CERA vs. Peak Oil: it's getting serious
We wrote the other day about criticism leveled at Cambridge Energy Research Associates' relatively optimistic view of world oil supplies from followers of the Peak Oil theory. The latter group has now thrown down the gauntlet.
The size of the bet offered up to CERA is $100,000, and the base for it is the question of whether global oil supplies will actually rise by 2017, as CERA projects, or peak and begin to decline by then. The challenge came from members of the association for the Study of Peak Oil & Gas (ASPO), and also challenged CERA to a "public debate on the issue of peak oil."
CERA's annual conference, with thousands of attendees, is scheduled for Houston next week, and the ASPO release said it was prepared to debate the issue at that conference, or some other time.
In what looks like a dig at CERA's trustworthiness, ASPO said that to call the bet, CERA "must match" the group's $100,000 letter of credit from National City Corporation, a Cleveland, Ohio-based financial holding company.
As Platts reported, ASPO's bet is based on a production threshold in 2017 of 107 million b/d, a figure the group extrapolated as a ratio of actual production to estimated production capacity. The base year of 2007 saw end-year production of 87 million b/d, and ASPO said the same ratio of actual production to production capacity (87/91 million b/d) creates its 107 million b/d threshold. In the ASPO statement, Steve Andrews, a founder of the group's US branch, said CERA's 2017 forecast was, "a vision in search of reality. Anything is possible on paper, but we are betting you can't do that with the drill bit." There has not been a public response from CERA yet.
One can't help but think that the idea for the bet may have come from the famous Julian Simon-Paul Ehrlich bet of the late 70's. Simon was an ever-optimistic economist who believed that human ingenuity would eventually find ways to overcome any short-term shortages of vital materials. Ehrlich was a neo-Malthusian who predicted mass famine among other disasters. In the late 70's, when commodity prices were nearing the end of a long boom period. Simon said in ten years, an agreed-upon basket of metals would decline in price. Ehrlich said the opposite. The great commodity boom of the late 70's was gone over the next two years, and Ehrlich paid up. Wikipedia has a good summary of the bet.
What's ironic is that Simon would probably be siding with CERA. He wouldn't necessarily agree with the group's findings on supply, but he would argue that economic difficulties created by tight supplies of oil would eventually -- emphasis on that word -- be overcome by human invention and creativity that would find new ways of conservation, new methods of production, new technologies that would decrease the use of energy in industrial processes, and so on.
Julian Simon has a great number of disciples, even in the dismal science of economics. It will be fascinating to see if CERA takes the bet, and what people will be saying about the wager 30 years after it's resolved.
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Why stop there? Let's have Wall Street (or would Las Vegas be more appropriate?) create a "security" that is just a proposition bet equal to the above. Then let everyone go long or short, in accordance with their sentiments. It would be so interesting to see how the security traded! |
