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.
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.”
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?
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.”
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.”
“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.”
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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COMPARATIVE INVENTORY & GAS STORAGE REPORT FEBRUARY 16, 2023 (2023-7)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT FEBRUARY 15, 2023 (2023-76)
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COMPARATIVE INVENTORY & GAS STORAGE REPORT FEBRUARY 9, 2023 (2023-6)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT FEBRUARY 9, 2023 (2023-6)
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A NEW OIL PARADIGM?
Oil prices are in a kind of sweet spot in which producers are making healthy profits while consumers no longer have to cope with the stress of the highest oil and refined product prices in many years. Yet analysts and journalists are obsessed with the possibility of much higher prices if demand from China rebounds.
Is that out of concern for the public and investors, or do they crave stoking anxiety about the next potential blow to the global economy? It reminds me of the Y2K phenomenon in which tens of billions were spent anticipating a potential end to civilization that never materialized.
I like the Saudi oil minister’s take on a demand rebound in China:
“I will believe it when I see it.”
–Abdulaziz bin Salman
WTI is currently in the mid-$70s and Brent is just above $80 but Goldman Sachs expects Brent to average $105 in the second half of 2023.
“Right now, we’re still balanced to a surplus because China has still yet to fully rebound. Capacity is likely to become a problem later this year when demand outstrips supply. Are we going to run out of spare production capacity? Potentially by 2024 you start to have a serious problem.”
—Jeff Currie, Goldman Sachs
In other words, the present looks just right—if a bit boring—but get ready for some largely speculative event to change all of that.
Goldman has consistently missed its price forecasts to the low side by at least 20% since June 2022. My point is not to criticize but to try to understand why analysts have been consistently wrong.
One explanation is that Goldman and most analysts are using an outdated paradigm for oil-market dynamics and price formation.
The State of the Market
The relationship of the WTI 200-, 100- and 50-day moving average curves does not lie. When markets are bullish, the 200-day average is on the bottom followed by the 100-day with the 50-day average on the top. The order of those curves have been inverted since November 2022 (Figure 1). The 50-day average was about $6 below the 50-day average on Friday, February 3.
There’s nothing scientific about those exponential average curves but they faithfully reflect bullish and bearish trends. It takes time to form a new trend in which the 50-day average changes positions with the 100-day, and for the 100-day to change positions with the 200-day average curve. Until that shift occurs, we should listen to what the market is telling us instead of what analysts tell us might happen.
For example, IEA Executive Director Fatih Birol said recently, “If demand goes up very strongly, if the Chinese economy rebounds, then there will be a need, in my view, for the OPEC+ countries to look at their policies.” Those are some pretty big “ifs.”
Back in the real world, U.S. comparative inventory (C.I.) has increased +140 mmb (+97%) since late May (Figure 2). C.I. is now approaching the 5-year average and the implied market clearing price is $70 for WTI at current inventory levels. SPR releases ended three weeks ago but C.I. has increased in each of those weeks. No ifs about any of that.
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ART BERMAN NEWSLETTER: FEBRUARY 2023 (2023-2)
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COMPARATIVE INVENTORY & GAS STORAGE REPORT FEBRUARY 2, 2023 (2023-5)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT FEBRUARY 1, 2023 (2023-5)
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COMPARATIVE INVENTORY & GAS STORAGE REPORT JANUARY 26, 2023 (2023-4)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT JANUARY 25, 2023 (2023-4)
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COMPARATIVE INVENTORY & GAS STORAGE REPORT JANUARY 19, 2023 (2023-3)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT JANUARY 19, 2023 (2023-3)
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They’re Not Making Oil Like They Used To: Stealth Peak Oil?
The good news is that U.S. oil production has recovered to pre-pandemic levels. The bad news is that only 60% of it is really oil.
U.S. oil production exceeded the 2020 pre-pandemic peak of 20.3 mmb/d in October and November of 2022 (Figure 1). Unfortunately, less than 60% of U.S. “oil” production is really oil. The rest is non-petroleum and comes from natural gas, corn & refinery gain.
Natural gas liquids (NGLs) accounted for 6 mmb/d (30%) of U.S. “oil” production in 2022 (Figure 2). The NGL portion of total output increased 5% in 1H 2020 as crude production fell. Tight oil increased from 9% to 61% of crude + condensate from 2010 to 2022 and while it is oil, it has lower energy content than conventional oil.
Natural Gas Liquids (NGLs)
NGLs do not come from crude oil but are produced from natural gas. They are gases in the subsurface but are separated as liquids at surface temperatures and pressures at natural gas processing plants (Figure 3). NGLs include ethane, propane, butane and pentane.
Ethane constitutes the largest share (~55%) of NGL production. It is used almost exclusively to produce ethylene, which is then turned into plastic bags, anti-freeze and detergent. Propane accounts for 31% of NGLs but only 3% of it is used as a transport fuel; its main use is home and water heating. Butane makes up another 16% of NGLs and its main uses are fuel for cigarette lighters and portable stoves, and as a propellant in aerosols.
Refinery gain accounted for more than 1 mmb/d of U.S. oil production in 2022.
Gain occurs during refining because petroleum products coming out of a refinery are less dense than the crude oil going in. The volume of refined products is therefore greater than the volume of crude oil intakes. That volume difference is called refinery gain.
For example, the average density of crude oil is 846 kg/m3 (Figure 4). Gasoline accounts for about 45% of each barrel of refined U.S. crude oil and its density is 744 kg/m3. That means that approximately 1.14 barrels of gasoline are produced from each barrel of oil. That is refinery gain.
Fuel ethanol accounted for more than 1 mmb/d of U.S. oil production in 2022. It is denatured alcohol made by fermenting the sugar in the starches of grains like corn (Figure 5). It is blended with gasoline to extend the use of that fuel.
Tight oil accounted for more than 7 mmb/d of U.S. oil production in 2022. Less than 5 mmb/d of conventional oil was produced in 2022. Unlike, natural gas liquids, refinery gain and fuel ethanol, tight oil is petroleum.
It has, however, a lower density and corresponding lower energy content than conventional oil. Permian tight oil, for example, has about 93% of the energy content (5.5 mmBtu/barrel) as the standard conventional oil required by U.S. refineries (5.9 mmBtu/barrel) (Figure 6).
Some may argue that 7% is not that much when it comes to a fuel as potent as oil but it is the difference between an “A” and a “B” in school. Put differently, imagine if world oil crude & condensate supply fell by 7%. That’s half of what Saudi Arabia produces. It’s five times more than Libya produces yet whenever its production falls because of civil conflict, world oil price is profoundly affected.
More importantly, tight oil does not contain the middle distillate compounds necessary for diesel production. Figure 6 shows the density (API and specific gravity) of the key conventional grades of oil, and for the Bakken, Permian and Eagle Ford tight oils. Tight oil is fine for making kerosene, jet fuel and gasoline. It cannot, however. be used for producing diesel without blending it with heavier oils, and diesel is the main cash product and workhorse of the modern global economy.
The U.S. can never be oil-independent because it will always need to import heavier oil to make diesel.
Stealth Peak Oil
If any of this sounds strangely familiar, it is because it was anticipated 20 years ago by Peak Oil.
Peak Oil was a flawed concept because of its preoccupation with predicting a date for world oil production to peak. Many of its key precepts, however, were sound namely, that price would rise as oil quality decreased and decline rates increased. I have shown the pronounced decrease in oil quality at least in the United States.
Figure 8 shows that the total production base decline rate for the U.S. is about 37% per year. The data is for all wells drilled from 2000 through 2022 in the largest American producing regions that account for 88% of total crude oil and condensate output.
The Peak Oil assumption that oil prices would increase chiefly because of the depletion of known reserves was simplistic. First of all, reserves are a moving target. The values published by BP or EIA are resources, not reserves. Reserves are a volume at a price, not a fixed quantity. When the price of oil increases, proved reserves increase, and vice versa.
Second, new reserves are always found despite the direst expectations to the contrary. The world has been 10 years away from producing all of its reserves since I began my career in the oil business 45 years ago.
More importantly, price formation is more complex than an inverse correlation with reserves especially in an increasingly financialized world. Markets care more about supply more than about reserves. Supply is current production plus inventories and spare capacity (the amount of production that can be converted into supply in about 90 days). The tens of billions of barrels of resources or potential reserves in plays unlikely to become supply in the near-term (like Orinoco tar sands) do not impress oil markets.
Supply urgency is what moves oil prices higher and markets have felt urgency for most of the last two decades. As Colin Campbell and Jean Laherrere insightfully observed 25 years ago,
“The world is not running out of oil—at least not yet. What our society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend.”
WTI prices averaged $90 per barrel in 2022 dollars since 2003 (Figure 9). That is more than twice the average price during the preceding two decades. That $90 average includes the low-price periods from 2014 through 2017 (price collapse from shale output), and 2020 through mid-2021 (Covid) in which prices fell to their lowest levels in modern history.
Total world liquids production has recovered to 99% of 2018 average level but crude oil plus condensate has not and remains more than 4 mmb/d below late 2018 levels (Figure 10). The world is not running out of oil but investors and credit markets are unwilling to underwrite the drilling necessary to increase oil output.
As David Fickling recently stated,
“Ultimately, it will be central banks that will read crude its last rites.”
The likelihood of a secular return to lower oil prices is as unlikely as is a technological breakthrough that results in enough new oil supply to modify pricing. That is because the “lower-for-longer” pricing after 2014 because of shale plays was a relatively insignificant anomaly in the larger price scheme in Figure 9.
The consequences of higher energy prices following Russia’s invasion of Ukraine have made the world more energy-aware. For some, they have increased the resolve to make a transition away from oil and other fossil fuels. At the same time, they have shown just how dependent we are on fossil energy, and will continue to be for decades to come.
Peak oil was a model that made reasonable if simplistic assumptions based on M. King Hubbert’s method of forecasting future oil production trends from proved reserves.
What I am describing is not a model. Oil quality has decreased, production decline rates have increased, and long-term secular prices are higher. Those are facts, not theory.
The sooner we stop expecting a miracle of technology or a quick transition to renewable energy, the better we will be able to cope with a more difficult energy future.
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COMPARATIVE INVENTORY & GAS STORAGE REPORT JANUARY 12, 2023 (2023-2)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT JANUARY 11, 2023 (2023-2)
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COMPARATIVE INVENTORY & OIL STORAGE REPORT JANUARY 5, 2023 (2023-1)
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ART BERMAN NEWSLETTER: JANUARY 2023 (2023-1)
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