Hiding the Hirsch Report?

The report, Peaking of World Oil Production: Impacts, Mitigation, & Risk Management, as I’ve noted before, is well worth the time reading.

In an article today EnergyBulletin.net suggests that perhaps the report is being purposely ignored or shifted aside by the powers that be. Conspiracy? Or politics? Or a little of both? Perhaps the blogosphere can help by opening more eyeballs up to the content.

Following up the CERA report with Hirsch’s work gives one a good counterbalancing opinion through which we might view the potential problem more objectively.

No matter which spin on the topic one chooses to side with, we must remember that all such analysis is based largely an accumulation of assumptions.

Assumptions are a real problem in the energy business. National and international demand forecasters can’t get their forecasts right, based on more quantifyable assumptions, so it clearly doesn’t make any sense to have more faith in producers, especially since the largest producers hide behind dictatorial governments where transparency is a concept quite foreign.

One of the major problems with the world wide petro market is the near total opacity of OPEC production and reserve information. Russia is also a murky pond. Very little is really known about the state of the large Saudi oil fields which this world depends upon now totally. If these fields, as some industry observers have suggested with increasing frequency lately, are anywhere near their “peak” output capacity, no amount of world wide exploration in conventional and unconventional sources is likely to keep up with the current rate of demand growth.

In such a case the only alternative for the world will be to reduce demand, and the only way this happens is through deep recession, but depending on the shape of the oil production “peak” or “plateau”, it may require world wide economic depression before demand is brought inline with future supply capacity.

We are a ways off from this… but how long is the question – 1, 2, 5 or 10 years? Will alternatives be in place before such a challenge is faced by the world?

I’m not convinced we’ll be ready. In order to deal with a problem effectively one must generally first accept that a problem exists. There’s absolutely zero evidence of problem recognition in current policy and political activity in the United States and Canada.

Too Much or Too Little

Cambridge Energy Research Associates put out a report in June Oil & Liquids Capacity to Outstrip Demand Until At Least 2010: New CERA Report which to me at the time had the air of “hopeful assumptions”.

Ronald R. Cooke of FinancialSense.com has put together a not-bad set of challenges and questions to the CERA report in his article Oil Depletion? Its All In The Assumptions. (hat tip: The Oil Drum)

I suspect Mr. Cooke would be happy to admit that his somewhat dim view on the optimistic CERA report is based on assumptions, many of which can’t be verified at this time. He does pose some good questions though.

As an investor in energy companies (just because I don’t like the stuff doesn’t mean I am squeamish about profiting off of it or other people’s addiction to the stuff—sorry) I follow the projections and quarterly results of a number of companies quite closely. Production growth remains an issue with a number of the larger companies in the sector, yet demand growth continues inexorably higher. I’ll be writing an article on this for TrendVue in the near future.

My primary concern over peak oil is not to question IF but ascertain WHEN not just the peak but concern over the peak starts to gain widespread currency. There will come along with that realization much turmoil in financial markets, perhaps more than we’ve ever witnessed in history.

Its difficult not to sound like a whacko or alarmist when discussing this topic; all the generations alive today, at least in the modern/western world, have grown up taking for granted that relatively cheap energy would always be at our beck and call. We don’t even come close to realizing just how much petro-energy and petro-chemicals impact our daily lives.

The mere fact that the most optimistic of large energy industry research companies sees fit to entitle their report ”... Capacity to Outstrip Demand Until At Least 2010” should be a red flag, not a comfort. 2010 is less than 5 years demand growth away and already the current system is running at near peak capacity and markets are pricing oil as such. Peak capacity and peak availability (at a price anyone is willing to pay) are not the same things… it won’t take “peak” oil itself to create significant panic.

Lets just say its prudent to be tuned into the subject before everyone is tuned into the subject – by then it will be too late to do much about it.