Some of you may know that I have written some criticisms over the use of a technique called Hubbert Linearization to predict Peak Oil. I maintain that it is essentially useless for trying to predict an oil production peak. I have attempted to validate the model for a number of countries to see if it could have predicted a production peak in real time, and in the vast majority of cases the answer is no. And if you have a model that is wrong most of the time, you can’t have any confidence in the output for any particular case. But it is being used as evidence that Saudi Arabian oil production has peaked, and I think that’s useless. I wrote as much in an article for The Oil Drum:
The main proponent for using the HL to forecast a Saudi peak is petroleum geologist Jeffrey Brown, aka Westexas at The Oil Drum. We have sparred quite a bit over the nature of the technique, of the concept of falsification, and over evidence in general. My impression is that he has a filter that does not allow contrary evidence to enter the picture, only highlighting evidence that seems to corroborate the story. This is not an uncommon trait; we all do it to some extent. But I think that by doing this with the HL, a lot of people have been convinced that it has more utility than it really does.
Now, despite our disagreements on the HL, I believe in giving credit where it is due. So, I want to focus on an area in which I think he nailed it.
The Export Land Model is straightforward. In fact, the first time I read it, I thought “Yes, that makes perfect sense.” You can read about it firsthand at the two links below (the second one was featured on The Oil Drum yesterday), but I will summarize my take below.
In brief, the model states that when oil production peaks, not only do we have to worry about declining production, but we have to worry about increasing domestic consumption from oil exporting nations. If Saudi oil production falls by 3% in a year, but domestic consumption in Saudi increases by 3% in that same year, exports are going to fall off at a much steeper rate. Very straightforward, nothing controversial there. And it is worth noting that among the top 5 oil producers, production has fallen over the past couple of years and domestic consumption has in fact risen.
I will add my $0.02 here, as I don’t think world oil production has yet peaked. But it doesn’t have to, for this situation to present a problem. If you have a situation in which oil production is growing slowly, but domestic consumption in major oil-producing nations is growing rapidly, you are setting up a situation in which exports are slashed even though production is growing. This is very similar in concept to Peak Lite, where demand growth is growing faster than production growth and that leads to a pseudo-peak. The export model can also lead to a pseudo-peak, hitting major oil importers the hardest.
As they have begun to recognize the Peak Lite concept, the mainstream media has also finally recognized the export problem:
Six of the largest oil suppliers to the U.S. are poised to significantly cut exports by 2012, ramping up pressure on supply and price, and intensifying the focus on one of the last great deposits open to private investment: Canada’s oil sands.
The forecasted cuts by Mexico, Saudi Arabia, Venezuela, Nigeria, Algeria and Russia are the subject of a keynote address that Jeff Rubin, chief market strategist and chief economist at CIBC World Markets will deliver at the firm’s Industrial Conference Oct. 2 in New York City. In his remarks, Mr. Rubin will share his latest research on the global oil supply/demand balance, with specific focus on the size and scope of the oil supply crunch facing the U.S. over the next five years.
And this next section sounds very familiar:
In recent reports and at a major oil and gas conference in Ireland this month, Mr. Rubin explained that surging domestic demand is eating into the export capacity of the world’s leading oil-producing nations. With production likely to plateau or decline in these countries, he expects global oil exports to fall by seven per cent, or 2.5 million barrels a day by 2010.
Of course if this plays out like this – and I think it probably will even if production does increase somewhat – we will continue to see major price pressure on oil and gas. Political leaders have got to wake up to this situation, and get very serious about implementing conservation measures. I think if people knew that gasoline prices were only going higher, they would start to buy more fuel efficient vehicles, carpool, and have second thoughts about moving into a home 30 miles from their job. But as long as they hold out hope that prices will fall – and false promises from political leaders only bolster those hopes – we won’t see major shifts in consumption.