T. Boone Pickens: Still More from the ‘Man of System’

“The man of system … is apt to be very wise in his own conceit, and is often so enamored with the supposed beauty of his own ideal plan of government that he cannot suffer the smallest deviation from any part of it…. [H]e seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board.”

– Adam Smith, The Theory of Moral Sentiments (1759).

A recent video is circulating where T. Boone Pickens ranted “I am the expert, not you” to land his point that falling demand, not increasing supply, is primarily behind the oil-price collapse. This outburst reminds me of the quote from the early 20^th century humorist Peter Finley Dunne: “It’s not so much what he doesn’t know that worries me, as what he does know that isn’t so.”

As much as one might admire Pickens’s philanthropic efforts and his trading acumen, he is hardly an expert on petroleum resources. Again and again, his bullish long-term expectations about oil and natural gas prices have proved anything but prescient.

Back in his January 2007 Playboy interview, Pickens declared that world oil production had peaked. I demurred, noting that oil discovery data by IHS and others were conservative and tend to be regularly revised upwards (and occasionally downwards). As a result, every year, world oil reserves tend to grow even though discoveries appear anemic.

Pickens claim of a 2005 peak made a fairly basic mistake. This was based in part on data covering only crude plus condensate (C+C), which is a subset of total petroleum liquids. As near as I can tell, it was peak-oil guru Matthew Simmons, a (failed) Malthusian later in life, who first reported on C+C production trends, and he did so apparently because they seemed to confirm his beliefs in a near-term peak in oil production, whereas the data on petroleum liquids did not.  The industry rarely if ever relies on that data, but peak oil advocates are unaware of this.

The reality:  since 2005, total liquids production has increased from 82 million barrels per day (MMB/D) to 89 MMD/D last year. Much of that was natural gas liquids (NGLs), which has a lower energy density than crude, but is used either as a substitute for oil products like naphtha in petrochemical production or put into refineries to produce conventional products like gasoline.

But even C+C has increased since the supposed peak in May 2005, from 74 MMB/D to 79 MMB/D. Pickens waves this off as due to U.S. shale oil production, which is true, but hardly matters.  In fact, between Iran, Libya, Syria, and Sudan, nearly 4 mb/d of production is shut in by war or sanctions. Also, the delays in the Kashagan field have kept from 0.5 to 1.5 mb/d off the market.

Naïve observers will no doubt be concerned that so much of the recent additions to production occurred in one sector of the industry, but this is actually quite typical. From 1990 to 1997, the UK and Norway alone accounted for 45% of the growth in non-OPEC, no Soviet production. From 2000 to 2009, non-OPEC, non-Soviet production dropped by 1.8 MMB/D, while supply from the former Soviet Union rose by over 5 MMB/D.  For a variety of reasons, production growth is often geographically concentrated for extended periods. The next decade is likely to see large amounts of new supply from Brazil and West Africa, for example, while many other areas are neglected.

The arguments by peak oilers like Pickens represent the typical neo-Malthusian reliance on cherry-picking of data and naiveté about real-world conditions. Watching global petroleum inventories soar and prices drop, many must wonder at the continued insistence that oil production peaked a decade ago.

This could be considered cognitive dissonance, or simply pigeon-holed with those who think the Earth has exceeded its carrying capacity, or that our current resource usage is unsustainable, and similar arguments that seem at odds with reality. [1]

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[1] By the way, I highly recommend the supposed documentary “Gashole” if you want to see the ultimate in gullibility and inability to think logically. The primary claim is that a carburetor has been created that allows cars to get phenomenal fuel efficiency, and it has been suppressed by the oil industry.