Conventional wisdom tells us
forecasting the future is extremely difficult. Humanity must have millions of
experts in the field. Some use simple methods (a crystal ball comes to mind),
others use past history and extrapolate tendencies, and still others build very
complex mathematical models, some of which require years of development and are
run in giant super computers.
After reading another set of
arguments about global warming, whether the world will hit 4 degrees C by 2100,
sea level rise by 2 meters and such niceties I decided to take a simple look at
USA oil production forecasts and see what I could learn about forecasting in general…
I started by downloading the USA´s
oil production history. Let me clarify....In recent years we have seen the US “oil production”
figures get mixed up with “condensate production”. You see, condensate is a
liquid produced from gas reservoirs. Condensate is mostly light hydrocarbons
which condense as the reservoir gas moves from the rocks to the surface
production facilities. These molecules condense because the surface happens to
be cooler than the reservoir (there are other subtle influences but I´ll skip
the details).
USA condensate production has been
surging because natural gas wells are being drilled to target shales containing
natural gas with a high condensate ratio. This is a natural result of the lower
natural gas prices which result from the excess supply over demand (an excess
supply caused by the enthusiasm of companies going bonkers and drilling and
fracking too many wells in recent years).
I´ve gone over the condensate versus
oil issue because I see lots of production curves which mix products (they even
go as far as adding biofuels to the total), and this gives the reader a warped
idea of what´s going on. So I´m going to stick to show you what happened in the
past, and what may happen in the future as far as OIL production is concerned:
The figure below is sort of
complicated. It shows historical oil production, and some forecasts. I decided
to show you what happens when one extrapolates tendencies using simple curve
fits.
My complicated graph
First I show you what happens if one were to take production until 2001,
and crank up the equations…the extrapolated forecast shows USA production would
have gone to hell very fast (that´s the dark dots falling like a rock).
Then I show you the same technique
applied to the full history through 2013…the extrapolated forecast goes bananas
and says the USA will be a super Saudi Arabia in a few years (that´s the blue curve
shooting up like a rocket).
To show how things work the graph
also shows MY OWN GUESS. I prepared it using my scientific knowledge, a quick
review of existing reserves, and a little bit of windage (windage is what we use when we shoot moose from long
range).
My forecast (the red dots) shows production
peaking at a bit less than 10 million
barrels of oil per day (don´t be deceived by the guys who pile condensate,
biofuels and all sorts of non oil liquids on top, because they are cheating to make you feel good).
What do I think has been going on?
The system has feedbacks. In this case oil supply was dropping, this in turn
increased prices, and the economic environment encouraged the industry to go
drill in deep water and use hydraulic fracturing in North Dakota´s Bakken. This is a feedback. And
why does the production peak and drop? It´s also a feedback, in this case the
oil reservoirs are plumb running empty, and I´ve assumed we don´t have another
Bakken laying around to fill the gap.
Finally, the graph shows a little
triangle tucked at the top. That´s Daniel Yergin´s USA forecast for 2036. I met
Daniel in the early 1990´s when we were invading the Former Soviet Union (this is the reason why I want to be President of Azerbaijan). I think Daniel blew a gasket when
he predicted that figure. Or maybe the guy who passed it on didn´t realize
Daniel had added condensate and other liquids to the total.
Or maybe he assumes the negative
feedback I built in (the oil reservoirs empty) is offset by a positive feedback
(the Bakken success encourages oil drillers to go for other Bakkens and they
are found).
Strong Negative Feedback Example (from cbssports.com)
I´d like to close by pointing out
that no matter which model we use, if we have a fuzzy idea of what went on in
the past our predictions tend to be fuzzier. And it gets a lot worse if we
don´t use all the available history to tune the equations (this is what
happened with that 2001 prediction garbage I showed).
This is why we read so much about
the fight between Mann and his supporters versus the M&M´s and the other
guys who take shots at the hockey stick, why we read about people like Watts
and Marohasy going nuts when they notice the Australians may be shifting historical
temperature records, and why I´m so disappointed when I see so much work done
with climate models which haven´t been calibrated using all the available
history and a better understanding of feedbacks as well as the climate´s long
term cycles.
Please understand I´m not a climate
wonk, so I´m not going to get into that
fight. I´m just pointing out that, if there are shenanigans going on with history
and the way it´s used, then they are
seriously handicapped using equations and computer models to predict the
future.
Further Reading
EIA HIGH
CASE AND DANIEL YERGIN FORECAST
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