By Dave McGowan <email@example.com>
April 13, 2004
From "The Global Energy Outlook for the 21st Century,"
a lecture delivered on May 21, 2003 by Peter R. Odell, Professor Emeritus
at the Erasmus University in Rotterdam, where he was the Director of the
Center for International Energy Studies:
Finally, a word of caution on the essential fragility of
a study on the very long-term future for the world's energy supply which
accepts without question the validity of the original 18th century hypothesis
that all oil and gas resources have been generated from biological matter
in the chemical and thermodynamic environments of the earth's crust. There
is an alternative theory - already 50 years old - which suggests an inorganic
origin for additional oil and gas. This alternative view is widely accepted
in the countries of the former Soviet Union where, it is claimed, "large
volumes of hydrocarbons are being produced from the pre-Cambrian crystalline
basement". Recent applications of the inorganic theory have, however,
also led to claims for the possibility of the Middle East fields being able
to produce oil "forever" and to the concept of repleting oil and
gas fields in the gulf of Mexico. More generally, it is argued, "all
giant fields are most logically explained by inorganic theory because simple
calculations of potential hydrocarbon contents in sediments shows that organic
materials are too few to supply the volumes of petroleum involved."
The significance of the alternative theory of the origin
of additional oil and gas potential is self evident for the issue of the
longevity of hydrocarbons' production potential and production costs in
the 21st century. Instead of having to consider a stock reserve already
accumulated in a finite number of so-called oil and gas plays, the possibility
emerges of evaluating hydrocarbons as essentially renewable resources in
the context of whatever demand developments may emerge. If fields do replete
because the oil and gas extracted from them is abyssal and abiotic (based
on chemical reactions under specific thermodynamic conditions deep in the
earth's mantle), then extraction costs should not rise as production from
such fields continues for an indefinite period. Neither do estimates of
reserves, reserves-to-production ratios and annual rates of discovery and
additions to reserves have any of the importance correctly attributed to
them in evaluating the future supply prospects under the organic theory
of oil and gas' derivation. In essence, the "ball park" in which
consideration of the issues relating to the future of oil and gas has hitherto
been made would no longer remain relevant.
From "The New Pessimism about Petroleum Resources: Debunking
the Hubbert Model (and Hubbert Modelers)," by Michael C. Lynch, president
of Strategic Energy and Economic Research, Inc. and research affiliate at
the Center for International Studies, Massachusetts Institute of Technology:
Recently, numerous publications have appeared warning that
oil production is near an unavoidable, geologically-determined peak that
could have consequences up to and including "war, starvation, economic
recession, possibly even the extinction of homo sapiens" (Campbell
in Ruppert). The current series of alarmist articles could be said to be
merely reincarnations of earlier work which proved fallacious, but the authors
insist that they have made significant advances in their analyses, overcoming
earlier errors. For a number of reasons, this work has been nearly impenetrable
to many observers, which seems to have lent it an added cachet. However,
careful examination of the data and methods, as well as extensive perusal
of the writings, suggests that the opacity of the work is - at best - obscuring
the inconclusive nature of their research.
Some of the arguments about resource scarcity resemble those
made in the 1970s. They have noted that discoveries are low (as did Wilson
(1977) and that estimates of ultimately recoverable resources (URR) are
in the range of 2 trillion barrels, approximately twice production to date.
But beyond that, Campbell and Leherrere in particular claim that they have
developed accurate estimates of URR, and thus, this time the wolf is really
here. But careful examination of their work reveals instead a pattern of
errors and mistaken assumptions presented as conclusive research results.
The Hubbert Curve
The initial theory behind what is now known as the Hubbert
curve was very simplistic. Hubbert was simply trying to estimate approximate
resource levels, and for the lower-48 US, he thought a bell-curve would
be the most appropriate form. It was only later that the Hubbert curve came
to be seen as explanatory in and of itself, that is, geology requires that
production should follow such a curve [editor's note: if, that is, petroleum
is organic in origin]. Indeed, for many years, Hubbert himself published
no equations for deriving the curve, and it appears that he only used a
rough estimation initially. In his 1956 paper, in fact, he noted that production
often did not follow a bell curve. In later years, however, he seems to
have accepted the curve as explanatory.
Revival of the Hubbert Method
The recent authors, notably Campbell and Leherrere have apparently
rediscovered the Hubbert curve, but without understanding it, at least initially.
Campbell and Leherrere initially argued that production should follow a
bell curve, at least in an unconstrained province. But this is demonstrably
not the case in practice: most nations' production does not follow a Hubbert
curve. In fact, Campbell (2003) shows production curves (historical and
forecast) for 51 non-OPEC countries, and only 8 of them could be said to
resemble a Hubbert curve even approximately.
The authors initially responded to this weakness by arguing
the Hubbert curve could have multiple peaks, which of course means it would
not follow a bell curve at all, and destroys the explanatory value of the
bell curve. As the alleged value of the Hubbert curve lies partly in demonstrating
the production decline post-peak, not knowing whether any given peak is
the final one renders this useless, nor would the peak imply that midpoint
production had been reached (indicating URR).
Recognizing this, the theory has been modified again, to
"The important message from Hubbert's work, which is often forgotten
by economists, is that oil has to be found before it can be produced."
(Laherrere 2001b, p.4) In other words, the Hubbert curve, originally held
as scientific and inviolable, is of no particular value. Yet the authors
have not only mistakenly believed in its properties, they have not been
forthcoming about their own errors.
Opaque Work, Unproven Assertions
The lack of rigor in many of the Hubbert modelers' arguments
makes them hard to refute. The huge amount of writing, along with undocumented
quotes and vague remarks, necessitates exhaustive review and response ...
Perhaps because they are not academics, the primary authors
have a tendency to publish results but not research. In fact, by relying
heavily on a proprietary database, Campbell and Leherrere have generated
a strong shield against criticism of their work, making it nearly impossible
to reproduce or check. Similarly, there is little or no research published,
merely the assertion that the results are good.
[much more at: http://www.energyseer.com/NewPessimism.pdf]
From James Bernstein's "Oil Giants Taking Heat,"
Newsday, March 31, 2004:
Worried about a downward slide in oil prices later this year,
OPEC is expected today to announce a cut in production, which will likely
result in higher pump prices. But consumer groups are charging that big
oil companies are largely responsible for the current upward spiral in gasoline
costs, saying they have deliberately withheld supplies and reduced storage
But in the United States, consumer groups say the blame for
higher pump prices lies not so much with OPEC as with the huge oil companies.
Public Citizen, a Washington, D.C.-based watchdog organization, is preparing
to release a report later this week charging that the oil industry deliberately
consolidated in the 1990s so that it could withhold supplies and reduce
The Consumer Federation of America said in a recent report
that in the past 15 years, more than 70 refineries in the United States
were closed. Additionally, its report said, the nation's storage facilities
were reduced by nearly 15 percent. Mark Cooper, the organization's research
director, said an updated report is expected soon.
"The problem is not crude oil," Cooper said. "It's
inadequate refinery capacity and inadequate stockpiles, all of which are
the result of decisions made by the oil companies to tighten the market."
From "Mergers, Manipulation and Mirages: How Oil Companies
Keep Gasoline Prices High, and Why the Energy Bill Doesn't Help" (March
2004), the Public Citizen report referenced in the Newsday article:
The United States has allowed multiple large, vertically
integrated oil companies to merge over the last five years, placing control
of the market in too few hands. The result: uncompetitive domestic gasoline
markets. Large oil companies can more easily control domestic gasoline prices
by exploiting their ever-greater market share, keeping prices artificially
high long enough to rake in easy profits but not so long that consumers
reduce their dependence on oil ...
The largest five companies operating in the United States
(ExxonMobil, Chevron Texaco, ConocoPhillips, BP and Royal Dutch Shell) now
* 14.2% of global oil production (nearly as much as the entire
Middle East members of the OPEC cartel).
* 48% of domestic oil production (which is significant given the fact that
the U.S. is the 3rd largest oil producer in the world).
* 50.3% of domestic refinery capacity.
* 61.8% of the retail gas market.
* These same five companies also control 21.3% of domestic natural gas production.
It is therefore little wonder why these top companies enjoyed
after-tax profits of $60 billion in 2003 alone.
These figures are in stark contrast to just a decade ago,
when the top five oil companies controlled only:
* 7.7% of global crude oil production.
* 33.7% of domestic crude production
* 33.4% of domestic refinery capacity.
* 27% of the retail market.
* In addition, in 1993, the top five U.S. companies controlled only 12.7%
of domestic natural gas production.
The major difference between 1993 and 2003 is that the largest
oil companies have merged with one another, creating just a handful of oil
monopolies that control significant chunks of the American oil and gas markets.
Armed with significant market share, companies can more easily pursue uncompetitive
activities that result in price-gouging ...
Gasoline prices are rising because of uncompetitive actions
by this handful of new mega-companies, not because of environmental regulations
The U.S. Federal Trade Commission (FTC) concluded in March
2001 that oil companies had intentionally withheld supplies of gasoline
from the market as a tactic to drive up prices -- all as a "profit-maximizing
strategy." These actions, while costing consumers billions of dollars
in overcharges, have not been investigated by the U.S. government.
... Since 2001, President Bush has been removing more than
100,000 barrels of oil a day from the market to stock the SPR [Strategic
Petroleum Reserve], filling it by more than 100 million barrels since he's
been in office to over 640 million barrels -- well more than 90% capacity.
President Bush's actions, while providing more than enough protection against
external supply shocks, severely strains domestic supplies for the market.
Companies have exploited [their] strong market position to
intentionally restrict refining capacity by driving smaller, independent
refiners out of business. A congressional investigation uncovered internal
memos written by the major oil companies operating in the U.S. discussing
their successful strategies to maximize profits by forcing independent refiners
out of business, resulting in tighter refinery capacity. From 1995-2002,
97% of the more than 920,000 barrels of oil per day capacity that have been
shut down were owned and operated by smaller, independent refiners.
If these allegations of price gouging sound too conspiratorial
for some to accept, examples in related industries demonstrate that price-fixing,
collusion and price-gouging are regular occurrences in today's economy,
as large corporations routinely abuse their market power to engage in anti-competitive
Contracts representing hundreds of millions of barrels of
oil are traded every day on the London, New York and other energy trading
exchanges. An increased share of this trading, however, has been moved off
regulated exchanges such as the New York Mercantile Exchange (NYMEX) and
into unregulated Over-the-Counter (OTC) exchanges. Traders operating on
exchanges like NYMEX are required to disclose significant detail of their
trades to federal regulators. But traders in OTC exchanges are not required
to disclose such information allowing companies like Enron, ExxonMobil,
and Goldman Sachs to escape federal oversight and more easily engage in
The growth of these OTC exchanges exploded in 2000 when Congress
passed the Commodity Futures Modernization Act. The Act, among other things,
punched a large loophole in government of energy trading by greatly expanding
the ability of traders to operate in unregulated over-the-counter exchanges.
These OTC markets do not feature the tighter regulation that typically applies
to traders engaged in regulated exchanges, such as the New York Mercantile
Exchange (NYMEX). Since this deregulation law took effect, the industry
- led by Enron - has been plagued by dozens of high-profile scandals attributed
to the lack of adequate regulatory oversight over traders' operations. Free
from government transparency regulations, energy traders have demonstrated
an ability to manipulate prices more easily.
The fuel economy average for passenger vehicles in the U.S.
peaked in 1988. Due to the changing mix of vehicles on the road and the
absence of meaningful government action, the average is currently lower
today than it was a decade ago. This fuel economy is stagnating because
no new significant car or truck fuel economy standards have taken effect
for 15 years, and SUVs and pickups are subject to lower standards than regular
[full report: http://www.citizen.org/documents/oilmergers.pdf]
From a press release for the Consumer Federation of America
report (July 2001) referenced in the Newsday Article:
Gas price increases are not mainly the result of any change
in crude oil prices. Instead, they have been caused principally by growing
industry concentration that has allowed refiners and marketers to reduce
refining and storage capacity and withhold supplies in individual markets.
Between 1994 and 1999:
* Over ten percent of the nation's refineries and branded
gasoline stations were closed. In the past 15 years, more than 70 refineries
* The nation's petroleum storage facilities were reduced by nearly fifteen
* The industry systematically lowered stocks on hand to the point where
only a one or two-day supply above minimum levels was available to keep
the country's gasoline distribution running (compared to a supply of a bout
a week in the 1980s)
This consolidation and concentration has been permitted by
mergers that allowed the industry to manipulate prices. By standards of
the Reagan Administration's Justice Department, four-fifths of the national
refinery and gasoline markets now are considered to be dangerously concentrated.
"A concentrated, vertically integrated industry has
responded slowly to price shocks and has even acted to keep supplies off
the market," noted Cooper. "While the industry complains that
clean air standards requiring different additives in different markets restrict
region-to-region flows of gasoline, these requirements actually give individual
suppliers greater market power, aggravating the concentration problem,"
Over the past two years, the refiner/marketer share of the
pump price has more than doubled, escalating industry profits. Compared
to 1999, in 2000 net income from refining and marketing doubled. In the
first quarter of 2001, profits increased by nearly 75 percent.
[full report: http://www.consumerfed.org/gaspricespiral.pdf]
Lastly, these interesting comments from some correspondence
by the late Colonel L. Fletcher Prouty:
Oil is often called a 'fossil' fuel; the idea being that
it comes from formerly living organisms. This may have been plausible back
when oil wells were drilled into the fossil layers of the earth's crust;
but today, great quantities of oil are found in deeper wells that are found
below the level of any fossils. How could then oil have come from fossils,
or decomposed former living matter, if it exists in rock formations far
below layers of fossils - the evidence of formerly living organisms? It
must not come from living matter at all!
This response is for Daniel E. Reynolds, 29 July 1996 on
the subject of "Oil - A renewable and abiotic Fuel?"
Dan, your use of the word "abiotic" is good. As
a non-fossil fuel, petroleum has no living antecedent. It contains chemical
elements found in living matter; but it is not "formerly living matter."
There has not been enough true "formerly living matter" through
all of creation to account for the volume of petroleum that has been consumed
My background in this subject goes back to 1943. I was the
pilot who flew a U.S. Geological Survey Team from Casablanca to Dhahran,
Saudi Arabia. We met the Cal. Standard Oil team holding down that lease.
Then we went back to Cairo to meet President Roosevelt during the Nov. 1943
"Cairo Conference" with Churchill and Chiang Kai Shek. FDR ordered
the immediate construction of an oil refinery there for WW II use. This
led to ARAMCO.
During the "Energy Crisis" of the 1970's I was
detailed to represent the U.S. Railroad industry as a member of the "Federal
Staff Energy Seminar" program started by the Center for Strategic and
International Studies, sponsored by Georgetown University. That began in
Jan 1974 and continued for four years. It was designed to discuss "the
working of the United States national energy system, and new horizons of
energy research." Among the regular attendees were such men as Henry
Kissinger and James Schlesinger...most valuable meetings.
During one meeting we took a "Buffet Break" and
I was seated with Arthur Kantrowitz of the AVCO Company..."Kantrowitz
Labs" near Boston. At the table with us were four young geologists
busily talking about Petroleum. At one point one of them made reference
to "Petroleum as organic matter, and a fossil fuel." Right out
of the Rockefeller bible.
Kantrowitz turned to the geologist beside him and asked,
"Do you really believe that petroleum is a fossil fuel?" The man
said, "Certainly" and all four of them joined in. Kantrowitz listened
quietly and then said, "The deepest fossil ever found has been at about
16,000 feet below sea level; yet we are getting oil from wells drilled to
30,000 and more. How could fossil fuel get down there? If it was once living
matter, it had to be on the surface. If it did turn into petroleum, at or
near the surface, how could it ever get to such depths? What is heavier
Oil or Water?" Water: so it would go down, not oil. Oil would be on
top, if it were "organic" and "lighter."
"Oil is neither."
They all agreed water was heavier, and therefore if there
was some crack or other open area for this "Organic matter" to
go deep into the magma of Earth, water would have to go first and oil would
be left nearer the surface. This is reasonable. Even if we do agree that
"magma" is a "crude mixture of minerals or organic matters,
in a thin pasty state" this does not make it petroleum, and if it were
petroleum it would have stayed near the surface as heavier items, i.e. water
My D. Van Nostrand "Scientific Encyclopedia" says
"Magma is the term for molten material. A natural, complex, liquid,
high temperature, silicate solution ancestral to all igneous rocks, both
intrusive and effusive. The origin of Magma is not known." My "Oxford
English Dictionary" does not even have the word "Magma."
Some years ago I wrote two or three pages that appeared in
the McGraw Hill Yearbook of Science and Technology, i.e. "Railroad
Engineering." Even that source is a bit uncertain about the "origin
of petroleum" to wit:
"Less than 1% of the organic matter that originates
in or is transported to the marine environment is eventually incorporated
into ocean sediment," and
"Most petroleum is formed during catagenesis (undefined
anywhere). If sufficient organic matter is present oceanic sediments that
undergo this process are potential petroleum sources. Deeply buried marine
organic matter yields mainly oil, whereas land plant material yields mainly
gas." (Their idea of "deeply buried" is the "out.")
All this leaves us no where. I still go with Kantrowitz.
Since oil is lighter than water, everywhere on Earth, there is no way that
petroleum could be an organic, fossil fuel that is created on or near the
surface, and penetrate Earth ahead of water. Oil must originate far below
and gradually work its way up into well-depth areas accessable to surface
drilling. It comes from far below. Therefore, petroleum is not a "Fossil"
fuel with a surface or near surface origin.
It was made to be thought a "Fossil" fuel by the
Nineteenth [sic] oil producers to create the concept that it was of limited
supply and therefore extremely valuable. This fits with the "Depletion"
allowance philosophical scam.
During one of our C.S.I.S. "International Nights"
(1978) the Common Market Energy boss, M. Montibrial of France, told us that
while petroleum was being marketed then for $20.00 per barrel or more, it
cost no more than 25 cents per barrel at the well-head. There is our petroleum
problem! We were paying more than $1.50-$1.60 per gallon, one 42nd of a
barrel, at that time. Interested folks need to learn more about the Chartered
Institute of Transport, and not waste their time with OPEC, the "Cover"
Those who pumped the Pennsylvania wells "dry" during
the late eighteen hundreds saved what they had for those better days.
L. Fletcher Prouty
* * * * * * * * * *
I leave you all now with a very special Easter gift. Follow
the link below and you will be rewarded with a rather unique little morsel
of poetry reading. This gentleman seems to have (quite unwittingly) pioneered
a new genre that I think could best be described as 'Christian porn poetry.'
Drop by and have a listen. You'll be glad you did. I think he got the title
wrong though; he should have gone with "The Passion of the Christ:
The Condensed Version."
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