One of the sources of conflict in the long-running war of words between the Peak Oil school and Cambridge Energy Research Associates was explained at the CERA annual meeting today…sort of.
First, some background: the source of the conflict is that the Peak Oil school believes that supplies of oil have peaked, and CERA has been optimistic about supplies in coming years. It’s a bit more complex than that, but at the heart, that’s the dispute. It really isn’t a War of Words, because CERA has steadily ignored some of the darts thrown at it by the Peak Oil people, including a large wager offer made last year on what production would
be in the future.
At the root of the dispute are some of the trends that CERA has referred to as the “Refiners’ Diet.” What CERA analysts are projecting is that crude production is going to rise only slowly in the coming years, but that there is going to be a steady increase in the production of biofuels — backed, of course, by government supports — and light products such as condensates and LPGs, coming off the increased flow of natural gas.
Peak oil supporters generally are dismissive of these new flows. They argue that the versatility that can be found in the ability of a barrel of crude to be refined into anything from asphalt to gasoline means that LPGs and condensates should not be considered equal in meeting the world’s energy needs.
James Burkhard, CERA managing director, made an oblique reference to the disdain that his organization has faced. “CERA has been looked at as wildly optimistic,” he told a session at the CERA annual meeting in Houston. “But when you look at the complete story, it’s not as nice and tidy.” He said CERA does see crude supplies “flatting out” after 2010, though the current economic slowdown may delay that until 2015 as production slows.
Then he came to the root of why the Peak Oil school is critical of the CERA view: the ability to process these growing supplies of LPGs and other streams “could be a challenge.” The other problem is that the processing that does exist generally aims at turning these products into gasoline, and that’s the product that is expected to be in excess supply in coming years.
Meanwhile, “production of enough distillates to satisfy demand will be an increasing challenge,” Burkhard admitted. Some unconventional sources, like gas-to-liquids and coal-to-liquids may help that, but overall, “investment in conversion capacity is going to become more important.”
Burkhard said the result of these changes will be “strong distillate margins and weak gasoline margins.” Guess what? We’re there already.