Surprising validator: Peak oil’s Art Berman and a surprise on natural gas.

old time revivalThe second surprising validator recently is a name familiar to shale antis and readers of No Hot Air alike, Art Berman. 

Art has been a consistent shale skeptic and his opinion that shale is ultimately uneconomic has provided an ever present meme in the shale debate especially in the UK. The idea that shale economics don’t work and present a distraction to renewables lies at the base of many antis, from the somewhat serious and rational like Tom Burke through the tin foil hat and Occupy Brigade. To the Occupiers the uneconomic nature of shale merges into their 2009 view of a world in permanent economic crisis. Rather bizarrely it seems, they are desperate to prevent shale explorers proving them right, by allowing us to drill.

Art’s basic premise is the Peak Oil theory, the idea that we’re running out of gas and oil and either the physical loss of supply or it’s affordability has two sub-memes. One is the survivalist doom scenario, while the more rational depend on high prices inferred by Peak Oil to make wind, solar, CCS, nuclear, Icelandic Inter-connectors, Desert Tec or the Severn Barrage and other schemes economic in comparison to either no oil at all or completely unaffordable.

Art’s web site is called the Petroleum Truth report and antis have often cited him over the years. I would say that they have misunderstood much of what he says and they have glossed over the fact that he is, after all, a geologist, although one of the old school. Art may simply not really have grasped how shale was a game changer, or perhaps he didn’t want to know. Either way, he’s been published over the years by the press desperate to provide “balance” and has been quoted admiringly in Moscow among other places. I add that Art has been unfailingly polite over the years in our email exchanges, but when it comes to production and prices, he has also been an unfailing failure. He has been predicting a big shale bust for years, which will then lead to high prices on the other side. Paul Stevens and John Dizard have been big UK fans and their influence in UK policy circles has been very high. Peter Atherton of Liberum told the All Party Shale Energy Group in Parliament last night that even at the Treasury, the idea of an oil price collapse due to surging production was considered so unlikely as to be unthinkable. He also noted that this was the reason for justifying the Hinckley Point nuclear project, which at over $40 billion will be the most expensive project ever produced on earth. He pointed out the International Space Station at $100B was in fact larger, but not of this earth.

Art has always appealed to shale antis because they both insist on sticking to their guns whatever the proof. In this damn the fact torpedoes world, theory is permanently correct, it’s the timing which is a mere detail: The future disaster of peak oil is permanently two years away and has been since 2008. The scenario goes something like this: low prices are uneconomic, everyone in shale will go bust and prices will ultimately get even higher – so let’s just call the whole shale thing off. Art’s actual view is a bit more nuanced in that he thinks shale will continue to produce, but at far higher prices.

Art’s blog is after all,  The Petroleum Truth Report, leaving not much room for doubt apparently. He published a portion there  of a recent interview he gave to oilprice.com called “The Real Cause of Low  Oil Prices. I can agree with his analysis of the geopolitics of Saudi displeasure at the actions of fellow cartel members not sticking to their quotas

Saudi Arabia met with Russia before the November OPEC meeting and proposed that if Russia cut production, Saudi Arabia would also cut and get Kuwait and the Emirates at least to cut with it. Russia said, “No,” so Saudi Arabia said, “Fine, maybe you will change your mind in six months.” I think that Russia and maybe Iran, Venezuela, Nigeria and Angola will change their minds by the next OPEC meeting in June.

..but after this, for the most part sensible, analysis, Art goes back to the old time Peak Oil religion.  

OP: How do you see the shale landscape changing in the U.S. given the current oil price slump?

Arthur Berman: We’ve read a lot of silly articles since oil prices started falling about how U.S. shale plays can break-even at whatever the latest, lowest price of oil happens to be. Doesn’t anyone realize that the investment banks that do the research behind these articles have a vested interest in making people believe that the companies they’ve put billions of dollars into won’t go broke because prices have fallen? This is total propaganda.

We’ve done real work to determine the EUR (estimated ultimate recovery) of all the wells in the core of the Bakken Shale play, for example. It’s about 450,000 barrels of oil equivalent per well counting gas. When we take the costs and realized oil and gas prices that the companies involved provide to the Securities and Exchange Commission in their 10-Qs, we get a break-even WTI price of $80-85/barrel. Bakken economics are at least as good or better than the Eagle Ford and Permian so this is a fairly representative price range for break-even oil prices.

Many people think that the resurgence of U.S. oil production shows that Peak Oil was wrong. Peak oil doesn’t mean that we are running out of oil. It simply means that once conventional oil production begins to decline, future supply will have to come from more difficult sources that will be more expensive or of lower quality or both. This means production from deep water, shale and heavy oil. It seems to me that Peak Oil predictions are right on track

We can put aside the argument over break even prices as other opinions are available and if you don’t like them, other facts are available too:

North Dakota’s Department of Mineral Resources put breakeven prices at between $30 and $75 in different parts of the Bakken in a presentation to state lawmakers. These are the prices producers must expect to receive at the wellhead before they will authorise drilling.

There are no precise measures for wellhead prices. The Department of Mineral Resources estimates wellhead prices by averaging WTI futures (which is the very best operators could hope to receive ignoring all transport costs) and posted prices (the worst operators would receive for spot sales on their property).

But where Art and I are on the same page is his more nuanced views on natural gas.  Art’s original target was shale gas, not shale oil. He has been predicting high gas prices for some time, with his 2010 prediction of $8 instead of the $3 we see today being only one example. We may disagree on price, but he and I agree on this:

How the global energy mix is likely to change but not in the way many might have hoped.

This is where Art is speaking truth to Green Power. With minor quibbles, this is exactly what I’ve been saying the past few years. I’ve been accused of inventing the Greenwashing of shale gas, but if Art has recycled it, I’m happy to let him take all the credit. What’s important is that the congregation listens to the sermon, not who wrote it. If people believe the prayers about Peak Oil, they also must stick around to the end of the religious service to hear the final benediction: The redemption of natural gas.

Arthur Berman: The global energy mix will move increasingly to natural gas and more slowly to renewable energy. Global conventional oil production peaked in 2005-2008. U.S. shale gas production will peak in the next 5 to 7 years but Russia, Iran, Qatar and Turkmenistan have sufficient conventional gas reserves to supply Europe and Asia for several decades. Huge discoveries have been made in the greater Indian Ocean region—Madagascar, offshore India, the Northwest Shelf of Australia and Papua New Guinea. These will provide the world with natural gas for several more decades. Other large finds have been made in the eastern Mediterranean.

There will be challenges as we move from an era of oil- to an era of gas-dominated energy supply. The most serious will be in the transport sector where we are thoroughly reliant on liquid fuels today —mostly gasoline and diesel. Part of the transformation will be electric transport using natural gas to generate the power. Increasingly, LNG will be a factor especially in regions that lack indigenous gas supply or where that supply will be depleted in the medium term and no alternative pipeline supply is available like in North America.

Here Art can still bitch about shale gas, but as I’ve pointed out, there is plenty of “conventional” gas out there. Art’s realism about natural gas should be divorced from any petty arguments about how it is produced. But this is Art in full on natural gas. It may not be the message some greens hope for but, if you go for the Old Testament, stick around for the New: 

Of course, natural gas and renewable energy go hand-in-hand. Since renewable energy—primarily solar and wind—are intermittent, natural gas backup or base-load is necessary. I think that extreme views on either side of the renewable energy issue will have to moderate. On the one hand, renewable advocates are unrealistic about how quickly and easily the world can get off of fossil fuels. On the other hand, fossil fuel advocates ignore the fact that government is already on board with renewables and that, despite the economic issues that they raise, renewables are going to move forward albeit at considerable cost.

Time is rarely considered adequately. Renewable energy accounts for a little more than 2% of U.S. total energy consumption. No matter how much people want to replace fossil fuel with renewable energy, we cannot go from 2% to 20% or 30% in less than a decade no matter how aggressively we support or even mandate its use. In order to get to 50% or more of primary energy supply from renewable sources it will take decades.

I appreciate the urgency felt by those concerned with climate change. I think, however, that those who advocate a more-or-less immediate abandonment of fossil fuels fail to understand how a rapid transition might affect the quality of life and the global economy. Much of the climate change debate has centered on who is to blame for the problem. Little attention has been given to what comes next namely, how will we make that change without extreme economic and social dislocation?

I am not a climate scientist and, therefore, do not get involved in the technical debate. I suggest, however, that those who advocate decisive action in the near term think seriously about how natural gas and nuclear power can make the change they seek more palatable.

The great opportunity for renewable energy lies in electricity storage technology. At present, we are stuck with intermittent power and little effort has gone into figuring out ways to store the energy that wind and solar sources produce when conditions are right. If we put enough capital into storage capability, that can change everything.

If one of the last holdouts of Peak Oil, sees the value of natural gas as climate solution, I’m happy to keep an open mind on resources. I hope the congregation sticks around and comes back on the next sabbath. The anti-gas brigade have few friends of any power left. I hope they listen to their old ones. 

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