Fatih Birol’s “I Have A Dream” Speech is Wrong
IEA executive director Fatih Birol gave his renewable energy “I Have a Dream” speech this week.
In an opinion editorial in The Financial Times, Birol channeled American civil rights prophet Martin Luther King’s 1968 rhetoric as he proclaimed that
“The world is on the cusp of a historic turning point…Demand for each of the three fossil fuels is set to hit a peak in the coming years. This is the first time that a peak in demand is visible for each fuel this decade.”
Fact check—that’s not true. The IEA projected a -36% decrease in fossil fuel final consumption in last year’s 2022 announced pledges scenario (Figure 1). In that report, consumption of all three fossil fuels were projected to decrease—liquid fuels by -26% from 2021 to 2050, natural gas by -38% and coal by -64%.
In this week’s op-ed, Birol went on to say that
“The growth of electric vehicles around the world, especially in China, means oil demand is on course to peak before 2030.”
That’s not true either. Despite the headlines about the explosive growth of EVs as a percent of new car sales, IEA data shows electric passenger cars accounted for only 2.1% of the global fleet in 2022 (Figure 2).
Birol neither showed nor cited any data in his article but the The Financial Times published an IEA graph in a separate article meant to support his I have a Dream speech (Figure 3).
The graph is problematic because the energy values on the y-axis are about 68% higher than the historical levels indicated by IEA published data (Figure 4).
I look forward to IEA’s release of its 2023 World Energy Outlook in October so I can decipher what Birol suggested in his recent op-ed. I give him credit for at least acknowledging that progress toward a low-carbon future is inadequate.
“The projected declines in demand we see based on today’s policy settings are nowhere near steep enough to put the world on a path to limiting global warming to 1.5C.”
In the meantime, the world does not need speeches about renewable energy dreams. It needs ruthlessly honest direction from leaders like Birol. He should but will not state that the only solution to climate change is greatly reduce consumption of all energy, not just fossil fuels.
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Substituting Renewable Energy for Fossil Fuels is a Doomsday Stratagem
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Insanity Check on Climate Change
Stanford climate scientist and ecologist Chris Field talked with podcast host Sam Harris last week. He was quite good through most of this episode called Sanity Check on Climate Change: A Conversation with Chris Field until he said,
“A few years ago, it was really unclear how we would bring emissions of carbon dioxide especially down to zero but now there are really clear pathways.”
That statement and everything that followed needed an insanity check.
Most climate-change policy addresses only electric power generation. That makes some sense since that sector is responsible for about 40% of global CO2 emissions.
At the same time, the power sector represents less than 20% of global energy consumption. It is unlikely to increase to much more than that 25% by 2050 if we optimistically assume that countries meet their stated-policy climate commitments (Figure 1).
What is the plan for the other 80% of world energy consumption?
If you think that electric vehicles (EVs) are the answer, you have a lot more faith in things that haven’t happened yet than I do. Despite the headlines about the explosive growth of EVs as a percent of new car sales, electric passenger cars accounted for only 2.1% of the global fleet in 2022 (Figure 2).
Perhaps you imagine a burst of EV growth that has not yet appeared as of 2022. The U.S. Department of Energy’s EIA does not share that view. EV energy consumption is expected to increase to only 5% of world transportation by 2050 (Figure 3). Gasoline use is expected to decrease from 41% to 36% and diesel use from 37% to 30%. Those are steps in the right direction but hardly consistent with the popular idea that oil use will collapse because of EVs.
Some will say that these projections are wrong and I agree. All projections are wrong. Still, projections by credible organizations like EIA and IEA should not be dismissed. They are based on the best available data and both agencies have an energy transition bias. If EIA is 100% wrong, that means that EVs will account for 10% of energy consumption by 2050. Big deal. You can play those multiplication tables forward and see that it would require a miracle for EVs to replace gasoline and diesel over the next few decades.
To compound this problem, passenger cars accounted for only 8% of global CO2 emissions in 2020 (Figure 4). People should buy EVs if they like them but not because they will save the planet from climate change.
Most renewable energy enthusiasts ignore the cost and land use-implications of increased wind and solar energy use, and the effect of energy substitution on the environment. Solar PV is expected to account for 24% of world electric power generation by 2050 in IEA’s stated policies scenario (Figure 5). Wind will account for 21%, hydro 14%, nuclear 9%, natural gas 13% and coal 12%.
That means adding 9,550 Gigawatts of wind and solar electric power generation from 2020 to 2050. The incremental land-use for that additional capacity will be approximately 3.2 million square kilometers or an area about the size of India. The cost will exceed $10 trillion.
IEA’s Net Zero by 2050 scenario requires roughly seven-and-a-half times the land use and five times the cost. The additional land use compared to 2020 is approximately 24 million square kilometers or an area about the combined size of Russia and Australia (Table 2). The cost would be more than $51 trillion.
Renewable researchers will correctly point out that neither solar nor wind farms occupy 100% of the area on which they are located, and may be integrated into existing crop and pasture land to a greater or lesser degree. It’s also important to note that not all areas are well-suited for wind and solar so country boundaries only serve as visual guidelines. The amount of land use is, nonetheless, stunning and its potential effect on the natural world is horrifying.
In addition to these concerns, IEA’s projections assume unrealistic improvements in energy efficiency. IEA’s Net Zero Roadmap assumes that consumption per $ GDP (energy intensity of GDP) will average 4% through 2030, and will then average 2.2% from then through 2050.
“A major worldwide push to increase energy efficiency is an essential part of these efforts, resulting in the annual rate of energy intensity improvements averaging 4% to 2030—about three‐times the average rate achieved over the last two decades.
–IEA
It is unclear where these improvements in energy intensity will come from but historically, the rate has been decreasing instead of increasing. Without these outsized efficiency gains, energy consumption and carbon emissions will almost certainly continue to increase. As the IEA explained,
Without a projected annual average reduction of 2.2% in energy intensity, i.e. energy use per unit of GDP, TES (Total Energy Supply) in 2050 would be around 85% higher.”
–IEA
In other words, all of these “really clear pathways” to net zero are not only unclear but are almost certainly wrong.
Most well-intentioned climate-change activists are energy blind and simply don’t know that renewable energy is a partial solution to carbon emissions that applies mostly to electric power generation. Field, however, should know better. He apparently doesn’t see or chooses not to talk about the limitations of renewable energy.
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The Big Lie About Fossil Fuel Subsidies
The IMF’s media release on fossil fuel subsidies is a big lie.
The International Monetary Fund (IMF) claimed that 2022 fossil fuel subsidies were $7 trillion in its IMF Fossil Fuel Subsidies Data: 2023 Update released last week. Although the report implied that much of this was not money given directly to fossil fuel companies, the explanation was confusing at best and misleading at worst.
That doesn’t really matter because its news release and ensuing media reports stated that $7 trillion was a gift to an industry that is destroying the planet.
I do not want to defend the fossil fuel industry but the IMF’s message is opportunistic, political, journalistically dishonest and more appropriate to Fox News than to an international opinion leader and supposedly honest broker.
Only $1.3 trillion (23%) of $7 trillion in government fossil fuel support is really a subsidy—what the IMF calls “explicit” subsidies—and only $51 billion (4%) of that goes directly to support fossil fuel companies (Figure 2). $5.7 trillion (77%) are “externalities” for environmental damage & under-pricing—what the IMF calls “implicit” subsidies.
The IMF news release shown in Figure 1 went on to say that
“Subsidies for oil, coal and natural gas are costing the equivalent of 7.1 percent of global gross domestic product. That’s more than governments spend annually on education (4.3 percent of global income) and about two thirds of what they spend on healthcare (10.9 percent).”
Figure 3 puts that hyperbolic statement in perspective. The 2022 $1.3 trillion “explicit” subsidy was 1.3% of world GDP. The $51 billion true subsidy to fossil fuel companies was 0.0001% of world GDP.
More detailed data for U.S. provides further clues about how subsidies are distributed. Renewable energy accounted for 53% of 2022 U.S. subsidies compared to 11% for fossil fuels (Figure 4). Energy conservation accounted for 34%.
Critically, 77% of all 2022 subsidies were in the form of tax credits.
This is quite a different picture than the IMF report and media headlines suggest.
There is little doubt that fossil fuels are the principal source of carbon emissions. Nor should we excuse the intentional efforts by companies to conceal early knowledge of these dangers from the public.
Neither should we excuse the IMF’s intentional effort to blame fossil fuel companies for subsidies that they do not receive. Ninety-six percent of the “explicit” subsidies in 2022 went to help consumers bear the strain of higher fossil fuel prices. Should they be criticized for taking money from education and healthcare as the IMF falsely implies that fossil fuel companies did?
Our global economy is more than 80% dependent of fossil fuels. All economic players for the last 200 years are accountable for that. The IMF report implies that fossil fuel companies are solely responsible for climate change when we’re all to blame for not only using their products but demanding them in ever greater volumes and at lower prices.
Lisi Krall recently observed in a podcast with Nate Hagens that,
“We have a system that’s been in play in various forms for 10,000 years…Fossil fuel did not create capitalism…We can’t manage to have the expansionary kind of [economic] dynamic that we have going on now without fossil fuels.”
Blaming fossil fuel companies for climate change is a childish form of behavior that does nothing to help clarify our present planetary predicament.
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Another Oil Meme Bites The Dust: Tight Supply Turns to Oil Surplus
Mainstream oil analysts have bombed on their two big calls for 2023.
The first call was for oil prices to soar as China’s economy and oil demand recovered after Covid lockdowns. That idea went down in flames several months ago. It was replaced by a call for prices to soar as global oil supply fails to keep pace with demand, and a huge supply-demand deficit opens.
Goldman Sachs recent statement summarizes this view concisely:
“The main reason for oil outperformance is that the oil market continues to price sizeable deficits”
That now seems ready to flop as new supply from Iran, Iraq, Canada and several other producers is coming into the market
After months of daily drum-beating about tight supply, PVM’s Tamas Vargas made this comment yesterday:
“Whilst the oil balance could obviously deteriorate, currently there is no reason to believe that global oil consumption would approach, let alone fall below supply.”
The big supply-demand deficit probably isn’t happening but at least there won’t be a big SD surplus! Another meme bites the dust.The key element for Vargas is that Iraq may resume Kurdish exports that have been stalled for many months.
Grant Smith made this observation today:
“Since the start of the year, oil watchers have widely predicted that prices would end 2023 on a high note. That forecast is looking more and more precarious.”
How can mainstream analysts get things so consistently wrong? Because they take perfectly reasonable hypotheses and fail to test them against updated production and projections by credible sources.
For example, Canada production is estimated to increase +6% in the second half of 2023 compared with the first half (Table 1). Guyana output is expected to rise +11.2% over the same period and +52% in 2024 compared to 2023.
“Canadian crude output to increase 175,000 bpd this year & another 200,000 bpd in 2024.”
—RBN Energy
What about the OPEC production cuts and other OPEC and non-OPEC countries? Angola, Iran and Venezuela production increased in June and July compared with the first four months of 2023 (Table 1). EIA projects that non-OPEC liquids will be 1% higher in 2H 2023 than in 1H and 2% higher in 2024 than in 2023. Middle East output is expected to be 3.6% higher in 2H than in 1H 2023, and 2.4% higher in 2024 than in 2023.
Of course, these are projections but they do not support that meme that supply will fall.
That’s supply but what about demand? Figure 2 shows both OPEC and EIA supply and demand data, and corresponding projections. At the bottom of the chart, the blended supply-demand balances are indicated. They suggest that the supply-demand deficit in the second half of 2023 is unlikely to be greater than in the same period in 2021 when Brent monthly average price did not exceed $83.54 and WTI did not reach $81.50 per barrel.
I’ve shown in previous posts that supply-demand balance is a terrible indicator of oil price and that comparative inventory does a much better job. Figure 2 shows Brent comparative inventory (C.I.) and the price-inventory volume yield curves for 2021 and early 2022 (orange), and 2022 through the present in blue.
The orange circles and arrow near the text “4Q 2022 excursion” represent the early part of the price-discovery excursion that resulted from the first failed analyst meme about the China oil-demand rebound. The blue circles and arrows near the text “1Q 2023 excursion” mark the second part of that price-discovery excursion including its reversion to the blue yield curve in May and June 2023.
The promotion of the second false meme about global supply deficits triggered a third price-discovery excursion away from the blue yield curve leading to the August 2023 data point at -69 mmb less than the 5-year average and $85 per barrel.
Projecting a perpendicular line from the August data point to the blue yield curve and following a horizontal line to the y-axis indicates a market clearing price of about $75 per barrel for Brent. That means that its $85 average August price is about $10 over-priced. The market is now including a $10 premium based on the failing supply-demand deficit meme that analysts have been pushing for months.
Analysts like to blame their failed calls on broader market trends like a weak global economy, a strong U.S. dollar and rising interest rates.They don’t understand that oil price is the macro indicator because oil is the economy.
They haven’t yet grasped that the oil paradigm that guides them isn’t working, and hasn’t been working very well for at least the last five years. I am sometimes accused of being negative about oil markets but I am neither pessimistic nor optimistic.
I am a scientist. I do not rely on what others say unless the data supports those views. That doesn’t mean that I’m right.
What perplexes me most about mainstream analysts is their certitude about reductionist cause-and-effect axioms that become memes when enough of them repeat what the other said.
Oil markets are complex systems in which uncertainty is given. That said, my sense is that global oil prices will probably fluctuate between $75 and $90 for the rest of 2023, and that the broader trend will be generally lower.
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The Future of Oil
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We Can’t Handle The Truth About The Human Predicament
Climate change is as obvious as gravity. The only people who debate gravity have advanced degrees in theoretical physics. Almost everyone in America—regardless of training or experience—has a strong opinion about climate change for some reason.
Cognitive dissonance is part of the problem. This is what happens when two strongly held beliefs conflict.
Most Americans believe in the progress narrative—that human ingenuity, technology and hard work can overcome almost any obstacle. The idea that the effects of progress may be harming the planet, other species and future generations of humans creates psychologic conflict or cognitive dissonance. We cannot hold both beliefs at the same time so we deny the existence of one or the other—in this case, climate change.
For many, the default position is—in the unlikely event that climate change is a problem—that technology, ingenuity and hard work will find a solution. That works just fine as long as we are energy- and systems-ignorant. Once we open our eyes to the bigger picture, it becomes clear that it’s not that simple.
The progress narrative is only partly true. It leaves out the fact that most of civilization’s progress—at least as measured by economic growth or GDP (gross domestic product)—over the last few centuries is because of fossil fuels (Figure 1). The role of technology and innovation was secondary.
Oil is the economy and profits are linked to its consumption. The R-squared (r2) correlation between oil consumption and global GDP is 96% (Figure 2). That correlation is as statistically perfect as it gets in the real world.
For all of our technology and ingenuity, oil, natural gas and coal are responsible for the wealth of nations. Every barrel of oil equivalent (boe) contains about 4.5 human-years of work. That means that our civilization has more than 380 billion fossil-energy slaves working for us all of the time (Table 1).
We have added an average of 4.7 billion fossil slaves every year for the last decade in addition to the base amount of almost 340 billion 10 years ago (Figure 3).
This broader perspective shows that simply switching from fossil fuels to renewable energy is not a solution, certainly not in the time window of urgency for climate change. Nor has anyone proven that net emissions from renewable energy are substantially less than from fossil fuels once all of the embedded energy consumption in their extraction, transportation, manufacture and distribution are taken into account.
Assuming that renewable emissions are lower, there is simply not time nor resources available to scale from about 7% wind and solar to a large enough percentage of world energy consumption to make a difference. Even the most optimistic net-zero projections do not indicate that wind and solar energy will account for more than one-third of total final energy by 2050.
More importantly, climate change is not the biggest problem facing the world. It is a symptom of the much larger problem of overshoot.
Overshoot means that humans are using natural resources and polluting at rates beyond the planet’s capacity to recover. The main cause of overshoot is the extraordinary growth of human population made possible by fossil energy.
Overshoot is more difficult to dispute than climate change—the destruction of rainforests, the extinction of other species, the pollution of land, river and seas, the acidification of the oceans, and loss of fisheries and coral reefs. These are not part of any natural process and human activity is clearly responsible.
Technology, unfortunately, is no more a solution to climate change, overshoot or the human predicament that it was the primary cause for human prosperity.
Carbon emissions and the overshooting of planetary boundaries are unlikely to decrease as long as energy consumption, world GDP and population continue to increase (Figure 4). The interrelationship of these factors with the degradation of Earth’s ecosystem means that there are no solutions without a structural change in all of these factors as a starting point.
This implies that a civilization paradigm shift is required but I think that we are psychologically incapable of acknowledging that. Even if we could notionally concede this possibility, we would immediately start rationalizing that of course technology, efficiency and human ingenuity are central to any path forward. In short order, we’d be back to carbon capture, renewable energy, circular economies and related fantasies.
We just can’t handle the truth about the human predicament.
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What The Market Knows About Oil’s Future
Warren Buffet is bullish on oil and gas. He recently committed more than $3 billion to an LNG export terminal in Maryland after increasing his stake in Occidental Petroleum. That’s because Buffet is a value investor and energy stocks are relatively cheap. Energy also generates more cash than any other sector.
Why doesn’t the market agree with Buffet?
Robert Bryce wrote a thoughtful article this week in which he explored this question. He argued that gasoline demand is booming and is likely to remain strong, and that world oil demand is expected to reach record levels in the next few years.
Javier Blas echoed some of those observations in a post this morning.
“Even with the boom in electric cars, the absolute number of gasoline-powered cars is still increasing; consumers are holding onto their vehicles longer, delaying the improvement that comes with newer and more fuel efficient models; and in Europe, consumers have swapped their diesel cars for gasoline ones, giving the latter an unlikely boost.”
Bryce further explained that America has a long-lived fleet of 284 million conventional cars that will last for years despite the strength of electric vehicle sales. He concluded that seven oil and gas companies are under-valued based on standard price-to-earnings and enterprise value-to-EBITDA ratios.
“The supermajors are all selling at big discounts to the S&P 500. So are the independents, including Devon and Diamondback.”
I agree with most of what Bryce says but am hesitant to say that the market’s view of oil and gas companies is wrong.
On the most basic level of net returns, energy stocks have consistently under-performed the S&P 500 for most of the last decade (Figure 1). The 10-year net total return for the energy sector is 3.2% compared with 11.9% for the broader market. Moreover, energy stocks have returned -0.6% so far in 2023 while S&P performance has averaged 19.7%.
Furthermore, U.S. transport fuel consumption does not seem quite as straight-forward to me as it does to Bryce. Gasoline consumption has been less than the 5-year average 73% of the time since January 2022 (Figure 2).
Similarly, diesel consumption has been less than its 5-year average 68% of the time since January 2022 (Figure 3).
Despite reports about the strength of the U.S. economy and the recent oil-price rally, energy is the economy. Neither gasoline nor diesel data provide strong support for the popular idea that the U.S. economy and oil markets are booming. Lower-than-average diesel consumption is especially disturbing because it is the hemoglobin for the movement of goods and materials. Its use is fairly inelastic in normal economic conditions. When diesel consumption falls, it is ordinarily because orders are weak.
The U.S. and world economies are still recovering from the effects of the Covid economic closure and associated supply chain problems. The supply and price shocks that followed Russia’s 2022 invasion of Ukraine will probably have a lasting effect on global markets. This coincides with a reversal in the globalization of trade that led to commodity deflation throughout much of the last 30 years.
Liam Denning made these observations a few days ago.
“As much as the onset of the war in Ukraine offered a taste of those lucrative periods where OPEC could capitalize on disruption, it was also another visceral indicator of wider disruptions. Oil embodied globalization before that was even a term, but the notion of relying on fragile or even hostile nations for life’s essentials is fast falling out of fashion. At the same time, climate change is forcing a reevaluation of energy’s physical foundations.”
Public debt rose to extraordinary levels because of both Covid and Ukraine. It is naive to believe that is all or even mostly behind us, and it is easy to see why why markets remain cautious.
Vaclav Smil’s four pillars of modern civilization—steel, cement, plastic and ammonia—require fossil fuels now and in the foreseeable future.
“The scale of our dependence on fossil carbon make any rapid substitutions impossible…Modern economies will always be tied to massive material flows and…will remain fundamentally dependent on fossil fuels used in the production of these indispensable materials.”
–Vaclav Smil, How The World Really Works
The idea that electric vehicles may displace gasoline reflects a fundamental ignorance about the oil refining process. The idea that a green energy transition is reshaping society ignores the way the world really works.
Warren Buffet’s investments in oil and LNG make good sense because energy will always be important and well-managed companies will be successful.
At the same time, it is impossible to ignore that oil production and consumption are declining—forecasts to the contrary notwithstanding. That is because of massive public and private debt loads, inflation, economic contraction, declining oil affordability, consumer behavior change, and limited credit for new drilling and development. The imagined transition to renewable energy is a secondary factor at best.
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Oil’s March to $100 or Just Another Little Rally?
Mainstream analysts feel vindicated. After three months of reprising the incredibly tight market meme, WTI has finally increased into the mid-$70 range (Figure 1). Is this the beginning of the oil price’s march to $100 or just another little rally?
Today, Citigroup’s Ed Morse said about the potential trajectory for price,
“I’m comfortable thinking $90 as a real ceiling.”
That seems reasonable to me but let’s put it into some context. U.S. comparative inventory (C.I.) was about 20 mmb less than the 5-year average as of last week’s oil storage report (Figure 2). It’s been falling about 2.3 mmb per week since March. At that rate, WTI could reach $90 per barrel in about 25 weeks so it’s possible by late 2023 or early 2024.
Does that reflect the incredibly tight supply that analysts have been hyperventilating about for months? Hardly. That’s about half-way back to levels in the aftermath of Russia’s invasion of Ukraine.
Figure 3 shows blended OPEC and EIA supply-demand data and it suggests a potential deficit of about 1.7 million barrels in the second half of 2023. That’s similar to deficits in the second half of 2021 and 2022 when WTI averaged $74 and $87, respectively.
In other words, over the next six months or so, oil prices are likely to return to pretty much where they have been in recent years at similar supply-demand balance and inventory levels.
There are a million things that could and are likely to happen in 2023 that could profoundly change this context. I just don’t see any extraordinary structural change about to happen that is outside of what is normal and expected for oil markets.
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The Net Effect of Net Zero Will Be Zero
Net Zero is a naive and unscientific fantasy. The silver bullet is decoupling.
Decoupling or the energy intensity of GPD means that it takes progressively less energy consumption to produce a dollar of GDP because of improved efficiency. The net zero dream includes the counter-factual delusion that GDP and energy consumption can continue to increase while carbon emissions magically decrease simply by decoupling and by substituting one form of energy for another.
IEA’s Net Zero Roadmap assumes that consumption per $ GDP (energy intensity of GDP) will average 4% through 2030, and will then average 2.2% from then through 2050.
“A major worldwide push to increase energy efficiency is an essential part of these efforts, resulting in the annual rate of energy intensity improvements averaging 4% to 2030—about three‐times the average rate achieved over the last two decades.
–IEA
It is unclear where these improvements in energy intensity will come from but historically, the rate has been decreasing instead of increasing (Figure 1). The average from 2010 through 2021 was 1.6%, a decrease from 3.8% during the previous decade.
The agency goes on to say that,
“Without a projected annual average reduction of 2.2% in energy intensity, i.e. energy use per unit of GDP, TES (Total Energy Supply) in 2050 would be around 85% higher.”
–IEA
And that is precisely the problem. Net zero is only dream without energy intensity improvements for which there is no basis over the last 11 years.
The energy intensity of GDP calculation involves a simple arithmetic average. That may result in distortion from rich, service-oriented economies that offshore considerable energy consumption, and then import finished products. Those countries include the U.S. and other OECD nations like Japan and Germany (Figure 2).
To test that potential distortion, I calculated primary energy consumption per $ real GDP for every country, and then computed a world average weighted by population. Weighted-average energy consumption per dollar GDP has averaged-1.3% since 2010 (Figure 3). In other worlds, efficiency gains are probably somewhat lower than in the simple arithmetic calculation.
The bigger problem is that CO2 emissions have increased since at least 1980. It is unclear if falling energy consumption per $GDP is the controlling factor (Figure 4).
Figure 5 shows that energy consumption, economic growth, population growth and carbon emissions all increase and decrease together. It seems unlikely that consumption per $GDP—a derivative of two of the curves in the figure—is, in fact, the controlling factor for carbon emissions. What is clear from the graph is that carbon emissions are unlikely to decrease as long as energy consumption, world GDP and population continue to increase. There’s no obvious escape.
Among the factors shown in Figure 5, energy is primary. The rest are secondary. Few of those concerned about climate change seem to understand this. That’s because they want to solve the emission problem without considering the whole system. They want to treat the symptom but not the disease.
For most, this means replacing fossil fuels with renewable energy but not making other changes in their lifestyles or behavior. Others believe that economic growth is the problem and that degrowth is the solution. Still others think that by limiting population growth, emissions will decrease. They are all partly right and but mostly wrong.
The concept of clean energy is absurd. All energy is clean until it is used and converted into work. Carbon emissions and heat are the unavoidable waste products of that conversion. When the full life-cycle of energy-plus-work is considered, no energy source or technology is substantially cleaner or more energy-efficient than any other.
Technology plays a role in addressing emissions but it is not the solution. There is only thing that really matters, and that is to use less energy. Less energy use will eventually result in reduced emissions, lower GDP and a smaller population. No other approach will work, at least not in time to make a difference for our ecosystem and for climate change.
As I wrote in late May,
“I favor a future society that is based largely on renewable energy. That society will look very different that what we know today. Substituting renewables for fossil fuels is not a solution without greatly curtailing our total energy consumption. That’s what the physics indicates will happen in a renewable future. I suggest that we stop trying to make renewables look like something that are not and cannot be, and just learn to live with them as they are.”
The great irony is that I doubt that the IEA understands the flaws in its net zero plan. The agency is narrowly focused on carbon emissions. It is not taking a system view of the problem. It is—like most of the protagonists on all sides of the climate-change debate—fundamentally energy-blind.
That does not change the fact that decoupling is a mirage and the net effect of net zero will be zero.
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Permian Production Will Not Peak Because of Depletion
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Unanticipated Consequences of the Energy Transition
Fossil fuels are not the biggest component of humanity’s negative effect on the planet. They are the principal cause of climate change.
How can both statements be true?
It’s because climate change is not the biggest problem facing the world. It is a symptom of the much larger problem of overshooting earth’s carrying capacity. This means that humans are using natural resources and polluting at rates beyond the planet’s capacity to recover. The predicament that we face includes climate change, pollution and biodiversity loss.
CO2 emissions are just part of this larger problem. A solution begins with an awareness that the future prosperity of human society is critically dependent on the health of the total ecosystem of which we are a part.
Material Footprint
The clearest way to quantify what that means is a measure called the material footprint.
Material footprint is an indicator of the broader effect of human activities on the planet. In a 2015 paper, Wiedmann et al defined material footprint as
“The global allocation of used raw material…[from] the beginning of a production chain (where raw materials are extracted from the natural environment) and its end (where a product or service is consumed).”
The United Nations Environmental Program described material flows as,
“A framework for describing the interaction of a domestic economy with the natural environment and the economy of the rest of the world in terms of flows of materials, waste and emissions.”
The components of material footprint are biomass, fossil fuels, metal ores and non-metallic minerals. Together, these include primary material extraction, physical trade (imports and exports), waste and emissions.
From this perspective, fossil fuels are not the biggest component of society’s material footprint. They account for only 17% of society’s effect on the planet (Figure 1). Non-metallic minerals account for 47%, biomass for 27% and metal ores for 10%.
Non-metallic minerals are the materials that society uses including bricks and other building materials, cement, sand, gravel, clay, crushed rock and fertilizer. Biomass consists mostly of food but also includes wood, crop residues, paper, fodder, and animal products. Metal ores include iron, uranium, aluminum, chromium and titanium as well as the principal minerals needed for renewable energy machines like solar panels, wind turbines and batteries. Fossil fuels are chiefly crude oil, condensate, natural gas, coal, peat, oil shale and tar sands.
In Figure 2, I have combined and relabeled fossil fuels, metal ores and biomass in order to investigate the relative material footprint of energy versus materials.
Considered in this way, society’s energy footprint is approximately equal to the footprint of its material needs, and about half of the energy footprint is from biomass. I recognize that this is coarse comparison because some of what is grouped as energy may be materials. Nevertheless, it provides a high-level framework for understanding how different human activities may affect the broader ecosystem
Unanticipated Consequences of an Energy Transition
As society attempts to reduce its carbon footprint, we should be equally mindful of how this may affect its material footprint on the planet. There will be unanticipated consequences that our energy transition initiative has not considered.
That plan chiefly involves substituting fossil energy with mineral/renewable energy. Ignoring the substantial problems with mineral energy (mainly intermittency and lower power density), it is unlikely that the total energy footprint will be much different during and after the transition. Nor is it probable that biomass energy will decrease.
That suggests that an energy transition will have little net effect on society’s material footprint on the planet.
That’s a big problem because climate change is not just about the carbon emissions that human activities produce but how effectively earth’s forests, oceans and atmosphere are able to process those emissions. If society’s material footprint on earth’s natural systems continues to increase, it is unlikely that there will be much if any reduction in net carbon emissions despite efforts to replace fossil with mineral energy.
The only way out of this trap seems to be through a reduction in material consumption. That is not part of the path that world leadership is presently following and that is worth thinking about.
The post Unanticipated Consequences of the Energy Transition first appeared on Art Berman.
The post Unanticipated Consequences of the Energy Transition appeared first on Art Berman.
Climate Change is Not Debatable
Climate change is not debatable and yet the debates continue. The debates are a distraction from making any progress on addressing the problem.
There are in fact three very different climate-change debates going on today: a scientific debate, a world leadership debate, and a public debate.
Most scientists agree that climate change is a real and existential problem (Figure 1). The scientific debate is about how much of a threat climate change is to human life and civilization.
World leadership generally agrees with scientists but believes that there is a technology solution for carbon emissions. The leadership debate is about which technology will reverse or slow CO2 emissions.
The public is more divided about the seriousness of climate change partly because of populist influencers who peddle the narrative that climate change is a hoax. The public generally accepts that climate change is real but does not believe it is the most important problem facing the world. The public debate is whether doing something about climate change is worth the cost.
The Scientific Paradigm
These categories of debates are, of course, broad generalizations but they help to explain why there has been little progress addressing the problem of a warming planet.
Let me be very clear about one thing: the ruling scientific paradigm today is that climate change is caused by CO2 emissions linked largely to burning fossil fuels.
That is not debatable.
The tiresome populist argument that climate change is a hoax, however, goes on because many people are psychologically unwilling to accept that this is the best explanation for a warming earth.
Global warming is an empirical fact. That is not debatable.
The mean surface temperature of the earth has increased to nearly 1° Celsius more than the 100-year average (Figure 2). It is expected to approach the dangerous level of 1.5° Celsius more than that 100 year average in the next few years.
Out of more than 88,000 peer-reviewed papers on climate change since 2012, 97% supported the ruling paradigm. Deniers point to a handful of scientists who disagree and say that this “so-called consensus” is wrong; or they cite a few incorrect forecasts about climate change and say that this proves that climate-change is a hoax.
That is wrong and dishonest. The overwhelming agreement among scientists is not debatable. It is what defines the current scientific paradigm.
A paradigm is a theory that seems to explain observed facts better than competing theories. It is a set of universally recognized interpretations of data, methodological processes and concepts by the present scientific community.
Thomas Kuhn was a renowned physicist whose 1962 book The Structure of Scientific Revolutions defined the paradigm in modern scientific work.
“Paradigms gain their status because they are more successful than their competitors in solving a few problems that the group of practitioners has come to recognize as acute.
–Thomas Kuhn
That doesn’t mean that the paradigm is correct for all time. It merely means that it is the explanation that best integrates all available data.
Kuhn stated that a paradigm is established when a world-view or theory is “embraced by almost all practitioners” and becomes part of the practice of “normal science.” The ruling paradigm is accepted as a first principle in new published research. It no longer needs to be proven each time it is stated because it is broadly accepted.
This is how science has worked for centuries. There is nothing special about the climate-change paradigm that didn’t apply to plate tectonics, germ theory, quantum mechanics or any new scientific paradigm.
When debate within the competitive and contentious scientific community devolves from a roar to a whimper, a new paradigm is established.
The Populist Argument is Wrong
The main populist objections to the ruling scientific paradigm include:
- that climate is always changing and is part of a natural process;
- that there were higher CO2 and temperature levels during the time of dinosaurs and life went on just fine;
- that some predictions about the timing of climate change were wrong;
- and that CO2 and warming don’t correlate perfectly.
These shop-worn objections have been around for decades and have been debunked or shown to be without material substance in the larger systemic context.
For example, dinosaurs had a vastly different tolerance to temperature and CO2 than humans. There may have been 20 million dinosaurs on earth at their peak during the Cretaceous period about 66 million years ago. They lived relatively simple lives in small herds or alone.
There are now 8 billion humans living in a complexly connected civilization that relies on global supply chains to move goods and services all around the planet. Comparing the present and near-future for humans to conditions for now-extinct creatures in the deep geological past is simply absurd.
Another example: climate-change deniers can easily find a few credentialed climate experts who disagree with the ruling paradigm—just like every attorney can find expert witnesses whose testimony supports his client’s plea.
Similarly, it is easy to find a climate expert who made a prediction that didn’t come true. Human history is littered with bad predictions and dissenting experts. Failed predictions and even bad scholarship are sadly found in many areas of society, not only in climate science. But the exceptions do not prove the rule.
Paradigms are explanations. There is no requirement that we like them. Einstein never liked quantum theory but he could not support his belief except to say that, “I, at any rate, am convinced that [God] does not throw dice.”
The climate-change debate, however, is not a competition. There is more than adequate information to suggest that climate change presents some probable risk to human prosperity and to other species. Like it or not, the scientific debate about climate change ended years ago.
Technology Won’t Save Us
Figure 3 is the single most important chart for understanding that the climate debate is about more than just carbon emissions.
It shows the normalized correlation between economic growth (GDP), the human material footprint on earth’s ecosystems, carbon emission (CO2) levels, and human population.
Climate change is not just about the carbon that human activities produce but how effectively earth’s forests, oceans and atmosphere are able to process those emissions. That is 100% correlated with economic growth. Economic growth is 100% correlated with energy consumption. All are directly related to population growth.
The conclusion is clear: carbon emissions and overshoot of planetary boundaries are unlikely to decrease as long as world GDP and population continue to increase. All four factors in Figure 3 are related. Nothing can really be done about reducing carbon emissions without also reducing population, humanity’s ecological footprint, and GDP.
Figure 3 is not debatable. You don’t have to like it or agree. It is historical fact.
The path that world leadership is following is based on technology optimism.
When the International Energy Agency issued its Net Zero by 2050 report in May 2021, U.S. climate envoy John Kerry made these comments.
“I am told by scientists that 50% of the reductions we have to make to get to net zero are going to come from technologies that we don’t yet have. That’s just a reality…You don’t have to give up a quality of life to achieve some of the things that we know we have to achieve. That’s the brilliance of some of the things that we know how to do.”
Figure 3 indicates that Mr. Kerry is totally wrong.
He is wrong because he and world leadership are only focused on carbon emissions. But emissions are not the problem. They are the result of the problem. CO2 emissions are simply the waste produced by 8 billion people consuming energy every day. The problem cannot be solved by addressing the symptom without also addressing the causes.
World leaders and many climate activists have carbon tunnel vision (Figure 4). They do not see that carbon emissions are a systems problem.
In fact, climate change itself is a systems problem. It is a symptom of too many humans, using too many resources, producing too much waste and overshooting earth’s capacity to recover. Humans have exceeded the carrying capacity of the planet.
The original meaning of carrying capacity was the amount of cargo a ship could carry without a risk of sinking. Our ship is Planet Earth and we have overloaded it with people consuming its resources and polluting its land, water and air.
Efforts to reduce carbon emissions have failed and will probably continue to fail. The dashed green line in Figure 5 is the International Energy Agency’s (IEA) 1.5° C pathway to net-zero carbon emissions by 2050. It is what must happen to avoid serious climate-change risks to humans and the planet.
The most likely projection (black line) suggests that the world is seriously off-track in meeting that net zero pathway. It seems that even the more dangerous 2.0° C pathway may also be exceeded.
How is it possible that things look so bad in spite of all the laws, regulations, technology and money devoted to the problem?
It is because all models and projections (including the IPCC scenarios) assume continued population and economic growth.
IEA’s net zero scenario in Figure 4 includes an approximate doubling of world economic growth by 2050 averaging 3.1% from 2020 to 2050. The EIA case assumes 1.7% economic growth for OECD countries and 2.6% for non-OECD countries.
Without a change in population and economic growth, temperatures will enter a danger zone for life on the planet in the next few years.
That is not an alarmist statement. It is common sense. It is the inevitable result of historical data trends. If the trends don’t change, the outcome is unlikely to change.
There’s really nothing to debate.
The post Climate Change is Not Debatable first appeared on Art Berman.
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The Psychology of Climate Change
Climate change should be a relatively straight-forward discussion. Either you believe that warming is because of human activity or not. The arguments pro and con haven’t changed much over recent decades although new data emboldens all sides to insist that they are right.
Why then is climate change such a heated and divisive debate?
Part of the answer lies in polling data. About two-thirds of Americans consider climate change a major threat, support carbon neutrality by 2050, and believe that government should create incentives for more wind and solar power. At the same time, they see it as a lower priority than strengthening the economy and reducing health care costs. In fact, climate change was among the least important problems for Americans in April 2023 (Figure 1).
Most people think that climate change is a problem but not serious enough to do much about except to leave it to government to sort out. The same respondents rank government leadership the second biggest problem today after the economy which most of the same people routinely blame on government.
Psychologists might call that an unresolved conflict or even a behavioral disorder.
Many years ago, I was assigned to participate in a 6-week discussion group led by a particularly ineffective leader. I asked the program director to put me in a different group because this fellow made me angry and frustrated. He said, “No one is powerful enough to make you feel any way at all. When you can tell me why you feel that way, I’ll move you to another group.”
I’d never thought about it that way, and it took me several years of self-inquiry to fully understand what he was asking me to consider.
Psychologist Marilyn Price-Mitchell observed about climate change in a 2019 article that,
“As with all great debates, it is often how people feel on the inside that drives their attitudes and behaviors…What’s simmering inside of American psyches may be as important to the climate change debate as the greenhouse gases bubbling from lakes, rivers, and wetlands throughout the world.”
The Fall From Grace is a theme found in many global mythologies. In Genesis, Adam and Eve were expelled from paradise because they failed to follow the natural order that God had explained. They were doomed to wander the earth as strangers in a strange land. Humans had gotten a divorce from both God and Nature.
The last 50 years are the sequel to Genesis. Once again, man has strayed from the natural order and soiled his nest. Humans have polluted the land, rivers and seas, deforested huge swathes of the earth, caused a 70% reduction in animal populations, and put so much waste into the atmosphere that earth’s climate is warming.
Climate change is only a portion of our transgressions. Discount or dismiss it and we still have a huge problem with overshoot or exceeding the carrying capacity of the planet.
Mythological conflict is often expressed in the individual’s interaction with what Freud called the superego—the conscience or the father-mother figure.
“The superego treats the ego like an adult treats a child. The ego is continually trying to deny the criticisms which emanate from its own superego. The ego is trying to prove to the superego that it is grown up by finding others whom it can look down on and treat as a child.”
–Geza Rohheim, Magic and Schizophrenia (1955)
This is a fundamental insight for understanding why the climate-change and biophysical overshoot debates are so intense. They are not really about facts or data. They are profoundly personal and come from deep within the human psyche, something that is largely outside of our everyday awareness.
On some level, most of us know that our activities are bad for the planet, bad for other species, and bad for our own health and well-being. But we’d rather not think about it, or we are too busy with our jobs and families to think about it much. More likely, when we think about it, we just assume that someone or some technology will provide a solution.
There seem to be at least three approaches to coping with the cognitive dissonance from climate change and overshoot (Figure 2)
Don’t Worry, Be Happy
Some pretend that there is no problem at all. Climate is always changing and is part of a natural process, and the present is no different from the historical or geological past. There were higher CO2 and temperature levels during the time of dinosaurs and life went on just fine. CO2 and warming don’t correlate perfectly and anyway, the earth will be greener and better with more CO2 and warmer temperatures in the future.
The problem is all of those climate alarmists who are making a big fuss about something that probably isn’t worth worrying about at all. University professors write scary papers just to get funding for their research. Liberal politicians want to tax the people to waste money on worthless renewable energy projects. These people should try being in business and they would understand that fossil fuels are responsible for most of society’s progress over the last century or so. The economy must grow and a renewable economy can’t grow.
The Sky is Falling
Another group thinks that climate change means the imminent end of life and human civilization. Warming will result in sea-level rise that will destroy our coastal cities. Crops will fail, billions will die, and mass migrations will threaten what is left of civil society. We must get off of fossil fuels immediately or very soon. People should become vegetarians and source all food and manufacturing locally. Everything should be recycled as we create a circular economy. We must end growth now.
The problem is right-wing people and politicians who just don’t understand or don’t care about what’s happening. The biggest culprits are the evil fossil fuel companies who knew that this would happen 50 years ago and covered it up so that they could continue to make windfall profits at everyone else’s expense.
Technology Will Save Us
A third group blends elements of the first two. It acknowledges that climate change is a big problem but also agrees that growth is crucial. The answer is technology and human ingenuity.
An immediate expansion of clean nuclear power will solve many of the problems of intermittent renewable energy. Fusion is just around the corner. Electric vehicles are such an obvious part of the solution. After all, solar and wind power are almost too cheap to meter. Hydrogen will become the fuel of the future and replace gasoline, diesel and jet fuel. Maybe we can even beam electric power from satellites in space, and drill ultra-deep wells to tap the infinite supply of geothermal energy in the earth. If none of that works, we can move to Mars.
There are no bad guys for this group except the ignorant pessimists who don’t see things their way.
The Human Predicament
Those descriptions are, of course, caricatures and end members with hybrid nodes at many positions but my point is that society’s basic approaches to climate change are childish (and I include myself in that statement). That is precisely the emotional outcome that we were trying to avoid with our superegos!Co
I do not pretend to know the path forward. I suspect that even the most adamant deniers are psychologically unwilling to face the possibility that there is a climate-change problem. It seems equally likely that the climate alarmists are afraid to accept that they share responsibility for climate change, and may be powerless to do anything except to blame others. The technology advocates are probably in greater denial than the climate-change deniers.
Does the truth lie somewhere in-between the three groups? Possibly but first we must acknowledge that most of our actions and approaches so far on climate change and overshoot are only defense mechanisms. We are really just acting out while trying to convince ourselves we are doing the right thing.
I am not naive about the human condition or human behavior. I don’t expect this post to change anything except perhaps the perspective of some who read it.
We should not realistically expect any of the current approaches to climate change to result in productive outcomes. We must first be honest with ourselves. Then maybe we can move forward but on a different path. Probably not, but maybe.
The post The Psychology of Climate Change first appeared on Art Berman.
The post The Psychology of Climate Change appeared first on Art Berman.
OPEC Cuts vs An Incredibly Tight Market: Both Cannot Be True
Last week, Saudi Arabia announced a 1 mmb/d oil output cut bringing total announced OPEC+ cuts to 3.7 mmb/d since last October.
In fact, OPEC+ began permanently managing oil markets at the beginning of 2017. Since then, cumulative cuts averaged 4.24 mmb/d since the start of 2022, or about 4% of global output (Figure 1).
That really puts the standard analyst supply-demand balance metric into question. Demand is weak enough that Saudi Arabia needs to cut 1 mmb/d but OPEC research projects demand growth of 2.5 mmb/d in the second half of 2023 to a record 103 mmb/d. All this with more than 4 mmb/d already being withheld from supply.
Yet analyst Eric Nutall stated recently that,
“The market’s recessionary fear is not allowing oil price today to reflect how tight things really are…Most stats that we look at…Chinese record demand, Indian record demand, JODI reporting record demand…point very, very strongly…[that] in the next few weeks, we should be seeing the largest stock draws in history.”
What about the 4.2 mmb/d that OPEC is currently holding back from the market? I suppose that is either noise or fiction.
The future that Nuttall describes is speculative. It’s also based on supply-demand balance that I have questioned for a long time.
What’s not speculation is that the entire OPEC+ oil market management project is an exercise in futility. Once started, of course, there’s no going back.
Yet somehow the disconnect between 5 years of analyst warnings about tight supply and more than 4 mmb/d of withheld volumes must be addressed. They can’t both be true.
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Jude Clemente Is Confused About The Energy Transition
Jude Clemente says he is confused about the energy transition. Not really. It’s just camouflage for his true opinion that it’s a farce.
In a post late last month, he reiterated well-established criticisms of renewable energy, electric vehicles and the urgency of climate change in the first place. For example,
“On the holy climate panacea triad of more wind, solar, and electric cars, I’m so utterly confused. How is it that we can increasingly rely on non-dispatchable (i.e., intermittent, usually unavailable), weather-dependent electricity from wind and solar plants to displace, not just supplement, dispatchable (i.e., baseload, almost always available) coal, gas, and nuclear power?…If wind, solar, and electric cars too are as effective and low-cost as so many keep promising us, there would obviously be no need for government subsidies for broad adoption.”
That is not interesting.
It is interesting that his very unoriginal message was so well-received.
True believers in the fossil energy-climate hoax-human flourishing tribe now sense that the momentum has shifted. Despite their best arguments, every day they see the advance of laws, regulations and public support to do something about climate change. Even the infallible market is increasingly on-board with massive investments in the energy transition.
They are terrified and see those who don’t share their views as a danger to society and to their way of life. It’s both similar and related to the enmity of political parties across the world today. Jude Clemente’s post appears to them as a safe harbor from the furious tempest.
Clemente has a very narrow focus so naturally he is perplexed. Like Alex Epstein, he frames our predicament as a cosmic conflict between the forces of good versus evil energy choices. That is hugely unproductive and yet it resonates with a lot of people. Its appeal may be that it seems to simplify an otherwise bewildering mix of complex subjects.
Many climate activists also have a narrow focus. For them, the armies of light and darkness are in locked in mortal combat over carbon emissions. They similarly lack the broader systems perspective graphically shown in this figure.
I am not taking sides. Positions and beliefs on all sides of this debate have merit. And that is precisely why so many people—unlike Jude Clemente—are genuinely confused. There don’t seem to be any solutions.
I recently listened to an interview with Gaya Herrington. She holds masters degrees in both econometrics and sustainability studies, and works in the financial sector. In discussing her recent book, Five Insights for Avoiding Global Collapse, she offered these observations about her own experience.
“We’re talking about global systems, so it can feel very overwhelming and if everything is connected, you’re never really done. So working in systems is very overwhelming. And at the same time, it’s such a personal journey. It starts with yourself, and not only that, it has to start with yourself. And I think that’s a very important point to make. And for me, these big global planetary boundaries, to respect those, is to respect your own boundaries. I feel like there’s a connection there.”
She goes on to describe a hypothetical situation in which someone asks what price you would put on your own child. The obvious response is that there is no price. Life is sacred. It is the same for the earth.
Most people only think about the state of the earth in its most superficial aspects.
They recognize that pollution is a big problem and clearly something caused mostly by human activities. Similarly, they are aware that many animal species are endangered because humans are crowding them out of or polluting their habitats.
In fact, the animal population—not the number of species—has decreased by 69% since 1970. Animal population and pollution are not, however, part of most people’s daily experience. A common response to those who mention these problems is that they are “tree huggers.”
For those who only place value on human flourishing, they should at least heed energy expert Vaclav Smil’s observation,
“Without a biosphere in good shape, there is no life on the planet. It’s very simple. That’s all you need to know.”
I suggest that we look up from our phones and stop trying to be right about our favorite topic for just a few minutes. Are we capable of getting beyond our simplistic talking points about energy and climate change long enough to see what is happening to our planet?
Gaya Herrington suggests that the solution to global collapse may not really be about logical arguments, cost-benefit analysis, or good versus evil.
It’s a psychological problem.
The post Jude Clemente Is Confused About The Energy Transition first appeared on Art Berman.
The post Jude Clemente Is Confused About The Energy Transition appeared first on Art Berman.
June 2023 Energy Newsletter
The post June 2023 Energy Newsletter first appeared on Art Berman.
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Philosophy vs Science: The Church Tried That Too and Lost, Dr. Bardi
My colleague Ugo Bardi wrote a rebuttal to my recent post in which I explained why the EROI of renewable energy remains lower than that for fossil fuels.
Bardi’s post Is the Energy Return of Renewables Really Higher than that of Fossil Fuels? A Rebuttal to Art Berman’s Criticism presents no data and is, therefore, little more than a philosophic rejection of science. The Catholic Church tried that for several centuries before losing its futile battle.
Bardi reveals his failure to understand the mechanics of EROI (energy returned on energy invested) in this, the core of his rebuttal.
“And here is the point of the discussion: you can measure the energy embedded in a barrel of oil and compare it to the energy embedded in a lithium battery. But the battery will dissipate that energy in the form of electric power at more than 90% efficiency. To obtain the same amount of work from the oil contained in the barrel, you have to go through a series of steps, including transporting, processing, refining, more transporting, and finally burning it inside a thermal engine that, typically, has an efficiency of about 30%. Not all energies are created equal!”
EROI is the ratio of the total energy output divided by the total energy input over the life cycle of an energy source. The efficiency of a lithium battery is not a measure of its EROI because it is not a measure of either its energy output or input but rather its conversion rate. His argument ignores the energy required extract, ship, manufacture and distribute its components.
In the interest of pedantic generosity, however, I will take Bardi’s statement at face value and show why it is hopelessly wrong even though it is irrelevant to any honest discussion of EROI.
The output of a standard Tesla lithium ion battery is about 13.5 kWh. A standard barrel of oil contains approximately 1,700 kWh of work. If we use Bardi’s 90% efficiency for a battery and 30% efficiency for a barrel of oil, the battery delivers 12.2 kWh and the barrel of oil, 510 kWh. Oil wins.
Bardi is in effect arguing that a battery–a storage device–is a better source of energy than the electricity that it stores. At the same time, he is ignoring the energy cost to generate the electricity and the to build the battery. That is outside of the realm of reason and science.
I am not arguing in favor of oil or fossil fuels. Quite the contrary, as I said in my original post,
“I favor a future society that is based largely on renewable energy. That society will look very different that what we know today. Substituting renewables for fossil fuels is not a solution without greatly curtailing our total energy consumption. That’s what the physics indicates will happen in a renewable future. I suggest that we stop trying to make renewables look like something that are not and cannot be, and just learn to live with them as they are.”
I am arguing in favor of the truth based on the facts that we have today. Those facts indicate that the EROI of renewable energy is lower than of fossil fuels.
That is not a win for fossil fuels but rather a reflection on of how difficult it will be for humans in a renewable energy-based future. Pretending it is otherwise is simply not helpful.
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OPEC+ Ouching Toward Bethlehem: Blog May 28, 2023
William Butler Yeats described the despair that accompanies the unravelling of well-intentioned efforts into something far worse than what had existed beforehand. In his 1919 poem The Second Coming, he wrote,
“Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world…
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?”
It’s debatable whether efforts to manage world oil markets by OPEC+ since 2016 were well-intentioned but they are clearly now unravelling.
Oil minister Abulaziz bin Salman reprised the Saudi default narrative of blaming oil “speculators” for market manipulation when things don’t go according to plan for oil price.
“I keep advising them that they will be ouching — they did ouch in April.”
It’s both funny and ironic because the mission of OPEC and OPEC+ is to manipulate the oil market, and Saudi Arabia is the world’s largest speculator in oil futures.
I enjoyed this comment from Again Capital’s John Kilduff a few days ago:
“It’s now OPEC+ producers experiencing the ‘ouch’.”
He was talking about the possibility that OPEC+ may need to cut supply yet again at its upcoming Joint Ministerial Meeting. That, anyway, is what Russian President Vladimir Putin indicated about ten days ago.
I am not among those who believe that OPEC has outlived its usefulness nor do I agree with those analysts who think that it is now “back in the driver’s seat.” These are equally silly opinions.
It is pointless to look backward and describe all of the tipping points between 2016 and the present. But once OPEC+ started trying to manage oil markets six-and-a-half years ago, it couldn’t stop.
What started as a relatively straight-forward effort to put a floor under oil prices has acquired a life of its own. It’s gotten caught up in the geopolitics of the war in Ukraine and a new world order. It will follow the well-established path of entropy. In other words, the best scenario for OPEC+ is that things don’t get worse in the near-term because in the longer term, they will.
It is presumptuous to think that the world’s largest commodity market can be managed. It’s impossible.
“And what rough OPEC+, its hour come round at last,
Ouches towards Bethlehem to be born?”
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Does Renewable Energy Have a Higher EROI Than Fossil Fuels?
There is new momentum behind the idea that renewable energy has a higher energy return on investment (EROI) than fossil fuels.
That contrasts with decades of consensus that the EROI of oil, for example, ranges from 18 to 35 while the range for solar is from 6 to 12.
Nafeez Ahmed wrote in a recent post that
“While the EROI values of wind and solar are “at or above 10”, the average EROI estimate for oil is about 4.2. Murphy et. al’s research concludes that many EROI analyses incorrectly compare fossil fuels with renewables by measuring them at the wrong areas. By consistently measuring them both at their ‘point of use’, they are able to develop a far more consistent approach.”
Similarly, Ugo Bardi wrote a post in January whose title was ” Setting the record straight on the EROI from renewables. It is much better than that of fossil fuels.”
Both Ahmed and Bardi used a 2022 paper, Energy Return on Investment of Major Energy Carriers: Review and Harmonization as their source.
Net Energy and EROI Essentials
Net energy is the difference between the total energy output minus the total energy input over the life cycle of an energy source or technology (Figure 1).
EROI is the ratio of the total energy output divided by the total energy input over the life cycle of an energy source.
That means that the net energy for a 10 megajoule (MJ) energy input and a 20 MJ output is 10 MJ and the EROI is 2 (Figure 1).
Table 1 shows a range of energy inputs and outputs and their corresponding EROI and net energy values. The important observation is that EROI is non-linear while net energy is linear.
For example, an EROI of 10 is twice as great as an EROI of 5 but only represents a 10% (90% vs 80%) difference in net energy or the efficiency of the transformation from source into usable energy.
It would take an EROI of about 1.9 to produce a net energy decrease of 50% compared to an EROI of 10. That’s why EROI adds more confusion than value at least for the casual user.
Red Flags
I evaluated the 2022 EROI paper by David J. Murphy and colleagues that Ahmed and Bardi cited as the source of their good news about the superior EROI of renewables.
This statement from that paper was a huge red flag for me.
“Even if crude oil were measured to have an EROI of 1000 or more at the point of extraction, the corresponding EROI at the point of use, using global average data for the energy “cost” of the process chain, would still only be a maximum of 8.7.”
This means that the supply-chain energy costs for refining and product distribution create a permanent penalty that prevents oil from reaching an EROI of more than 8.7. It furthermore implies that refining must be a marginally profitable business at best which it is not.
It suggests that all previous EROI work over the last two decades was wrong. The reason it was wrong, according to the paper’s authors, is that previous workers failed to account for the full supply chain of energy investments from extraction to point-of-use. That is simply untrue. The approach has been used at least since 2009 by Hall et al.
By the authors’ own admission, oil is the most important fuel for the global economy. An oil EROI of 4.2, however, would place it below what most researchers consider to be the minimum EROI threshold needed to support society as noted by Euan Mearns.
“It is assumed that ERoEI >5 to 7 is required for modern society to function. This marks the edge of The Net Energy Cliff.”
Below this threshold, so much of the world’s resources would have to be dedicated to supplying energy that there would not be enough left to support the rest of society. Civilization should already be in collapse at an oil EROI of 4.2.
In this renewable energy Hail Mary, the authors reveal their fundamental failure to comprehend the significance of their EROI subject:
“This means that oil delivers less net energy to society for each unit invested in extraction, refining, and delivery than PV or wind. The transition to electric vehicles, according to these results, will actually increase.”
Society does not function and survive on the per-unit net energy to society but on the full-system net energy delivered to society. This is like saying that I can solve my personal financial problems by delivering newspapers because the per-unit returns are so high. The net income from the paper route is so small, however, that it wouldn’t even help with the monthly escrow payment on my mortgage.
The bottom line is that Murphy et al have not presented the data to support their conclusion that renewables in fact have a higher EROI than oil.
Lack of Transparency
The biggest problem with net energy and EROI research is that it is almost impossible to accurately identify all or even most of the energy inputs. This is compounded by different workers using diverse and sometimes incompatible methods to determine the values needed.
The stated purpose of David Murphy and colleagues’ paper was to clarify the confusion. This is an admirable and much-needed effort. They did not, however, provide the necessary data to support their findings.
There is no a table or graph in the report that allows the reader to see the input and output data and resulting net energy and EROI values for all the relevant energy sources.
There is a table that provides a comparison for fossil (thermal) fuels shown below as Table 2 (Murphy’s Table 2) but it does not show the energy data. Instead these “investments” are listed as a percentage of total for each technology. Among other things, that makes it impossible to validate the EROI calculations. There is no similar table for renewable energy sources.
I have highlighted the percentage values for oil to show the source of what I believe to be the problem.
Nearly 9% of the total post-extraction costs for oil are for refining. Yet most of the energy for refining comes from the crude oil and refined products used in the refinery. It is, in effect, co-generated. That doesn’t negate the energy investment needed to operate the refinery but it is not a cost to society as indicated in the table.
Figure 3 shows how this accounting error affects the EROI calculation. It is modified from Hagens (2010) Figure 5.
The first part of the figure shows 10 megajoules (MJ) of energy coming into the refinery (“Processing) and 1 MJ being added from society. The resulting net energy to produce 10 MJ of gasoline is 8 and the EROI is 5.
In the second part of Figure 3, the identical situation is presented except the 1 MJ of refining investment is “co-generated” from the 10 MJ coming from “Extraction” and not charged to society. The net energy is 8 MJ, the same as in the first case, but the EROI is 9!
That erases much of the good renewable news reported by Ahmed and Bardi.
In Table 3, I have used Murphy et al’s oil transmission and distribution investments (their Table 2) converted from percent to energy units following the format of their Table 1. I divided their 8.9% for refining investment by 3 to account for the co-generation described above (it is probably much lower). The resulting oil EROI is 18. That completely removes the good news from Ahmed’s and Bardi’s proclamations of “mission accomplished” and restores oil EROI to the consensus range for the last two decades.
I am troubled by lack of transparency in the Murphy et al paper particularly their failure to show input and output energy data. I suppose it may be found among the 73 references but that is well beyond the ordinary standards of transparent communication. I located a link for supplementary data that only applied to fossil fuels. Unfortunately, critical inputs for this data were from the ecoinvent database which is unavailable without a paid subscription.
I confess that I do not have much confidence that Murphy et al have accounted for the energy cost for resource extraction or renewable unit production because those investments are not shown in their Table 1 or Table 2.
Another source of confusion is Murphy et al’s use of a life-cycle efficiency factor. This multiplies the energy output of renewable sources by a factor of 3.3 to adjust for their longer-term energy payout.
The efficiency factor for fossil fuels is close to 1 so it does not provide any boost. I am not qualified to dispute the use of this life-cycle term except to say that without it, wind and solar would have EROI values much lower than those for fossil energy.
Nor do Murphy et al discuss the transmission and distribution cost of electricity from renewable energy. You have only to compare your next electricity bill rate to the spot price for your region. In the United States, the retail price is 30 to 50% higher. That makes any percentage in Table 2 above (Murphy et al’s Table 2) seem trivial—including the 8.9% refining penalty that doomed oil to an EROI of 4.2! In fact, De Santis et al (2017) note that
“The cost of electrical transmission per delivered MWh can be up to eight times higher than for hydrogen, about eleven times higher than for natural gas, and twenty to fifty times higher than for liquid fuels.
Murphy et al do not address the effect of intermittency on the net energy supply that society needs to function. They tell us that technology will find a way and perhaps it will but that does not change the present upon which their study is based.
Is Renewable EROI Higher Than Fossil Fuels?
There is a long history of energy research that has consistently come to the same conclusion—fossil fuels are hard to beat.
We now know that their use has consequences for the environment that must be addressed. That doesn’t change the physics that explain why humans have long preferred fossil fuels over energy sources like wind and solar, and continue to even today.
The trend toward using science in the service of a cause is dangerous. This latest effort to re-write the history of net energy and EROI troubles me.
We should all ask ourselves the question, “how can I be wrong?” In that sense, I reluctantly welcome the gambit that Murphy et al, Ahmed and Bardi have opened.
At the same time, when something seems too good to be true, it usually is.
I have shown the uncertainties and problematic nuances that can lead to the misuse of EROI. It is a blunt instrument at best. It offers a quick, high-level way to compare different types of energy but little more. Net energy is a far more useful and straight-forward approach.
I favor a future society that is based largely on renewable energy. That society will look very different that what we know today. Substituting renewables for fossil fuels is not a solution without greatly curtailing our total energy consumption. That’s what the physics indicates will happen in a renewable future. I suggest that we stop trying to make renewables look like something that are not and cannot be, and just learn to live with them as they are.
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BLOG: AI IS SO MUCH SCARIER THAN DEEP FAKES
A deep-fake image of an explosion at the U.S. Pentagon triggered a 200-point stock market sell-off yesterday. This is a relatively benign example of the capabilities of artificial intelligence (A.I.).
Yesterday, I finished listening to my friend Nate Hagens’ podcast interview with Daniel Schmachtenberger “Artificial Intelligence and The Superorganism.” It was a provocative and sometimes scary discussion of the potential promise and danger of A.I.
It’s long and all of it is worth hearing but the A.I. part begins almost two hours (01:50:12) into the podcast.
Here, Schmachtenberger distinguishes between the sorts of narrow A.I.—that include deep fakes, machines that play chess, and ChatGPT—and artificial general intelligence (AGI). Google’s AlphaGo is a narrow A.I. game system that was not programed to include any human games. In 3 hours and a trillion runs, it was able to beat all previous A.I. chess programs.
Artificial general intelligence is way more than that. It’s a system that can learn to accomplish any intellectual task that human beings or other animals can perform. It doesn’t exist yet but it’s where A.I. is going.
“So the AI, because all the other tools are made by the kind of human intelligence that makes tools and AI is that kind of human intelligence externalized as a tool itself, it has a capacity to be omni-modal, right? Not dual use, omni-use more than anything else is, and omni-combinatorial.”
This means that AGI could plausibly result in the creation of an intelligent agent that could outcompete humans. This is what A.I. experts like Eliezar Yudkowsky call the singularity.
In a recent editorial in Time, Yudkowsky wrote,
“If somebody builds a too-powerful AI, under present conditions, I expect that every single member of the human species and all biological life on Earth dies shortly thereafter…Shut it all down…We are not ready. We are not on track to be significantly readier in the foreseeable future. If we go ahead on this everyone will die, including children who did not choose this and did not do anything wrong.”
I’ve followed artificial intelligence casually for a while but listening to Schmachtenberger made me to think about it differently. I can convince myself that he and Yudkowsky are perhaps imagining a worst-case scenario that has a very low probability of happening.
At the same time, I am unwilling to dismiss their concerns. There are few people who know more about A.I. than Yudkowsky and Schmachtenberger is an expert at wide-boundary systems analysis. What they are each describing, after all, is a black swan event. We’ve seen a few of those just in the last 15 years.
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Bear Market Math
What part of a bear market don’t oil analysts understand?
WTI price has fallen -$42.38 (-35%) since June 2022 (Figure 1). It has fallen -$11.71 (-14%) since mid-April.
The analyst consensus seems to be that oil supply is tight and that demand is increasing strongly. Prices should, therefore, increase. The reason this isn’t happening is because the market is wrong.
But as Javier Blas recently explained,
“Purveyors of conventional wisdom would have you believe that the 25% drop in oil prices since late last year was due to softening demand in slowing economies. They — and you — would be wrong. The real problem is too much supply…Put simply, the black market for oil is booming. If one has the appetite – and the stomach – to buy crude from Moscow, Caracas or Tehran, the barrels are there. Better yet, they’re available at a discount.”
–Javier Blas
This week, Bloomberg posted an analysis which concluded that oil supply was the overwhelmingly factor responsible for the $19 decrease in price since November (Figure 2).
“Oil prices have fallen by $19 since November. Our decomposition of the drivers shows supply was responsible for $21 of the decline in crude prices, while demand’s contribution was positive at $2. The source of extra supply is sanctioned countries like Iran, Russia and Venezuela.”
Fund managers seem to agree. WTI net long positions have decreased -66% since January 2018 and open interest has fallen -40% (Figure 3). Since June 2021, net longs have decreased -62% and open interest -25%.
Yet, most analysts cling to the belief that markets are tight and market sentiment is the problem.
“The oil market continues to be driven by external developments, rather than fundamentals.”
–ING, May 18 2023
That’s bear-market math.
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There is no energy transition, no paradigm shift or green revolution
The energy crisis that resulted from the Russian invasion of Ukraine seems to have passed. At least that’s the mainstream view.
Europe escaped what might have been an electric power and heating catastrophe largely because of an exceptionally mild winter. Javier Blas summarized the aftermath in recent comments.
“In that new normal, European gas changes hands at €45 ($48) to €50 per megawatt hour. For many policymakers, who witnessed prices spiking to about €350 in August and feared blackouts and freezing homes, it’s a cause of celebration. The crisis is over, so the thinking goes from Brussels to London. Europe won, Vladimir Putin lost. I wish it was that simple.”
Many frame this outcome as a triumph for Europe’s two-decade experiment with renewable energy. In its February 2023 report European Electricity Review 2022, Ember stated that
“The gas crisis created a paradigm shift for the EU’s electricity transition. Historically Europe’s growing renewables replaced coal power, the most emissions-intensive fuel. However, as a result of soaring gas prices in the second half of 2021, new renewables replaced fossil gas instead.”
Most of that statement is untrue.
The ember report focused on electric power generation which is less than a quarter of Europe’s energy consumption. Yet even within that narrow focus, it is untrue that renewables replaced natural gas much less that a paradigm shift took place.
The percent of fossil fuel contribution to European electric power is unchanged since 2018 (Figure 1). Wind & solar rose from 17% to 23% but natural gas increased from 13% to 19%. Coal fell from 21% to 15% but nuclear fell from 28% to 21% & hydro fell from 14 to 11%.
The contribution of what Ember calls renewables–wind, solar, nuclear and hydro–actually decreased from 59% in 2018 to 55% in 2022. There are of course explanations like the low reservoir levels for hydroelectric power and the nuclear outages in France but these kinds of externalities come with the energy territory.
Although gas consumption fell about 13% in 2022 compared to 2021, it’s relative contribution to the electric power energy mix saw the greatest increase as shown in Figure 1 and its accompanying table.
The broader perspective is that electric power only represents 23% of final energy consumption for Europe (Figure 2). That means that wind and solar only account for 5.3% of European final energy consumption, and that all non-fossil sources including wind and solar account for only 12.6%.
Fossil fuels still make up 72% of European energy consumption. The grand green experiment of the last two decades has not done much to free Europe from dependence on fossil energy.
Ember is not the only source of self-congratulatory reports on Europe’s survival during the winter of 2022-2023. Yale Environment 360 published a report in March 2023 called Averting Crisis, Europe Learns to Live Without Russian Energy.
Faced with the cutoff of Russian gas and oil, Europe ramped up solar and wind power, got serious about energy conservation, and tweaked policies to speed its green transition. Despite fears of increased emissions this winter, the EU remained on track to meet its climate goals.
That is untrue. I’ve already shown that the ramp up in solar and wind was not the reason that Europe survived the winter. Nor was it something that happened in response to the energy crisis but rather was part of a progressive increase that began more than a decade ago.
More importantly, Europe began increasing LNG imports in September 2021 before the Ukraine crisis began (Figure 3). By the time Russian gas supply began to decrease in earnest, LNG had largely replaced it.
It may surprise some to learn that the European Union remains the third largest importer of Russian fossil fuels in May 2023. Europe continues to import Russian natural gas, petroleum liquids, LNG and crude oil (Figure 4).
This is what the Center for Research on Energy and Clean Air (CREA) calls the laundromat. The laundromat consists of countries that continue to import Russian fossil fuels and re-export them or their finished products back to price-cap coalition countries. Laundromat countries include China, India, Turkey, the UAE and Singapore (Figure 5).
For as much as I enjoy the laundromat model, it’s not that simple at least for oil. Increased volumes from the U.S. and Norway along with continued exports from Kazakhstan, Iraq, Libya and the U.K. more than compensated for the loss of Russian crude (Figure 6). The laundromat countries are presumably included in “other” although it is difficult to see any increase in that volume since the Ukraine conflict began.
IEA Executive Director Fatih Birol summarized the global energy situation one year after Russia’s invasion of Ukraine.
“The amount of renewable power capacity added worldwide rose by about a quarter in 2022; global electric car sales leaped by close to 60%; investments in energy efficiency jumped; installations of heat pumps surged, especially in Europe; and nuclear power is making a strong comeback.”
I doubt that any of those statements can be supported with data.
His comments certainly do not apply to Europe where there has has been more than a decade of aggressive renewable investment, where the financial policies and strength are in place, and where the motivation could not have been stronger. If not in Europe, where are Birol’s claims true?
The Cost
Largely unmentioned in the good news reporting about Europe’s renewable energy experiment is its cost. Approximately $1.2 trillion has been invested in renewable energy projects since 2004.
Figure 7 shows that the price of natural gas to Europe in 2022 was more than three times what it paid in 2021, an increase from $120 to $390 billion dollars. That’s just for the gas and does not include the cost for the new import terminals.
The cost for European imports of crude oil and petroleum refined products increased €137 (+72%) (Figure 8). Some of the increase in both oil and natural gas was because their commodity prices were higher in 2022 than in 2021. Much of it, however, was because Europe was willing to pay a premium for energy security.
European government subsidies, bailouts, and backstops to consumers and businesses are estimated to have cost about $276 billion in 2022. In addition, there are the intangible costs of lost revenues.
Getting Honest About the Human Predicament
Simon Michaux has analyzed the paths to phasing out fossil fuels.
“Replacing the existing fossil fuel powered system (oil, gas, and coal), using renewable technologies, such as solar panels or wind turbines, will not be possible for the entire global human population. There is simply just not enough time, nor resources to do this by the current target set by the World’smost influential nations…Inevitably, this leads to the conclusion that the existing renewable energy sectors and the EV technology systems are merely steppingstones to something else, rather than the final solution.”
His research has been attacked recently by Nafeez Ahmed and Auke Hoekstra. They challenge Michaux’s assumption that a substantial renewable energy storage buffer is needed to cover weather-related intermittency in a 100% renewable future without natural gas backup systems. They argue that technology advances and recycling will overcome most constraints on limited material resources.*
I mention this dispute between Michaux and his critics because it illustrates the gap between data and the techno-optimism of renewable energy true-believers. I favor a future based on renewables but am confident that they cannot support our current civilization’s growth expectations. I am prepared to accept and deal with the outcome of that future vision but I cannot imagine that most people will agree.
I believe that energy substitution is a doomsday stratagem that condemns civilization to its status quo path of growth & biophysical destruction.
No amount of non-fossil energy will make a difference unless we lower total energy consumption & accept its consequence of no growth.
Climate change is a big problem but it is a subset of the larger problem of overshoot. We have exceeded the carrying capacity of the planet. Continued economic and material growth based on renewable energy does not begin to resolve that fundamental reality.
Ahmed and Hoekstra typify the naive view that somehow, someone will figure all of this out. Meanwhile we should just keep pushing forward with renewable energy despite its failure to make any material difference when it was needed over the last year in Europe. They further make sport of shooting the messenger that warns them that facts do not support their plans. I wonder if they’ve seen Don’t Look Up?
What is clear a year after the Ukraine invasion is that renewables are a relatively small add-on to Europe’s energy supply. There is no energy transition. There is no paradigm shift or green revolution.
Europe survived the winter of 2022-2023 by obtaining enough fossil energy to make up for lost Russian supply. That’s not a criticism of renewable energy. It’s a fact that we must acknowledge.
* It is worth mentioning that neither Ahmed nor Hoekstra have training or experience in science or energy while Michaux holds degrees in geology and physics with emphasis on metallurgy, mining and engineering.
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BANKING CRISIS: OIL MARKET OVER-REACTION OR RESTRAINT?
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COMPARATIVE INVENTORY & GAS STORAGE REPORT APRIL 27, 2023 (2023-17 FINAL)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT APRIL 26, 2023 (2023-17 FINAL)
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COMPARATIVE INVENTORY & GAS STORAGE REPORT APRIL 20, 2023 (2023-16)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT APRIL 19, 2023 (2023-16)
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COMPARATIVE INVENTORY & GAS STORAGE REPORT APRIL 13, 2023 (2023-15)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT APRIL 12, 2023 (2023-15)
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OPEC In Control and Other Dumb Memes
The world got a surprise last weekend from OPEC+. It’s going to cut more than 1 mmb/d of oil output beginning in May.
That announcement was a call to action for analysts to disgorge a slew of shopworn memes rather than provide any useful insight or critical analysis that might help investors.
This is my favorite because it combines two popular memes that have persisted despite being completely untethered to reality.
“One thing is for certain, OPEC is in control and driving price and U.S. shale is no longer viewed as the marginal producer.”
–James Mick, Tortoise Capital Advisors
OPEC is not, never has been, and never will be in control of oil markets. Oil is the largest commodity market in the world. It can be manipulated by a big enough player for a short time but it’s simply too big to control. There are approximately 2.8 billion open interest barrels of Brent and WTI in that market whose value is more than $210 billion. That’s 20% of Saudi Arabia’s expected 2023 GDP.
OPEC and its current OPEC+ incarnation is effective at moving price up or down for a few days or weeks. The 2 mmb/d OPEC+ cut in October 2022 raised Brent price about $4.50 for two days before it dropped to a lower price than when the cut was announced. The recent announcement resulted in a price increase of $5.35 but 98% of that was in the first day of trading and price has now leveled off. That’s some powerful manipulation but hardly control.
The second meme in James Mick’s comment is about U.S. shale as the marginal producer. He means that the U.S. used to be the world’s swing producer in the shale boom but is no longer.
How absurd. The U.S. was never the world’s swing producer and probably never will be because a country must have spare capacity and be a net oil exporter. The U.S. has had no spare capacity nor been a net exporter of oil since the early 1970s.
Another dumb meme is that oil markets are “tight” or “incredibly tight” as in this quote from last week:
“The announced cut would further tighten an already fundamentally tight oil market, driving the Brent benchmark towards $100 per barrel sooner than previously expected and would push the price to around $110 per barrel this summer.”
–Rystad Energy
Energy Aspects’ Amrita Sen is among my favorite analysts but I count no fewer than 5 interviews over the last 6 months in which she has said that markets are tight or incredibly tight.
If markets are so tight, why has OPEC cut production twice in the last six months? Why have oil prices failed to regain $100/barrel since August 2022?
Figure 1 shows OPEC and EIA supply, demand and supply-demand balance through 2023. Two things are immediately obvious.
First, supply and demand have not recovered to the 35-year trend line since their decreases during the 2020 Covid pandemic. That is a problem that continues to vex OPEC and is essential to understanding its output cuts this month and in October 2022.
Second, the supply-demand deficits for the second half of 2023 do not appear to justify the tight market narrative. Those projected balances, in fact, suggest approximate market balance and much smaller potential deficits than those in 2021.
It’s impossible to know why OPEC decided to cut exports last weekend but I’m confident that fears about the direction of global economy were central.
The following comment is from OPEC’s current Monthly Oil Market Report.
“Any negative impact from current monetary policies, or measures potentially ahead, could impact global debt markets, hence slowing global economic growth. The rapid rises in interest rates and global debt levels could cause significant negative spill-over effects, and may negatively impact the global growth dynamic. Finally, protracted geopolitical tensions in Eastern Europe could further add to the downside.”
The last sentence in that statement is crucial.
We have reached a state with the war in Ukraine that Chuck Watson calls risk homeostasis. We understand but minimize its potential for disruption because it is not front-page news the way it was last year. Also, the energy and materials crisis that rocked the world last year has subsided for now.
The elephant in the room is the very real possibility of a nuclear exchange. I’m not thinking about the kind of mutually assured destruction scenarios of the Cold War but rather, the use of tactical weapons.
This probably doesn’t sound so bad by comparison but I’m willing to bet that few people understand what this means. For those who dare to learn more, please follow this link to Chuck Watson’s discussion with Nate Hagens on this and related subjects.
I suspect that the OPEC+ surprise export cut last weekend was intended to put a floor under oil prices for now. I for one am willing to take OPEC+ at its word that the objective of its action is to stabilize markets.
If we have learned anything over the last several years from Covid and the war in Ukraine it should be that the real global macro for low probability-high impact events seems to be greater than we previously thought possible.
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COMPARATIVE INVENTORY & GAS STORAGE REPORT MARCH 30, 2023 (2023-14)
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ART BERMAN NEWSLETTER: APRIL 2023 (2023-4)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT APRIL 5, 2023 (2023-143)
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COMPARATIVE INVENTORY & GAS STORAGE REPORT MARCH 30, 2023 (2023-13)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT MARCH 29, 2023 (2023-13)
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COMPARATIVE INVENTORY & GAS STORAGE REPORT MARCH 23, 2023 (2023-12)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT MARCH 22, 2023 (2023-12)
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Alex Epstein’s Fossil Future Flames Out on Climate Change
In his book Fossil Future, Alex Epstein wants us to believe that using more—not less—fossil fuel will make the world a better place. He fails. Badly.
Epstein is good at explaining why everyone else is wrong but not very good at explaining why he is right.
He dedicates much of Fossil Future to the great benefits of fossil fuels that he already presented in his earlier book The Moral Case for Fossil Fuels. That was a very unoriginal thesis in 2014 and it has not become more original with time. No one with even a superficial knowledge of energy needs Alex Epstein to tell them that much of human progress is because of fossil fuels. Not today, not 150 years ago.
He wastes a lot of time in Fossil Future trying to convince us that there is a deep state conspiracy called the “knowledge system” that has distorted everything we hear about fossil fuel and climate change. Experts, governments, international agencies and the press cannot be trusted. They ignore the benefits of fossil fuels and want to impoverish humanity by forcing renewable energy on the public despite its inferiority to coal, oil and natural gas. They are anti-human.
In an earlier post, I documented Epstein’s absurd proposition that everyone is wrong about energy except him, and how his entire approach and evaluation framework is based on a series of straw man fallacies.
Now, I will examine his case that climate change is not a big deal—that it is “mild and manageable”—and that higher levels of atmospheric CO2 are necessary for human flourishing.
Climate Change is Manageable
Epstein thinks that threats from climate change are greatly exaggerated. There has been amazing progress overcoming climate threats by what he calls “climate mastery.” By this he means that hydrocarbon-powered technology will find solutions to climate change.
The proof, he says, is in the already drastic reduction of climate-related deaths which is completely ignored by everyone except him.
The evidence for this unique observation is found in a single graph shown in Figure 1 (his Figure 7.1). It turns out, he says, that climate-related deaths have plummeted over the last 100 years in spite of rising levels of atmospheric CO2. Humans are winning the war over any negative side-effects of climate change.
The problem is that the graph does not show climate-related deaths. It shows deaths from natural disasters.
Figure 2 shows the details from my research behind the deaths in Epstein’s figure. The overall pattern of decreasing deaths is similar in both graphs but climate-change has nothing to do with it. Rather, the leading causes are drought, floods, earthquakes, storms and volcanic activity. Earthquakes and volcanic activity are unrelated to climate change. Drought, floods and storms are weather-related, and not climate-related causes of death.
Epstein’s own definitions show that. Weather, he says, is a short term phenomenon that ordinarily lasts a few hours or a few days. In the case of drought, it may last several years.
For something to be a symptom of climate change, it must persist for approximately 30 years, according to Epstein.
Weather: The atmospheric conditions, especially temperatures and precipitation, in a given area at a given time.
Climate: The longer-term (usually thirty-year) weather trends in a given region, including what range of temperatures there is and what frequency and range of precipitation there is.
–Alex Epstein, Fossil Future
His evidence for climate mastery is inadmissible because all it shows is that weather-related deaths have decreased over time.
So much for climate mastery and the idea that climate change is manageable.
More CO2 is Needed for Human Flourishing
Epstein believes that a warmer world with higher CO2 levels will be a better, greener world with more human flourishing.
“Human flourishing requires that CO2 emissions increase.”
–Alex Epstein, Fossil Future
In order to believe this bizarre claim, we must accept his conspiracy theories about how the knowledge system distorts the truth. We must reject the 88,000 peer-reviewed climate papers published since 2012 that do not support his position.
The knowledge system, he says, ignores the benefits of carbon dioxide. Those benefits may have been a recent discovery for Alex Epstein but every scientist has known about them since Joseph Priestly described photosynthesis 200 years ago.
Epstein bases his case for better living through higher levels of CO2 on three pieces of evidence.
For Exhibit A, he cites the work of The Center for the Study of Carbon Dioxide and Global Change, and shows photos of a tree whose size increased with higher levels of CO2 (Figure 3, his Figure 8.1). That’s some powerful science.
No one disagrees that CO2 has a fertilizer effect but that’s not what the CO2 debate is about. It’s about rising temperature and the negative effects that increased temperature would have on life, crop yields, water supply and sea level.
Incredibly, Epstein only talks about temperature in 10 of the 427 pages of text in Fossil Future.
For Exhibit B, he introduces a geological time scale showing temperature and CO2 levels (Figure 4, his Figure 9.2). He points out that CO2 is near historical low levels over geological time, and that the correlation between temperature and CO2 are not conclusive.
The first problem with the graph is its scale. The x-axis covers nearly 600 million years but human civilization is less than 5,000 years old so there is no detail for our history. In fact, the last increment on the x-axis covers more than 10,000 years.
Figure 5 from my research shows the last 10,000-year increment in Figure 4. It reveals a giant spike in CO2 concentrations beginning around 1800 when humans started using fossil fuels. Now that we know the truth, we can go back and see increases in both CO2 and temperature on the far lower right of Figure 4 that Epstein failed to mention. That’s a big problem for his case that more CO2 is not only good but necessary.
The second problem with his graph is the strong correlation of changes in global temperature and average atmospheric carbon from 1800 to the present (Figure 6). Nothing inconclusive there. Correlations of real-world data don’t get much better.
This relationship is well-known and dozens of versions of it are available with the simplest web search. The fact that Epstein does not show or explain this powerful counterpoint to his claim of “inconclusive correlation” is dishonest.
Climate Change is Mild
At this point, Alex Epstein invites us to join him on journey into a wondrous land whose boundaries are that of imagination.
He tells us that
“Life on Earth thrived at far higher CO2 levels and temperatures in the past…Okay, dinosaurs could live back then–but could anything else?
“Yes, our evolutionary ancestors lived back then.
–Alex Epstein, Fossil Future
I would like him to explain exactly which of our human ancestors lived during the period of elevated CO2 and temperatures from 250 to 50 million years ago along with the dinosaurs.
It’s a popular trope among climate deniers that life was just fine for dinosaurs so there should be no problem for humans as climate change proceeds. There are rich and abundant species of plants and animals living under the sea so, by the same logic, rising sea level shouldn’t be a problem either.
The truth is that dinosaur biology gave them a had a vastly different tolerance to temperature and CO2 that humans do not have. There may have been as many as 20 million dinosaurs on earth at their peak during the Jurassic period about 60 million years ago. These animals were either solitary hunter-gatherers or lived in small herds.
There are now 8 billion humans living in a complexly connected civilization that relies on global supply chains to move goods and services all around the planet. Biological differences aside, the comparison is absurd.
But Epstein blasts right through this contradiction and tries to show that it is impossible for current CO2 concentrations to increase to levels at the time of the dinosaurs.
“There is no near-term mechanism of getting anywhere close to even historical CO2 levels–let alone far higher levels where life on Earth flourished for millions of years.”
–Alex Epstein, Fossil Future
He doesn’t understand that comparing the present and near-future for humans to conditions for now-extinct creatures in the deep geological past is simply irrelevant and does nothing to make his case.
For his climate-change finale, Epstein introduces Exhibit C. This is a predictive model that shows a series of sensitivity cases for the relationship between CO2 levels and degrees of warming (Figure 7, his Figure 9.3).
He does not explain the source of these curves. That is journalistically dishonest especially because this graph is the centerpiece of his argument that climate change is not a big deal.1
In addition, he ruthlessly disparaged predictive models in earlier parts of the book and does it again just a few pages after he uses an undocumented predictive model to argue his case.
For Epstein, the point of Figure 7 is that a doubling of the amount of CO2 in the atmosphere only results in about a 1°C increase in global temperature.
According to him, that’s no big deal.
“From a human flourishing perspective, this is a mild effect.
“This is not an amount of warming that would be cause for concern–especially given that we haven’t doubled CO2 even once since 1850 and, even under extremely high emission scenarios, aren’t expected to until the second half of the century.”
–Alex Epstein, Fossil Future
The problem with Figure 7 is that it is inconsistent with the observed relationship between temperature and CO2 concentrations. Global temperature has increased +1.6° Celsius with only a +35% increase in CO2 concentration since 1900 (My research, Figure 8).
Temperature has increased 60% more than 1°C with only one-third of a doubling in CO2. This is history, not a model. Whoops.
The centerpiece of his entire thesis—“that the well-established greenhouse effect of CO2 should be no object of concern whatsoever”— just bombed in a big way.
Fossil Future Flames Out on Climate Change
I mostly agree with Epstein about the benefits of fossil fuels and the shortcomings of renewable energy. I disagree with him on almost everything he says about climate change.
But it’s not a matter of agreement or disagreement because there is simply no substance to his arguments about climate change.
Reading Fossil Future was a painful experience for me not because of Epstein’s positions but because the book is flawed and dishonest journalism. He never presents the views of people with alternative perspectives or viewpoints except to attack them as enemies of humanity.
Fossil Future is a ponderous manifesto of Alex Epstein’s grievances against the scientists who have delivered a message about climate change that no one likes to hear. It is an angry criticism of the institutions and policy makers who are now beginning to act on climate research. It is a futile attempt to change the overwhelming momentum of public policy away from energy sources that threaten human flourishing. It is desperate and impossible appeal to return to a better and seemingly less complicated time when fossil fuels were king. That, I suppose, is its appeal.
1I followed a nearby text footnote to a 1998 geophysics paper on radiative forcing that did not include this graph.
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COMPARATIVE INVENTORY & GAS STORAGE REPORT MARCH 16, 2023 (2023-11)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT MARCH 15, 2023 (2023-11)
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COMPARATIVE INVENTORY & GAS STORAGE REPORT MARCH 9, 2023 (2023-11)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT MARCH 8, 2023 (2023-10)
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For Alex Epstein To Be Right, Everyone Else Has To Be Wrong
The fatal flaw in Alex Epstein’s Fossil Future is found in the book’s flyleaf.
For Epstein to be right, everyone else has to be wrong.
“In this book, I’m going to try to persuade you of something that may seem crazy to you…
“While we are almost universally told that more fossil fuel use will destroy the world, I am going to make the case that more fossil fuel use will actually make the world a far better place, a place where billions more people will have the opportunity to flourish…to experience higher environmental quality and less danger from climate.”
He encourages his readers to enlist in his fight for using more coal, oil and natural gas, and to reject “the moral case for eliminating fossil fuels.”
As a scientist and a proud 45-year veteran of the oil and gas industry, I disagree with him but I wanted to read his book in order to understand the logic and supporting evidence behind his positions.
I was completely unprepared for what I found.
In Fossil Future, Epstein develops a conspiracy theory to explain why the experts have gotten everything wrong.
There is a deep state organization that has created and spread fake news about fossil fuels and climate change. The purpose of the book is to open our eyes so we can rise up and stop the madness before current policies “have truly apocalyptic consequences.”
The Knowledge System Distorts Scientific Information
Epstein describes a shadow structure that he calls “our knowledge system.” It synthesizes and disseminates research about energy and climate change to policy makers and to the public.
“I am referring to the mainstream knowledge system: institutions and people that overwhelmingly influence the ideas and policies of today, including our ideas and policies regarding fossil fuels.”
The knowledge system consists of the U.N. Intergovernmental Panel on Climate Change (IPCC), the U.S. National Climate Assessment, the International Energy Agency (IEA), and the U.S. Energy Information Administration (EIA). These “synthesizing bodies” routinely manipulate and omit crucial information in order to conform to the knowledge system‘s guiding principle “that fossil fuel use needs to be rapidly eliminated.”
This “moral case for the elimination of fossil fuels” is its mission, vision and sole purpose. Competing cases are rejected.
Once the knowledge system has organized, refined and condensed research information, it is passed along to disseminators for distribution to policy makers and to the public.
Disseminators include The New York Times, The Washington Post, and the BBC; the spokespeople for the IPCC and the governments that signed the Paris Climate Agreement; and the leaders of corporations like Black Rock and Apple that have articulated “net-zero” or “100 precent renewable” pledges.
By the time this information gets to the public, the research upon which it is based has been distorted beyond recognition.
The knowledge system probably began as a conceptual framework for Epstein. He may have been trying to understand how information that he considers wrong has gained public approval.
The knowledge system that he describes in Fossil Future, however, comes across as a living, breathing organism. It has the character of a corporation with a charter, officers, and employees whose mission is to manipulate information about energy and climate in order to deceive the public.
The Knowledge System Chooses Designated Experts
The knowledge system has among its staff what Epstein calls “designated experts.”
These are individuals or institutions selected by the knowledge system be its public spokespeople and to represent the moral case for eliminating fossil fuels. They include the IPCC, Paul Ehrlich, John Holdren, James Hansen, Al Gore, Bill McKibben, Michael Mann and Amory Lovins.
After studying the writing and speeches by these experts, Epstein discovered that they systematically ignore the benefits of fossil fuels.
“As a deep believer in expert knowledge who found that the supposedly expert moral case for eliminating fossil fuels, as he understood it, was making the egregious moral error of calling for the elimination of fossil fuels while ignoring their massive, life-or-death benefits, I went directly to the source: the leading experts who make the moral case for eliminating fossil fuels.”
The experts either don’t understand or don’t care about the tremendous benefits that fossil fuels have over all other sources of energy.
“Shockingly, they exhibit no concern about the prospect of losing these benefits, including what would happen to the billions of people who currently lack cost-effective energy or the billions of people who would lose cost-effective energy if fossil fuels were rapidly eliminated without a miraculous alternative.”
Most experts oppose all cost-effective forms of energy including nuclear and hydroelectric power regardless of CO2 emissions. That is because they do not meet the knowledge system‘s standard of “green” or “renewable.”
Epstein, therefore, rejects the credentials of these spokespeople because they don’t meet his definition of an expert.
“Observe that our leading designated experts on what to do about fossil fuels are almost exclusively people who are experts not on energy but rather on energy’s negative side-effects—so-called environmental experts…I don’t consider someone an environmental expert unless they acknowledge the massive environment-improving benefits of cost-effective energy, which our designated experts do not.”
That is not surprising since the starting point for Fossil Future is that experts can’t be trusted and have gotten everything wrong.
The Anti-Human Standard of Evaluation
The knowledge system deliberately misleads the public by promoting ideas and policies that are counter to the flourishing of human life.
Human flourishing is the only appropriate standard by which to determine energy and climate policy. Policies that do not promote human flourishing are by definition “anti-human.”
“Standards of evaluation can be pro-human (for example, I use the standard of “advancing human flourishing”) but also anti-human (for example, the elevation of a particular race or class at the expense of the rest of humanity).
Epstein argues that fossil fuels are the most affordable, reliable, versatile and scalable source of energy. They are the only hope for the billions of people in developing countries who are struggling and dying for lack of cost-effective fossil energy.
The evaluation standard used by our knowledge system favors expansion of green, renewable energy at the expense of fossil energy. It ignores that most of human material progress over the last 200 years is because of the productivity of machines that run on fossil fuels.
Solar and wind cannot possibly meet the requirements for current or future human flourishing. Human flourishing in the modern world requires fossil energy.
Today’s proposed policies to eliminate fossil fuel will make the world “an impoverished, dangerous and miserable place for most people.” That is anti-human.
Science’s Poor Track Record
Epstein explains that science experts have a track record of supporting anti-human policies. As proof, he cites the early 20th historical example of eugenics, the belief that intelligence has a genetic or racial component. He condemns this as an example of how science experts can’t be trusted.
“I have long been haunted by the fact that some of the worst ideas in history (such as slavery, racism and eugenics) were successfully spread as the consensus of ‘the experts’.”
What he doesn’t explain that eugenics was discredited and renounced in the 1930s by the entire scientific community. It took research to discover that early hypotheses linking race and intelligence were wrong.
Epstein lays out the poor track record of climate change predictions over the last 50 years. He cites this as proof that climate change is an exaggeration by science experts who can’t be trusted.
What he doesn’t explain or understand is that humans are chronically bad at all predictions. If human progress was predicated on accurate predictions, we would still live in caves.
Science is a work in progress. It is a very human enterprise. It moves forward, like people, by making predictions based on hypotheses, getting it wrong, recalibrating, and trying to do better the next time.
Epstein’s believes that the industrial progress of the last 200 years is because of machines powered by fossil fuels. Those machines were invented by scientists. He has faith that scientific technology will find solutions to climate change’s negative side effects in the future.
It is ironic that he disparages the same science community when it comes to climate change. He can’t have it both ways.
Fossil Future is A Straw Man
The principal arguments in Fossil Future are fallacies. They exist only in Epstein’s imagination. They are not real.
Fossil Future is a straw man.
A straw man is an argument that distorts an opposing position into an extreme version of itself and then argues against that extreme version.
“The straw man fallacy avoids the opponent’s actual argument and instead argues against an inaccurate caricature of it.”
—Lindsay Kramer
“Experts can’t be trusted” is a straw man. “The knowledge system” is a straw man. “Designated experts” is a straw man. “The moral case for eliminating fossil fuels” is a straw man.
Epstein is arguing with a scarecrow. He can make any argument he wants but the straw man can’t argue back. That makes his position seem infallible.
Experts can’t be trusted
Once he has launched the “experts can’t be trusted” straw man, he’s half way home. If the experts have gotten everything about the future of energy wrong, then Alex Epstein is here with the right position that we already live in the best of all possible worlds.
The problem is that none of us treat experts like that in our daily lives.
When was the last time you chose a surgeon, an attorney, an investment advisor or a tax accountant who wasn’t an expert? Have you hired amateurs lately to work with you in your business?
Epstein can’t make it past the flyleaf of Fossil Future if he doesn’t convince the reader that experts can’t be trusted.
Epstein is heavy on the benefits of fossil fuels but disturbingly light on their negative effects on the earth or human flourishing. He acts like these subjects are a new frontier that has yet to be explored.
“Let me be clear: we absolutely need to study and consider the negative side-effects attributed to fossil fuels.”
Spoiler alert. Exhaustive research on the relationship between fossil fuels and climate change is precisely why so many experts recommend a radical re-thinking of our energy use patterns.
The knowledge system does not exist.
There is no organization or structure in between research and the public. Epstein observes,
“Whenever we hear about what the “experts” think, we need to keep in mind that most of us have no direct access to what most expert researchers in a field think.”
Seriously? Perhaps he hasn’t discovered the internet. We can access tens of thousands of free research papers on energy, climate change and public policy at any time.
I would like Alex Epstein to take me on a tour of the knowledge system‘s headquarters, introduce me to its executives, and show me the offices where research data is filtered and distorted.
There are no designated experts.
Since there is no knowledge system, there’s no one to hire experts to broadcast its distorted, anti-human moral case against fossil fuels.
Every field and industry has opinion leaders because of the depth of their knowledge and experience. Energy and climate change are not exceptions.
There is no moral case for the elimination of fossil fuels.
There are very few scientists or organizations that favor completely eliminating fossil fuels yet Epstein represents this as the norm. If eliminating fossil fuels is not the norm but is a minority position, then his entire argument falls apart.
There is no longer some anti-human monster trying to destroy human flourishing. There are just smart people who are trying to find ways to maintain human prosperity with cleaner energy.
Certainly there are experts and organizations that are alarmist. Those can be found in any group of humans. Failed predictions and even bad scholarship are sadly found in many areas of society, not only in climate science.
The exceptions, however, do not prove the rule.
If we strip away Epstein’s straw man arguments, what is left?
- A (completely unoriginal) thesis that fossil fuels are responsible for most of the material progress of modern society.
- A man who believes that humanity is going in the wrong direction toward a world of lower living standards.
- A man who cannot accept that the benefits of fossil fuel use may not outweigh the environmental damage that they have created.
- A man who is willing to bet against science on climate change but bet everything on the same science community to find ways of accessing unlimited fossil fuels, and manage the negative effects of climate change.
The problem is that he cannot win a fact-based argument for his beliefs. so he has manufactured an imaginary universe populated by straw men.
If you accept the straw men, his positions look rational and appealing. Readers with limited knowledge of energy and climate change may not even recognize the straw men. Many are already conditioned by politics to accept deep state, fake news and untrustworthy expert memes.
Readers with greater knowledge of energy and climate change may disagree with his positions but simply not take Epstein seriously.
Epstein is narrowly focused. He doesn’t see the larger system needs that are the backdrop for his narrow focus on fossil fuels and climate change.
For example, he believes that there are no practical limits to fossil energy supply yet his own graphs show that reserves have flattened over the last decade or so.
The bigger picture is that more than half of the energy and ever used since 1800 was consumed during the last 30 years (Figure 2). If global GDP grows at 3% per year, we will need twice as much energy and materials in the next 30 years as we used in the last 10,000 years. That will will double again by 2080.
What will be left of the natural world if we are successful? What will happen to human flourishing if we are not?
Epstein thinks that human flourishing and nature are separate and disconnected entities. He doesn’t understand that there will not be any human flourishing in a degraded world environment and ecosystem.
“Without a biosphere in a good shape, there is no life on the planet. It’s very simple. That’s all you need to know.”
—Vaclav Smil
A recent study showed that the total world wildlife population has declined by 69% since 1970 (Figure 3). This is not about species extinction but about the populations in the natural world plummeting.
The reason for this shocking drop in animal population is loss of habitat to human expansion and the unsustainable use of our planet’s resources by humans.
This is not an anti-human standard. These are facts and numbers don’t lie.
Resource use including fossil fuels, climate change and a damaged biosphere are interlinked system problems that do not show up on Alex Epstein’s radar screed.
There are well-reasoned opinions on all sides of the climate change debate and disagreements about how much risk to attach to a warming climate but most accept what Epstein cannot: the correlation between fossil fuel use and increased CO2 emissions is strong and will only get worse unless humans change consumption patterns.
Investor flight from fossil fuel companies has not abated and few commercial banks will them money. Most world governments are moving forward with laws, regulations and agreements to limit carbon emissions. Many more corporations than Black Rock and Apple have made net zero pledges. These things are happening in spite of Alex Epstein’s effort to become the world’s leading champion of fossil fuels.
In the long run, it doesn’t really matter whether Epstein is right or wrong because the earth will have the final vote.
The train that Epstein is trying to stop left the station a long time ago.
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ART BERMAN NEWSLETTER: MARCH 2023 (2023-3)
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COMPARATIVE INVENTORY & GAS STORAGE REPORT MARCH 2, 2023 (2023-2)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT MARCH 1, 2023 (2023-9)
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COMPARATIVE INVENTORY & GAS STORAGE REPORT FEBRUARY 23, 2023 (2023-8)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT FEBRUARY 23, 2023 (2023-8)
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Fact-Checking the DUC Meme: Mostly False
Drilled uncompleted wells saved the shale patch during COVID. That’s the popular explanation.
The story is that so many wells were drilled in the boom years that many remained finished and only awaited fracking to produce. Producers relied heavily on these DUCs in the lean period during and immediately after COVID so they did not have to drill many new wells.
The problem with the story is that it’s mostly false. It’s a meme.
The True Part of the DUC Story
There is, of course, some truth to the story. Permian DUCs decreased from 3,601 in July 2020 to the 2015-2016 average of 1,131 by mid-2020 (Figure 1). That corresponded to a 70% drop in rig count (blue line in Figure 1). Production growth (gray fill in Figure 1) continued because DUCs were being completed to add production that was not coming from new drilling.
The Rest of the Story
It’s a good story but a closer look shows that it’s not a very good explanation. The first problem with the meme is that most DUCs are part of the normal operational cycle of drilling and completing multiple wells on a pad.
Figure 2 schematically shows a typical Permian basin pad-drilling configuration with 6 wells drilled from a single surface location. The average vertical depth is 8,000 to 11,000 feet, and the lateral length is 10,000 to 15,000 feet for wells drilled in the last few years.
A typical well in the Permian shale plays takes 7 months from well spud (the beginning of well drilling) to first production (Figure 3). That is about the time required to drill 6 wells on a pad, log, set pipe, cement, frack, test, and connect the wells to sales lines.
That blows a huge hole in the DUC meme. It suggests that a backlog of DUCs is normal, not extraordinary. It’s just what happens when many wells are drilled from a pad. It simply doesn’t make operational sense to frack until all wells on the pad are drilled. It takes time.
There is a second problem with the DUC meme. The variation in the number of DUCs over time turns out to be a function of frack crew availability (frack spread) and not some systematic strategy to complete certain wells first and others later.
Figure 4 shows the incremental number of Permian DUCs since 2018 and the U.S. frack spread. The increase and subsequent decrease of Permian DUCs since 2018 is inversely proportional to the number of frack crews (frack spread data is only publicly available for the entire U.S. but I am confident that the trend for the Permian basin is notionally similar).
That means that the increase in DUCs was because of a reduction in frack spreads beginning in mid-2018, and not because of the extraordinary number of wells that were drilled.
In fact, both Permian frack spreads and rig counts began to fall in mid-2018—almost two years before the COVID economic closure—probably reflecting decreased outside capital available to producers (Figure 5).
Data shows that the relationship between DUCs, the number of producing wells, and rig counts is much more complex than suggested by the mainstream DUC meme.
A third problem with the DUC meme is that it does not explain why Permian production continued to increase with fewer rigs, fewer frack spreads and fewer producing wells.
Production has climbed from 3.9 mmb/d in May 2020 to 5.2 mmb/d in January 2023 (Figure 6). This happened despite a decrease of 1,849 producing wells from April 2020 to April 2021.
Permian 30- and 90-day initial rates increased 8% in 2021 compared to 2020 (Figure 7). That partly explains the problem of increased Permian oil production. Much of that is due to increased lateral lengths from an average of about 9,000 feet in 2018 and 2019 to almost 11,000 feet today.
Initial production rates have fallen in 2022 but the number of producing wells has increased to more than offset that loss in well performance.
Memes Are Irresistibly Dangerous
Memes have been a fixture of the information landscape since long before the internet existed. A meme is a shortened version of the Greek word mimeme. It is a self-replicating unit of memory, the smallest piece of information that a person can easily remember, the lowest common denominator of intelligence.
“When you plant a fertile meme in my mind you literally parasitize my brain, turning it into a vehicle for the meme’s propagation in just the way that a virus may parasitize the genetic mechanism of a host cell.”
–Richard Dawkins, The Selfish Gene
A meme condenses a complex aspect of reality to a simplistic abstraction, something anyone can repeat in order to appear insightful and wise. No wonder people love them.
People want simple explanations for complex problems, and analysts with little oil industry background are eager to offer memes to fill their need. When enough analysts and media drones repeat the meme, it becomes conventional wisdom.
The DUC meme is a perfect example.
It is undeniably true that the number of DUCs has decreased since mid-2020. It is equally true that rig counts are much lower. Add the two together and the meme was born: companies are completing DUCs to make up for drilling fewer wells, and production continues growing as if nothing has happened. Case closed.
Unfortunately, it’s not that simple. It is a complex problem that has many related parts and feedback loops. It’s messy and requires data analysis and thought.
The analysis in this post goes a long way toward an explanation but leaves many questions either unanswered or with tentative answers. Welcome to the real world.
Human nature requires explanations and preferably simple ones. That is the appeal of memes. They are simultaneously irresistible and dangerous because their simplicity does not reflect reality but instead, some distortion that exists only in the human imagination.
If financial success were as simple as the memes that often guide investors, everyone would be rich.
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