

 

Dear Readers,

Six years ago we commented on this same blog that, of all the fuels derived from oil, diesel was the one that would probably see its production decline first. The reason why diesel production was likely to recede before that of, for example, gasoline had to do with the fall in conventional crude oil production since 2005 and the increasing weight of the so-called "unconventional oils," bad substitutes not always suitable to produce diesel. With the data of that 2012, I wrote "The Peak of Diesel". At that time, there was a certain stagnation of diesel production, but it seemed to be too soon to venture if it was final or if it could still be overcome. I reviewed the issue in 2015, in the post "The Peak of Diesel: Edition of 2015." The new data from 2015 showed that in 2012 there had really been no peaking, although diesel production had grown less strongly if we compared it with the previous historical rate, and even the last 18 months of the period studied at that time showed a certain stagnation. Now it has been another three years, and it is a good time to look at the data and see what happened.

Before starting, I would like to thank Rafael Fernández Díez for having the patience to download the JODI data, for having elaborated the graphs I show here, slightly retouched, and for having made me notice the problem that is being raised with the refining of heavy oils (We'll see more below). He hasn't had time to finish this post and that's why I'm the one who wrote it, but what follows is actually his work.

As in the previous two posts, we will use the database of the Joint Oil Data Initiative (JODI). This database provides information about most of the world's oil and refined products, but not all of them. The countries not included are countries with serious internal problems and a great lack of transparency, either because of wars or because they are very tight dictatorships. For this reason, the figures that I will show are around 10% lower than they should be if they were representing the whole world. However, given the characteristics of the excluded countries, it is most likely that their data did not change the observed trends, only the total amounts.

All the graphs that I will show are seasonally adjusted, that is, the points are the average of the previous 12 months. In this way, the effects of the variation due to the season are avoided, the graphic is less noisy and trends are better seen. The graphs will always be expressed in millions of barrels per day (Mb/d). First of all, I show you the graph of the evolution of diesel production over the past years:

 
As seen in the graph, the year 2015 marked the maximum so far. There had not been such a marked drop in production since the crisis of 2008-2009, but in the case of the fall of 2015 we find that 1) there has not been a serious global economic recession; 2) the descent is lasting longer and 3) the levels of diesel production show no sign of recovery. Although it is still a little early to ensure that the peak of diesel has occurred, stagnation - even falling - is starting to drag on for too long to be ignored.

Looking at the data of JODI, two other very interesting things are observed. On the one hand, if one analyzes the production of all the fuel oil that is not diesel (fuel oil) it is found that its production has been in decline for years.

As the graph shows, since 2007 (and therefore before the official start of the economic crisis) the production of fuel oils is in decline and it seems to be a perfectly consolidated trend. The diehard economicist interpretation is to consider that there is simply no demand for these fuels (which, although of the same family, are heavier than diesel). When oil is refined, it is subjected to a process called cracking, in which the long molecular chains present in the oil are broken (by means of heat and other processes) and then the molecules are separated by their different properties of fluidity and density. The fact is that if you have made changes in the refineries to crack more oil molecules and get other lighter products (and that is why less heavy fuel oil is produced), those molecules that used to go to heavy fuel oil now go to other products. By logic, taking into account the added value of fuels with longer molecules, it is normal that these heavy fuel oils are undergoing cracking, especially to generate diesel and possibly more kerosene for airplanes and eventually more gasoline. We must not forget that from 2010 the fracking in the USA began to take off, flooding the market with light oil, which is not easy to refine to make diesel. It is therefore quite likely that the refineries have adapted to convert an increasing amount of heavy fuel oil into light fuel oil (diesel). It reinforces this idea that, if we add the volumes of the two previous graphs we have, there is a certain compensation for the trends of diesel production, increasing until 2015, and the long-term trend of decrease of the rest of the fuel oils.

This figure shows that, after the 2008-2009 slump, it has been very hard to raise the total production of fuel oils, which peaked in 2014 and have remained there for almost a year; and at the moment it is suffering a resounding fall (about 2,5 Mb/d from the levels of 2014).

This last observation is quite relevant because if, as you can guess, the industry is cracking less heavy fuel oil to ensure that the production of diesel does not go down too much, the rapid fall of heavy fuel oil will quickly drag down the diesel production. In fact, the graph shows that, after falling in 2015 and 2016, in 2017, it was possible to stabilize the production of all fuel oils, but it is also seen that in recent months there was a quite rapid fall. Surely, in this shortage, we can start noting the absence of some 2.5 Mb/d of conventional oil (more versatile for refining and therefore more suitable for the production of fuel oil), as we were told by the International Energy Agency in his last annual report. This explains the urgency to get rid of the diesel that has lately shaken the chancelleries of Europe: they hide behind real environmental problems (which have always troubled diesel, but which were always given less than a hoot) to try to make a quick adaptation to a situation of scarcity. A shortage that can be brutal, since no prevention was performed for a situation that has long been seen coming.

The followers of that religion called economic liberalism will insist with all their strength that what is being observed here is a peak of demand, that old argumentative fallacy that does not agree with the data (who can think that people are stopping to consume oil because they want? Maybe because they have better alternatives? Which ones?). They will argue that there is a lower demand for diesel and that this is why production stagnates and that the production of fuel oils drops because, as they are more polluting fuels, the new environmental regulations do not allow their use. It's a bit of the old problem of who came first, the chicken or the egg. With regard to the fact that the demand for diesel does not increase, prices have a considerable influence: this is how shortages are regulated in a market economy. And, as for the environmental reasons, the production of heavy gas oil has been dropping from 2007, when there was not as much regulatory interest as there seems to be now. There is one aspect of the new regulations that I think is interesting to highlight here: from 2020 onwards, all ships will have to use fuel with a lower sulfur content. Since, typically, the large freighters use very heavy fuel oils, that requirement, they say, makes one fear that a shortage of diesel will occur. In fact, from what we have discussed in this post, what seems to be happening is that heavy fuel oils are declining very fast and ships will have no choice but to switch to diesel. That this is going to cause problems of diesel shortage is more than evident. It is an imminent problem, even more than the peaks in oil prices that, according to what the IEA announces, will appear by 2025.

The second of the interesting things that the JODI data shows us is how the volume produced of all petroleum products has evolved.

The volume produced has been able to continue increasing during these years thanks to the energy subsidy that the US is giving to the world by means of fracking. However, fracking oil only serves to make gasoline and that is why the diesel problem remains. But you can also note how the end of the graph above shows the same trend in the production of diesel, with a drop of more than 2 Mb/d. What does that mean? That the contribution of fracking to the whole volume is also hitting the ceiling, it does not get any higher. It is a further indication that we are already reaching the peak oil of all petroleum liquids.

That is why, dear reader, when you are told that the taxes on your diesel car will be raised in a brutal way, now you know why. Because it is preferred to adjust these imbalances with a mechanism that seems to be a market (although this is actually less free and more adjusted) rather than telling the truth. The fact is that, from now on, what can be expected is a real persecution against cars with an internal combustion engine (gasoline will be next, a few years after diesel). Do not say that you were not notified (and I was not even the first to do it in this blog). And if it does not seem right, maybe what you should do is to demand that your representatives explain the truth.


Regards

AMT

Note: this post was translated from Spanish using Google Translate, which did a pretty good job, necessitating only some retouches -- although the result is still somewhat "Spanish-sounding" even in English! One problem is the use of the Spanish terms "gasoil" and "diésel" which may not mean the same thing as they do in English (in Italy, btw, diesel fuel is always termed "gasolio"). But these two terms indicate a very similar entity, even though maybe not identical. So, I reworked Turiel's text a little in order to use only the term "diesel".