Friday, March 10, 2006

What if Daniel Yergin is wrong?

Daniel Yergin is the oil optimist that peak oil believers love to hate. He is president of Cambridge Energy Research Associates (CERA), perhaps the most well-respected energy consulting firm in the world. He is the Pulitzer Prize-winning author of the best-selling history of oil, The Prize, which was also made into a PBS series. And, he is friendly, upbeat, calmly reassuring, and above all, quotable. Yergin's smiling face stands in stark contrast to the dour visages of the peak oil crowd as they warn of an imminent peak and subsequent collapse in oil production, an event that will shake our civilization to its very foundations.

Not so fast, Yergin says. We have plenty of oil--enough to meet the needs of growing Asian giants such as China and India and the rest of us as well for the next 30 to 40 years. After that oil supplies will reach an "undulating plateau." (The word "peak" seems so downbeat and distasteful that he refuses to utter it.) But, Daniel Yergin knows no more than anyone else about the future, especially the future 30 to 40 years hence. (In the past, much shorter time periods have proven problematic for Yergin and his firm. CERA predicted in 2001 that natural gas supplies in North America would be plentiful for the foreseeable future. That turned out to be woefully off the mark. In itself, it doesn't mean he's wrong about oil--only that he and his firm can make mistakes like the rest of us.)

To repeat: Neither Yergin nor anyone else knows anything for certain about oil supplies 30 to 40 years hence. Yergin is merely assigning a high probability to a peak then. But, implicit in his forecast is this: Since oil is a finite resource which is being continuously depleted and since no one--not even Daniel Yergin--knows exactly how much new oil will be found over the next three to four decades, it follows that the probability of an oil peak grows with each passing year. It is this reality and not the cheerful certainty which Yergin exudes that ought to command our attention.

The obvious question then is this: What if Daniel Yergin is wrong? What if the very low probability he assigns to a nearby peak doesn't stay neatly tucked beneath the tail of the bell curve of probabilities? What if peak oil--however disrespectful and unmannerly it may be--is about to arrive (or has already snuck in the back door and is waiting in the broom closet to surprise us)?

In Daniel Yergin's world, the marketplace will take care of all necessary adjustments. But, no reporter to date has bothered to press him on how this would work if a peak were to occur, say, next year. If he were pressed on this point, I am certain he would say that a peak will not occur next year or the year after that or the one after that. Naturally, he could produce evidence for this belief; but, ultimately he could not by definition prove it--just as none of us can prove anything about the future.

But, implicit in Yergin's insistence on a distant peak is that the marketplace would deal very badly with a nearby one. And, here we should note that Yergin is the author of another famous book called Commanding Heights, a paean to free market ideology. To admit the possibility of a nearby peak would be to admit that the free market has already failed to detect and fix a critically important problem, one that could challenge the very continuity of modern civilization. It would be like saying one's god had failed, the god in this case being the "marketplace." There would be "demand destruction" on a major scale, the kind that destroys a lot of people. There would be no ready oil substitutes and no ready infrastructure if we had them. There would be parlous consequences economically, socially, politically, and probably militarily. There would be serious questions about whether we could produce enough food and whether we could distribute it even if we did.

Let us stop and think for a moment about what would happen if, on the other hand, we began to implement on an emergency basis the recommendations of the dour peak oil crowd. If such a speeded up program succeeded, people everywhere would end up with the following: 1) Splendid public transport including excellent intercity rail; 2) a great increase in the amount of energy produced by nonpolluting, renewable energy sources; 3) increasing amounts of locally grown, organic food--some of it grown in one's own garden; 4) the quick and widespread dissemination of green technology everywhere; and 5) greater participation in the governance of our local communities as they become more sustainable and self-sufficient. Such a response would coincidentally help us make great strides in addressing global warming since global warming results from our use of carbon-based fuels.

But, what if, after all of this, it turned out that the dour peak oil crowd was wrong? The worst that would happen is that we would have prepared ourselves for a peak that would then pass almost unnoticed in the distant future. We would have transformed society from one that is unsustainable into one that is sustainable. The only real criticism that Yergin could make is that this transformation took place earlier than it absolutely had to. Or he might be one of those who would think that such a world--one no longer run by giant multinational corporations and huge centralized bureaucracies--isn't worth living in.

Peak oil pessimists are not very much worried about being wrong on the exact date of a peak. They are trying to provide guidance for policymakers and the public. To that end they regularly update their projections, seemingly without embarrassment, when new information arrives. What worries the pessimists much more than being wrong is that the world will arrive at peak oil unprepared. Can Daniel Yergin say the same?


head lem said...

I agree very strongly with all that you say about "them" (the Yerginites, the cornucopians) not having any better information than "we" (the peak prognosticaters) have.

Please excuse the slightly long rant below:

"They", of course, do not have exclusive ownership of the sooth sayer's undulating high ground such that "They" alone know for sure what is coming next. PO can already be behind us as you say or coming up just around the corner in 2006.

But there are 2 areas in which I respectfully disagree with your position:

1. First, "we" do have better data than "They" (the Yerginites). This is so because "we" choose to not gleefully deny the undeniable Hubbert curve behaviors of East Texas Past and of the British North Slope fields of the actual Past.

2. Second, there is something wrong with your proposition about "what would happen if, on the other hand, we began to implement on an emergency basis the recommendations of the dour peak oil crowd. The only way that anything like that would get implemented in our capitalist society is if someone makes large (obscene) profits on whatever green venture is proposed.

The "accountants" now in power (let's call them Friends of Arthur Anderson) refuse to account for the externalities of burning fossil fuel. The Friends of Arthus Anderson and their GAAP religion stand squarely in the way of any green solution going forward. Smoking the fossil fuel will continue to be more "economical" and more "profitable" than green solutions until the day it becomes too late for green solutions to be "economical". We have to change the very definition of what is "economical" and what is not.

Yergin is a false enemy. You shoot your verbal rifle well. You are just aim it at the wrong target.

head lem said...

Oops. Strike out "are" in the last sentence.

And "Arthus" should have been Arthur.

Anonymous said...

Very well said!

It's actually a matter of risk management - something all people (and particular governments and corporations) should constantly do.

The risk of complacency might be a major meltdown of our societies and (with global warming) even the doom of mankind in the (slightly) longer run.

The risk of starting emergency mitigation now is maybe a couple of percent of economic growth. I guess it might not even cost economic growth as long as we are not beyond peak yet. All the industrial activity caused by the powerdown should actually stimulate the economy - as it does in Germany, for example.

The harder problem to solve is that of perpetual economic growth *after* we have achieved a powerdown. It could only come from increasing efficiency in a world with capped energy use.

What do you think?



Rod Campbell-Ross said...

Perpetual economic growth is almost an oxymoron. Sustainability implies zero economic growth at best and possibly quite a large contraction.

Without oil the world can only support less than half its current population. How does the world reduce its population with as little misery and suffering as possible? Clearly a new approach to our lives is needed. One that starts with discarding the notion that "growth is good".

Bill said...

I am old enough to remember a time when your question would have been difficult to imagine. I grew up believing that if you saw a possible problem on the horizon you would immediately try to do something about it in order to prevent its worst manifestations. It is only in the past few years that we have somehow reached the conclusion that it is wrong to do anything about a looming problem until it has become impossible to ignore. The present administration has taken this philosophy to it logical extreme with its refusal to recognize global warming. But I think it is a tactic to take the pressure off of their corporate partners and will also drive their response to resource depletion.

Anonymous said...

Well said "head lem" - we need to change the underlying system to be able to enter the state of powerdown or preparation for equilibrium. On our way are the unsustainable growth need built into our system. It is perpetuated by myth and by banking/money system with a function known as interest. If we cannot create a system without usury there is no hope.

Anonymous said...

I have a very hard time extending any respect to anyone who regurgitates the bile about the wonders of the "free markets". First of all there are none, and secondly the higher the degree of freedom the more significant the failures.
Of course a shill that sells crap advice would not get very far telling his clients that the market is not all knowing.

Anonymous said...

With the approach of the 150th Anniversary of the Canadian Petroleum Industry this year (1858-2008), I was reminded of an issue that has been on my mind for some time which has not been addressed.

It has to do with Daniel Yergin's best selling book "The Prize". This book is considered to be the most authoritative book on the Petroleum Industry.

Even though I found this book to be very informative and interesting, I was upset by the fact that so little was written in it regarding the Canadian Oil

This is upsetting because for many years, Canada has been one of the biggest exporters of crude oil to the United States over some other countries whose oil industries have been well written about in this book.

The following chart found on this link shows how Canadian oil exports to the U.S. compare to others.

Anonymous said...

Have you ever read the disclaimer at CERA's website ?
To summarize succinctly, it's (CERA's views) are very biased towards the optimistic side on potential oil supplies.
However, Yergin co-authored an interesting book about this very issue : "Energy Future : Report of the Energy Project at the Harvard Business School, edited by Robert Stobaugh and Daniel Yergin, 1979"

Within it you will find a very different view from CERA's. A very different Yergin.