Sunday, November 19, 2006

Does The Oil Drum threaten CERA's market share?

Cambridge Energy Research Associates (CERA) fired another missile at the peak oil movement last week by releasing a report attacking the notion of an imminent peak in world oil supplies and projecting an "undulating plateau" in oil production starting sometime after 2030. To rework a now shopworn phrase coined by the group's president, Daniel Yergin, this is not the first time CERA has attempted to undermine those concerned about a nearby peak, it's more like the fifth.

CERA is a profit-making business that sells its consulting services and specialized reports to a narrow, well-heeled audience. Why would it care about the pronouncements of a relatively small band of peak oil Internet vigilantes, some mostly retired oil company geologists, a few energy analysts and some concerned citizens who still constitute only the tiniest fraction of the public? The answer could lie in the accessibility, credibility and packaging of their message, a message that can be examined in detail for free by anyone (including CERA clients) at The Oil Drum, Energy Bulletin, The Oil Depletion Analysis Center , the Association for the Study of Peak Oil & Gas, and myriad other places.

No one who is reading this needs to be told how much the Internet has revolutionized the dissemination of information. And so, the question I ask in the title of this piece is actually more than half serious. Companies whose business is the collection and dissemination of specialized information are having a harder and harder time competing with the free resources that are now available online. They are also having a harder time keeping their information offerings under wraps since those who receive them often write about them on the net. In addition, if that information impinges on important public policies, its authors may find the information dissected by an army of volunteers whose expertise and depth may collectively approach or exceed that of the issuing company.

Firms that provide consulting or information on narrow technical or managerial issues almost never find themselves the target of such scrutiny. But CERA is large and well-known, and for reasons that are not completely clear it has staked its entire business on the assumption that hydrocarbon energy will be plentiful for three or four decades to come. Anything that calls that assumption into question threatens the credibility of those who work for CERA. Unfortunately, the very nature of the Internet has created a dilemma for the firm and its employees. How can CERA refute analyses appearing on such sites as The Oil Drum without giving away valuable information for free?

The answer is a public relations campaign that relies on carefully crafted messages which appear to refute CERA's detractors while presenting very little actual evidence. The beauty of this approach is that the evidence never comes under serious scrutiny. (Only a small portion of that evidence has so far leaked into the public domain through presentations by CERA itself or via short tidbits offered by those who've read the CERA reports.)

The firm would only be spending time on such a strategy if its principals thought that analyses from such sources as The Oil Drum and stories such as Peter Maass's piece in The New York Times were a threat to its credibility. It's not hard to imagine CERA clients reading the peak oil analysis now in the public domain and calling Daniel Yergin to ask what's up. It's also not hard to imagine that there might be some CERA clients who dislike talk of a nearby peak because it is bad for business or bad for their position in the world (as in the case of certain oil exporting countries). And, this might be true regardless of what those clients actually believe about the timing of a peak.

The CERA counteroffensive got underway in earnest last year with a guest editorial authored by Yergin in The Washington Post. It has since been escalating with a series of media interviews, an appearance before Congress and the occasional new report like the one in August predicting clear sailing through 2015.

CERA's tactics are shrewd and not necessarily easy for the uninformed reader to detect. One tactic is to accuse the other side of what you yourself are doing and thus draw attention away from your own actions. The press release trumpeting the availability of the report states that peak oil modelers "have not made available a transparent and detailed analysis that would allow objective and rational discussion." First, CERA must not have looked very hard since much of the work is available in print or on the web and many modelers have been more than happy to explain their methods to questioners. Second, CERA makes this claim even as it restricts access to its own analysis, which it says it must do, of course, for business reasons. (Each copy costs $1,000.) But for a company whose whole operating premise is that peak oil is decades away, one would think it would want the world and especially potential clients to know exactly why it believes this. Perhaps CERA simply doesn't want the kind of scrutiny that would result from a public release of the report. It's hard to believe that the firm would miss the income.

In addition, Yergin has said that for Matthew Simmons "[peak oil] seems to be a theological issue." Simmons' book, Twilight in the Desert, sounded an alarm about Saudi Arabia's capacity to produce more oil. But Yergin, who authored Commanding Heights, a paean to free-market ideology, may need to exorcise his own god--the god of the marketplace--in order to assess the oil situation more objectively. For Yergin the marketplace will fix all.

Another important tactic is to use words and phrases that denigrate one's opponent. The report itself is entitled, Why Peak Oil Theory Falls Down: Myths, Legends, and the Future of Oil Resources. Do I need to underline the denigrating words?

A third tactic is to set up straw man arguments. Here is where CERA excels. The CERA report pretends that among peak oil theorists there is exactly one estimate for the remaining recoverable oil. Here CERA doesn't acknowledge differing definitions of oil and ignores what CERA experts must surely know, namely, that the low estimates don't include unconventional reserves such as oil sands. Many peak oil modelers believe those unconventional reserves won't change the date of the peak much, but may help to cushion the decline in output. Nevertheless, CERA chooses the lowest estimate without explanation so as make that estimate seem unreasonable within the context of the report.

CERA also claims that peak oil theory always implies a "sharp decline" in production. In fact, peak oil analysts vary in their views. Some like oil analyst Henry Groppe say the peak has arrived and that we are now on a long plateau. Consultant Robert Hirsch does indeed worry that the decline might be sharp. Resource economist Douglas Reynolds thinks that oil supplies will trace out a long, gently sloped curve of decline. Of course, CERA wants to lump all such theorists into the Chicken Little category.

In addition, the report claims that all peak oil modelers ignore political factors, economics, technology and infrastructure. Some do and some don't. It depends on what the modeler is trying to accomplish. Certainly, all assumptions need to be examined including CERA's.

The report claims that peak oil thinkers focus on "superficial analysis of reservoir constraints." In fact, they focus on observed and expected flow rates as well. Those flow rates do, of course, have to come from reservoirs. But, here CERA itself doesn't appear to deal with possible bottlenecks for flow rates from such sources as oil sands and oil shale. The firm just assumes that technology will provide the needed bounty. Finally, there is perhaps CERA's favorite straw man argument: Peak oil believers say we are running out of oil. Of course, what they really say is that rates of production will decline after peak.

Let's stop for minute. The authors of the CERA report say they have done an exhaustive field-by-field survey of the world's existing oil supplies. And, they claim to have done a detailed projection of new discoveries. But for some reason they didn't bother to check out the true spectrum of opinion among the peak oil community before putting misleading and distorted arguments in the mouths of those who disagree with them. It's hard to accept that the authors did this out of carelessness rather than calculation.

Despite the seeming effectiveness of the public relations offensive, CERA may ultimately find itself in a losing battle. There is, of course, the question of timing. Events may overtake us all. But even if a peak is delayed for some time, CERA has put itself in an untenable position. Please forgive the analogy, but when it comes to arguing its case, CERA is like a stripper who wants all the attention, but is only willing to show a little leg. The major voices on the other side are willing to bare all and let anyone with an Internet connection examine their logic and evidence.

For all these reasons, I take with a grain of salt CERA's supposed olive branch in the report which states: "We respect the urgency and seriousness with which some with whom we disagree put their case...We invite others to join in a considered dialogue, which now seems too easily lost in the rancor."

If the firm's partners really want to have an honest dialogue, they could start by making their own evidence available (not just their conclusions) and by dispensing with the dishonest straw man arguments. But, CERA probably already knows that the kind of scrutiny that would surely follow could easily be bad for business.

CERA is in the forecasting business. But, forecasting is nothing more than pretending to know the one thing which none of us can know: the future. Given how much money people are willing to pay for forecasts, it is doubtful that CERA's soothsayers would ever concede that they, like the rest of us, are in the dark about the exact trajectory of oil supplies. It's not that forecasts can't be useful tools. They can be. However, this is not because we can get forecasts exactly right with any regularity; rather it's because forecasts can help us assess the risks we face and plan for those risks.

On that count I'm sticking with writers of The Oil Drum, their kindred spirits, and the information that is publicly available. If CERA would like to join the conversation instead of merely engaging in public relations campaigns, that would be a step in the right direction. Until then, those looking for clues about the future of oil and other hydrocarbons might do no better than to start with The Oil Drum and other like-minded sites and work their way out.


manxkat said...

Thanks for this excellent analysis and commentary. It just amazes me that CERA seems to be digging its own grave. Unless they know something we don't, one would think that their forecasting business wouldn't survive these rosey scenarios which surely are way overblown and will be proven wrong. Maybe the answer is that they simply don't mind lying since they make more money in keeping businesses afloat with optimism.... and when things start to go bad, they'll already have taken the money and run. Could it be that simple, that cynical?

And, not to get too far off topic, but it just seems analogous to companies and consultants in denial about global warming. It's bad for business, so they just take the stance that it's not nearly as big a problem as scientists are saying. Therefore, just keep polluting like there's no tomorrow.

Is there no accountability any longer? Are there no consequences? Are these people just so short-sighted, ignorant, and greedy that not even their children's future matters? Boggles the mind, really.

Tom Konrad said...

Bloggers as open source vs. CERA as Microsoft. If I were them, I'd feel threatened, too.

CERA will lose this battle, but they'll be around a long time... It's sad, but most consumers of forcasts would rather have a forcast from a reputable source than actually have a good forcast. It's easier to be wrong with the pack than right and alone.