The Top Ten Most Insidious Myths About Oil
The Top Ten Most Insidious Myths About Oil
Published on May 16, 2016
Chairman and CEO Drillinginfo
For those very few readers that both attended Rice University AND sat through Doc C’s Poli 209 class, the term “Myth-Power-Value” is burned into your brain. The rest of you have to be wondering… “What the Hell does that mean?”
Essentially, humans emotionally respond to stories. Myths. These myths can contain truths, but truth is by no means a requirement. Most are principally convenient falsehoods. Myth Creators are ultimately marketers, and they are seeking to sell you something… something that allows them to harness some sort of power over you and others. If the myth making works to its ultimate end, it creates a value… an unquestioned set of rules that define how you think and what you believe in. We are terrified of this power in the hands of corporations. We have created all sorts of laws to keep people that are trying to sell us actual stuff from using the “dark side” of this power. For instance, the term we give to someone knowingly lying or misleading us when selling us goods or services is “Consumer Fraud”, and it is illegal. When an advocacy group knowingly lies or misleads us for donations, its called… “Business as Usual”. There are no penalties. The most effective sales method is fear. People instinctively respond to fear and pain far faster and more than pleasure. In the battleground for hearts and minds and power to tell us what we can and cannot do, there are no consequences to lying or scaring us with tales of monsters under the bed. Is it any wonder that these folks depend on lying, then? I would posit that the result is far worse than business consumer fraud, because it drives much more negative repercussions when you convince people to act a certain way to avoid monsters. Take lemmings for instance. That cliff IS a problem.
With that context, let me outline my Top Ten List of Insidious Myths about Oil, because what would a good blog post be without a Top Ten List?
- PEOPLE DON’T WANT TO DRIVE ANYMORE- or Americans want to take the subway, or the world is just waiting for a cheap Tesla, or today’s poor don’t care about cars. REALITY: Sales of trucks, SUV’s and RV’s are booming in the US. Globally, thedemand for big gas vehiclesis booming, showing a clear preference over EV where there is lots of choice. India and China, and, in fact, the whole of the developing world is exhibiting close conformity with the US cars per person adoption rate.
- THERE IS A LOWER ENVIRONMENTAL IMPACT REPLACEMENT TO OIL AND GAS IN THE SHORT TO MEDIUM TERM- REALITY: Where there is large replacement of gas power generation, it is driven by subsidies that approach 3:1 or better on all in cost. Fine for a couple to few percent of the generation, impossible to economically handle globally. Real costs need to drop substantively for the alternatives and the crossover time for real cost is at least 15 years and more likely25-30 years away.
- THE WORLD IS RUNNING OUT OF OIL-REALITY: My favorite saying is “the stone age didn’t end because they ran out of stones”. Neither will the oil age end because we ran out of oil. Factually, the Texas and New Mexico Permian Basin contains more economically recoverable oil and gas than 3 Saudi Arabias (a forthcoming post…). We will never produce it all during what’s left of the hydrocarbon age. The idea that we are running out and should be scared of the social disruption was the central tenet of the now largely discredited Peak Oil movement. It was a topic of several old internet chat boards that I wandered into like a little lamb to the slaughter. I knew a lot more about where and how much oil existed in the subsurface and I was somewhat expert at the emerging extraction technologies, so I thought I could contribute to the combined knowledge. I was sorely mistaken. I was called every name in the book for trying to present some facts that contradictedHubbard’s Peak as presented and modified. The response was completely asymmetric… first sign that a topic has been highjacked by the myth makers. Here is an interesting thought experiment…. if the world has more than 200 years worth of anything today, then it has, for all practical purposes, a sustainable and limitless supply. How good a decision would the smartest folks in 1816 have made on how and what we should be using today? Would it have been a fools errand to make them? Of course it would have been. They would have made terrible predictions. With the force of law behind them, those decisions would have been proven catastrophic. Our rate of adding knowledge relative to 1816, 1916, or even 1966 is only accelerating and accelerating rapidly. The history of the world shows that we should trust and encourage technology solutions and run away from political solutions. Politics pollutes everything it touches.
- TECHNOLOGY LEAPFROGGING WILL ALLOW THE WORLD TO BYPASS BIG INFRASTRUCTURE BUILD OUTala cellular vs wired telephones. REALITY: Whereas distributed power will be and should be a good part of the future, we do have a grid and we still have to transport items from one place to another. We tend to forget that even if we have local solar and battery packs, only a small percentage of them are truly “off the grid”. We had a thunderstorm where I live a couple of weeks ago that knocked the power out over a large area. The downside of the grid. An hour later, the lights were magically all back on without any effort on my part than sitting in the dark. The benefit of the grid. Being truly off the grid means no redundancy with a highly reliable system. When your off the grid system is fried by a lightening strike, you don’t wait around for the lights to go back on. You have a problem. It might be days before you can have it replaced. And a lot of money. Mr. Musk isn’t freeing you from the grid, he is depending upon you still being on it. That infrastructure will still have to be paid for, and your component cost to even be on it will go up to do so. Likewise, roads, bridges, and other transportation infrastructure do NOT have obvious leapfrogs. Heavy equipment burning diesel or, at best, CNG will be in higher and higher demand as the vast majority of humanity seeks existential infrastructure. Remember, only30% of a barrel of oil is used to power private cars.
- OIL PRICES ARE PREDICTABLE- REALITY:Ok, maybe on a macro scale, ie when we build up inventory and do not burn it off when we typically burn it off it does cause a collapse. The size and scale of that collapse hasn’t been predictable. Saudi Arabia didn’t intend to cause a 70% price collapse by increasing supply by 1-2%. The rheostat on oil price behavior is very sensitive and nonlinear, and there are a lot of unintended consequences to playing with supply.
- ENERGY SUBSIDIES AND PRICE CONTROLS WORK- REALITY:When? Handing out your tax dollars to others so they can sell them back to you at $0.30 isn’t a sustainable effort. You can do it as an experiment. You cannot depend on an energy grid that is base-level unprofitable. There is a popular word for it. Unsustainable. All great bubbles have been generated by these sorts of unsustainable market manipulations.
- OIL COMPANIES MAKE OBSCENE PROFITS- REALITY:If you advocate this myth, you are either 1) NOT an equity investor and just parroting an “untruth” you heard from someone who most likely has a lot to gain by making you hate oil companies or 2) you are the person who has a lot to gain by having people hate oil companies and you are trying to manipulate people around you by lying to them. If you were selling a commercial product or service, this would be called “Consumer Fraud”. Scaring a bunch of old ladies into making a donation and join a “grannies against oil” group isn’t, I guess. The reality? Oil companies have a profit margin roughlyhalf of pharma and tech. Around 6.5% of sales overall. Why, then, the headlines? The major oil companies are amongst the largest corporations on the planet. A small percent of a huge number looks pretty huge on its own. Funny these headlines don’t show up in times like today, where the numbers are equally huge, but with a minus sign on the front. By and large, the people writing those articles are NOT unsophisticated… they are not their typical reader that doesn’t understand the concept of profit MARGIN. These authors are lying to you. They are myth-makers for those that profit from getting you to hate oil.
- BIG OIL DOMINATES THE OIL INDUSTRY- REALITY: The biggest non-State oil company, ExxonMobil controls only 1.5% of global oil reserves. In fact, non-State companies control in total only 4% of the global oil reserves. The rest are controlled by governments. That is why the US has such a robust industry compared to the rest of the world. More players being more creative doing more things. An ecosystem. The idea that “Big Oil” is a powerful force has beendebunked many times. In the US, there are over 9,000 independent oil and gas producers. On average, they have 12 full time equivalent employees, they drill 90% of US wells, they produce85% of US natural gas, and 54% of US oil.
- OIL PRODUCERS ARE HEAVILY SUBSIDIZED- REALITY:Only if you have a really wacky sense of what “subsidized” really means. The vast majority of what is called subsidy in oil and gas ISN’T the tasty subsidies that other industries get, like farmers paid not to grow something, or the check that comes when you buy an electric car. It is either tax deductions available to every other manufacturing industry, but that critics only point out in oil and gas, or being able to write off an expense faster than the arbitrary number of years embodied within the tax code. It doesn’t change the amount of taxes you will pay, it just delays them. In its most egregious form, “subsidy” has included Venezuela choosing to give away its oil to foment Socialist Revolution, or Saudi selling gasoline to its citizens for 10 cents a gallon as a subsidy TO oil companies! To put it into perspective, for unity energy output, oil and gas is “subsidized” 345 times LESS than solar and 54 times LESS than wind.
- FRACKING IS UNSAFE- REALITY: Hydraulic frac’ing is amongst the safest industrial processes on the planet. The principle objections attributed to it are a) aquifer pollution, a subject which has been thoroughlydebunked; b) it contributes to even more anthropomorphic atmospheric carbon, where in reality it is responsible for the vast majority of theREDUCTION of atmospheric carbonover the last decade by the US, and c) they somehow cause earthquakes. This last is the most insidious, because it is clear that some of the earthquakes induced are due to the disposal of produced water. In many of our old field areas, over 90% of liquids produced are oilfield waters that are typically disposed of via injecting them into subsurface brine zones. In some very restricted areas, this has initiated movement of old faults and subsequent tremors, the vast majority below any damage threshold. These injection wells have been taken off line until the mechanisms are better understood. In fact, if you were to balance the real costs versus the real benefits, hydraulic frac’ing may be the MOST beneficial industrial process ever developed. It certainly has been a game changer for both the US economy (responsible for half or more of US GDP growth from 2008-2016), and the geopolitical power the US enjoys today in the world.
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