Association for the Debunking of Peak Oil & Gas, Part I

SOME PEOPLE BELIEVE THAT there is no bad publicity, no matter what you do or say, as long as the critics spell your name right. So let me make sure that I correctly spell the name of my subject for the day. It is Cambridge Energy Research Associates Inc. (CERA, for short), with its main offices in Cambridge, Mass. CERA has other offices, as well, in various high-rent districts of North and Latin America, Europe, and Asia.

On its Web site, CERA describes itself as:

"A leading adviser to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. Our services help decision-makers anticipate the energy future and formulate timely, successful plans in the face of rapid changes and uncertainty."

There is more of the usual, self-serving promotional stuff on the Web site, dear readers, and if you are interested, you can link to it.

The Empire Strikes Back

Recently, CERA announced that amid "expanded popular discussion of a theory that a peak in world oil production will soon be reached," it is releasing a "new analysis." CERA’s new analysis concludes, "The Peak Oil theory is a simplistic model based on flawed logic and incomplete data that has consistently produced inaccurate forecasts." Actually, CERA’s "new analysis" is not all that different than its old analysis, as we shall see. But sometimes, there is a market for old wine in new bottles. "No man having drunk old wine immediately desires new," said Luke.

The CERA report is entitled Why the Peak Oil Theory Falls Down: Myths, Legends, and the Future of Oil Resources. This new report argues, according to a CERA press release, that "the real challenges to future supplies are aboveground risks" without further amplification. CERA adds, helpfully, "Future global energy security is too critical to the global economy for superficial argument to replace careful analysis of the challenges, possible outcome, and risks involved in meeting the liquid fuels needs of growing economies." The author of the CERA report is Peter M. Jackson, CERA’s director of oil industry activity.

A summary of the report, dated Nov. 10, 2006, and posted on the CERA Web site, notes that the "questionable ‘Peak Oil’ theory obscures critical aboveground factors. The Peak Oil debate continues to rage without any obvious progress. But upon examination, the Peak Oil theory falls down because of serious flaws in logic and application."

Fighting Words

The entire body of the foregoing summary by CERA constitutes, to most members of the Peak Oil camp, fighting words. From my perspective, for example, the "obvious progress" of the Peak Oil debate in recent years is that more and more people are beginning to understand the basic geologic concept that the world’s conventional oil reserves are depleting fast. My experience is that most people do not know that until you tell them and explain the concept. And people are "getting it" when the Peak Oil advocates explain why other well-hyped fossil energy resources will, in all likelihood, not serve to meet future demand. Tar sands? Oil shale? Burn the nation’s food supply to keep the cars and trucks running? Don’t bet the ranch, boys. It boils down to "energy return on investment" (EROI) issues. And at a very basic level, people are beginning to wonder exactly how our society is going to heat its houses and grow and transport its food in about 20 years or so.

Twenty years? Who cares, right? You scoff at such a time frame? For perspective, just understand that about 50% of all the petroleum ever consumed by mankind has been consumed since 1984. That is, people have been watching Tom Cruise movies and listening to Madonna sing for a longer time than it took to burn 500 billion barrels of petroleum. Talk about Nero fiddling? And about 90% of all the petroleum that has ever been consumed by mankind has been consumed since 1958. So 90% of the world’s oil consumption has occurred in the time since the Beatles were a warm-up act in Liverpool. Does this not give you some sense of the rapidity of the developing energy storm? And if not now, just when is it going to be the right time to begin being concerned about the world’s depleting energy supply over the next 20 years, let alone the next 50 years?

And apparently this "lack of obvious progress" occasioned by the Peak Oil debate, which CERA discounts, has gone hand in hand with the rise in the price of oil from under $20 per barrel just a few years ago to not-quite $80 per barrel a few months back. Why did this happen? Apparently, there must have been more people buying oil than were selling it. And not to be too mercenary about it, but if you have been an investor in energy-sector plays just before and during this time period, your "obvious progress" is that you should have made boatloads of money as the capital markets of the world figured this Peak Oil thing out as well. (As Elvis used to say, "Thank you, thank you very much.")

Didn’t Get the Invitation?

I happen to know that the organizers of the recent meeting of the U.S. chapter of the Association for the Study of Peak Oil & Gas (ASPO), conveniently held in Boston, sent invitations to the principals of CERA, whose offices are just up the road from the ASPO convention site at Boston University. The invitations politely asked CERA to send representatives to attend and participate in the ASPO discussions. However, to the best of my knowledge, no one from CERA attended the ASPO event (I have seen a list of registered attendees) and no CERA spokesperson took advantage of the occasion to address the room full of 500 ASPO conference attendees. I wonder why not? Didn’t get the invitation?

By way of comparison, I have mentioned before that a group of people took their valuable time to crash the ASPO meeting and protest loudly against the proposed Chelsea, Mass., electricity generation facility. This was not on the ASPO agenda, but at least the protesters had some guts. And nobody from CERA showed up, even by invitation, to explain to a crowd eager to learn exactly why Peak Oil is "simplistic" and based on "flawed models." Go figure. We’re not good enough for you?

You Have to Pay to Play

Go figure? Unfortunately, dear readers, the CERA report that debunks Peak Oil is not publicly available. It is proprietary and you have to be a CERA client, subscribing to the company’s "global oil" and "upstream oil" services, if you want to read this new report on why "Peak Oil theory is a simplistic model based on flawed logic and incomplete data." In other words, if you want to read CERA’s discussion about a matter that is "too critical to the global economy for superficial argument to replace careful analysis," you can only learn what it has to say if you purchase a copy from CERA. As Borat says in his recently released "movie film" of the same name, "Verrry niiice!"

Allow me to digress for a few paragraphs and discuss this marketing strategy of our energy-tracking colleagues at CERA. Frequent readers of Whiskey & Gunpowder certainly know that our letter is sent at no cost to you, courtesy of Agora Financial LLC of Baltimore, Md. Just to be sure you understand, Whiskey is a good-will item, in the nature of a promotion, sent to you in the anticipation that some certain segment of readers will like what they see and purchase other of the many fine Agora products:

Agora is a privately held company, so its internal accounts are confidential. But I can assure you that Agora is one of the largest publishers of financial newsletters in the world, both in terms of paid circulation and volume of sales. Agora has many hundreds of thousands of paid subscribers, located and residing in six out of seven continents (none in Antarctica, to our knowledge). And Agora is a remarkable financial success, in no small measure because it delivers consistent value to its customers. (Some people actually bequeath their subscriptions in their will. Go figure that.) So the people at Agora apparently know a few things about writing, marketing, and selling high-order editorial content concerning geopolitical, financial, and investment trends into an upscale and rather discerning demographic market.

But really. It is quite something for CERA to just plain blow off the ASPO conference, and then a few weeks later announce its complete disdain for and write-off of the Peak Oil school of thought. So Peak Oil theory is, according to CERA, "questionable" and a "simplistic model based on flawed logic and incomplete data"? And "future global energy security is too critical to the global economy for superficial argument"? That’s OK as far as it goes. But now, having baited the hook, CERA is not going to tell us why this is so unless we pay it? "There is a sucker born every minute," goes the famous saying attributed to P.T. Barnum. But they screen for that at the hiring desk of Agora Publishing LLC.

And pardon me, dear readers, but I am immediately reminded of what a retired U.S. Navy vice admiral once told me about Richard Nixon and his 1968 campaign for the presidency. Nixon, said the admiral, promised the voters that he had a "secret plan to end the Vietnam War." But Nixon would only tell us what the "secret plan" was if we elected him as president. In retrospect, said my three-starred acquaintance, the "secret plan" was to fight for five more years, then turn everything over to the South Vietnamese, and then lose the war.

The View From CERA

But please don’t get me wrong. I am only discussing CERA in this Nixonian light because CERA has made it so. CERA is welcome to join the ASPO discussion, but to date has declined to do so. But CERA is otherwise inserting itself into the Peak Oil debate, and ramping up its effort directly to debunk the Peak Oil concept, by flinging gratuitous insults via press release at a group of otherwise thoughtful and respectable people (well, most of them). And if CERA has things wrong, then a lot of people might just follow its advice and do the wrong thing and get hurt (or, in the case of politicians, follow its advice, do the wrong thing, and cause other people to get hurt.) But if CERA has some points to make in its latest report, then CERA is more than welcome to send me a copy of its paper, which I will be happy to read and review.

I do not wish to be unfair to CERA, however, and in the next installment of this article, I will provide a forum to the CERA argument, based on CERA’s previously published work. Stand by for the next installment of this article. And as Borat says, "Verrry niiice!"

Until we meet again…
Byron W. King
November 15, 2006

The Daily Reckoning