Wednesday, August 26, 2009

Crude interpretation

On Monday, the New York Times carried an Op-Ed by Michael Lynch, “Peak Oil is a Waste of Energy.” Reaction from industry leaders has been mixed. Mr. Lynch is an energy consultant with the Center for International Studies at M.I.T., and on Tuesday, Valero Energy’s Philip Maelipeck joined U.S. Energy Information Agency analyst Carl Sheplin in a conference call to the Man-Bunny Matrix.

“I liked Michael's article,” Maelipeck said. “Does it sound like it was written by an eighth-grader? Maybe. Does it abuse historical precedent and misrepresent facts? Sure. But I enjoyed it.”

But some elements are especially troubling, according to Sheplin, such as Lynch's response to those who say oil is becoming more difficult to extract. Lynch considers this argument “vague and irrelevant”, on the grounds that oil explorers operating mule-drawn rigs in 19th Century Persia, “certainly didn’t consider their work easy.” Advances in technology, Mr. Lynch says, have made oil easier to extract, not more difficult.

“This is an anachronism,” Sheplin said.

And Maelipeck?

“My initial reaction is that Michael Lynch is a guy who knows a thing or two about being vague and irrelevant.”

“Look at it this way,” Sheplin went on. “With access to modern mining equipment, at the push of a button, I could sit in a control room in California and pull hundreds of pounds of gold from the Sierra Nevada right this minute, much more than I could have recovered 150 years ago sitting on a streambed with a steel pan. Does this mean gold hasn’t grown more scarce in California? I guess so. Hey, everybody: Gold! Gold on the American River!”

Maelipeck added, “I say we stuff those Persians into a time machine, let them out into Ahmadinejad’s tired old fields, and the moment they report back and say, ‘I’m sorry, this mule-powered job is no more difficult today than it was 110 years ago’, that’s when Michael Lynch will start making sense.”

Later, Lynch puts forward the assertion that there are “some 10 trillion barrels [of oil] out there”.

“That is bizarre,” Sheplin said. “I don’t know where he’s getting those data.”

“Well, personally,” Maelipeck countered, “I find most geologists to be pretty Gloomy Gus these days, so it’s nice to see someone with the courage to make up such nice numbers.”

But according to Sheplin, there have been dozens of surveys completed since World War II, and the most recent estimate of global proved reserves came in at less than 1.5 trillion barrels. Even stranger, Sheplin says, is that Lynch seems to qualify his figures as a low-ball estimate, explaining that they don’t include quantities of oil which “in time, we may be able to efficiently tap” from oil sands in places like Canada (emphasis added). According to Sheplin, proven reserve estimates from Canadian oil sands stand today at less than 200 billion barrels.

“So yes,” cautions Sheplin, “don’t mislead yourself by forgetting to add 2% to Lynch’s supposed 10 trillion barrels of conventionally available oil.”

Another point generating controversy is the assertion that political instability puts global oil supplies under constant threat of disruption. While this may seem reasonable, Mr. Lynch categorically dismisses it, with the reasoning that “political risk is nothing new.” By way of example, Lynch simply states, “a leading Communist labor organizer in the Baku oil industry in the early 1900s would later be known to the world as Josef Stalin.”

“Well, I guess that clears that up,” Sheplin said. “So, essentially, a young Josef Stalin's presence in an oil field 100 years ago failed to interrupt global supply. Well, there you have it: today's potentially catastrophic political instability seemingly endemic to 90% of the world's oil producing regions--problem solved.”

“And also…Hitler!” Maelipeck added.

Both Sheplin and Maelipeck were nearly at a loss in dealing with Lynch’s apparently nonsensical use of oil-field water cut numbers in his assertion that increasing water concentrations in Saudi Arabia's Ghawar oil field are not a sign of declining production. Lynch is correct that water cut numbers increase mostly because operators routinely pump seawater into a reservoir to displace oil and maintain field pressure. But, as Maelipeck put it, “why does he think the pressure needs to be propped up in the first place?” Maelipeck ventured that Lynch was “just another M.I.T. idiot who doesn’t understand pressure/volume relationships,” but Sheplin was a bit more nuanced.

“Mr. Lynch makes a lot of the 35% Ghawar water cut comparing favorably with the global average, but the real news isn’t in a snapshot percentage, it's in the trend. Neither of those numbers is particularly heartening, but even starting at 0% water, a rapid increase in water cut while field pressure remains constant can’t ever be considered good news.”

Also included in the first page of Lynch's column is a simple line-drawing of an oil drilling rig, and this illustration caught our reviewers’ attention as well.

“Very cute,” Maelipeck said. “Now, for some reason, this drilling rig appears to have smoke coming out of it. I’ve never seen that before. I think if you burn your oil as it comes out of the ground it becomes harder to turn a profit.”

Sheplin said, “It's a nice cartoon, but I'm not sure why [illustrator] Ted McGrath chose deliberately to make this look like the work of a child.”

“It's appropriate for this column,” Maelipeck said.