Right up on top of that link I see a big multicolored chart, and there's plenty there to be skeptical about. The chart holds projections for 18 different exporters. All but one - the former Soviet Union - are forecast to peak in 2006, the year the chart was produced, FSU is forecast to peak in 2010. The forecast declines after 2012 descend at a remarkably - and suspiciously - consistent pace.Originally Posted by Rick M
What bothers me about this set of projections is the almost identical forecast curves for so many different exporters. In a real-world projection set based on real country-by country-analysis there should be far more variation. Some producers should be able to hold a plateau and reduce the pace of decline by additional investment in production capacity, some should show far steeper declines... but in the real world there will always be variation, that kind of consistency in the export curves of such a diverse group of producers is beyond implausible.
Farther down the page we see the comment that the chart was produced by "a simple accounting exercise, based upon rudimentary forecast tools", which may explain the deficiencies. It looks like they simply imposed the same assumption set on each producer without regard for the variables.
The problem with forecasts beyond the short to early-medium term is that there are too many variables and too many of those variables are non-quantifiable. Of course analysts will insist on producing forecasts, no matter how low the confidence level, but in many cases these forecasts tell us more about the agendas of the analysts than they do about the future of whatever is being analyzed.
I'm not sure I see those reasons. It seems to me that energy analysts across the board have a very substantial stake in talking up the idea of impending crisis. Squeaky wheels get grease, and those who analyze oil, whether private, government, or multilaterally funded, are going to get more attention and bigger budgets in an atmosphere of imminent crisis. Politicians who see a major problem on the horizon have every incentive to raise the alarm: how else do you build the political will required to drive responsive measures? Oil producers will want to raise the issue as well: fear pushes prices up, and producers want to get as high a price as possible for their reserves, especially if they see those reserves dwindling.
Where's the incentive behind "no foreseeable problem"?
There's a great deal missing from the discussion, it seems to me. Projections have to be based on assumptions, especially about three critical elasticities: price/production, growth/consumption, price/demand. I don't see that discussion happening, or I see it happening in terms that seem driven by a desire to generate a pre-ordained conclusion. I don't see nearly enough discussion of political, security, and investment risks, the constraints they pose on production and exploration, and the possibility of changes in those situations.
When I look at the charts that spring up all over the Oil Drum, for one, I get the feeling that they are designed to generate fear. Look at how all of the projections show a peak followed by an absolute dive... that says "scare chart" to me. I think a fairly extended plateau trailing off to a gradual decline is a lot more likely, with fast declines among some producers offset by transient increases in others, with some producers stepping up in response to improved political or security climates, others running into sharp barriers... in short, complexity. When I see simplicity and consistency I tend to tune it out, because in my experience the real world doesn't work that way - though agendas definitely do.
It also strikes me that when the sky is falling, people who sell sky-props do really well. I don't see any financial disclosure on the Oil Drum, for one. There's a donation button, but who donates? Who pays the bills? What money comes in, and from who? I don't see any meaningful privacy policy either: if you go to sign up (I didn't) they promise that your e-mail address will not be made public, but they don't say anything about selling it. What do you figure that mailing list would be worth to somebody in the business of promoting energy stocks...?
That might be cynicism or paranoia, but when expended effort exceeds visible reward by a large margin, the possibility of invisible reward is always there.
In any event, my own personal tendency is to take what I call the Olympic Diving method of examining projections: toss the low and high scores out from the start. Somewhere between the diving bell-shaped curve and the perpetual rise lies reality, mixed up in a huge bundle of non-quantifiable political and security-related variables. Preparation, flexibility, and above all sustained high oil prices will serve us well... panic will accomplish nothing.
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