Watt’s Up With That: A Tale of Two Sigmoids

There are dozens of different mathematical constructions that yield bell-shaped curves. The “Hubbert” or “Peak Oil” curve is actually a special case of a class of s-shaped functions called sigmoids. While most sigmoid functions begin and end at different values, Hubbert’s curve is constrained to begin and end at zero by the formula and boundary conditions imposed that represent a perfect mathematical translation of Hubbert’s worldview. The curve reflects a battle between two competing forces or trends – one for growth and one for contraction – where the balance shifts between the two along the way. […]

Editor’s Commentary:
Guess writer, Todd “Ike” Kiefer, Captain, U.S. Navy (retired), reflects on Hubbert Peak Oil (PO) Theory, providing reasoned insight into the model’s failure. He argues that the premise of PO is approximately correct: that global oil production is governed by factors which both promote and inhibit future production. However, he posits that the traditional “bell-curve” is an incorrect model. Rather, he proposes the ubiquitous logistic curve which he supports both with intuition and a better fit to the data. No model is reality, yet Ike’s model is likely superior in that it incorporates other concepts which are relevant to the commodities cycle. Contrary to Hubbert’s worldview, petroleum economics are not a binary-linear result of increasing sparsity. Rather, the dynamics are driven by a series of complex interactions between depletion (negative supply shocks; positive cost shocks), technology (positive supply shocks; negative cost shocks), price/cost/demand inflation (i.e., “growth”), the specter of substitution (negative demand shocks only), and regulatory and market policies (positive cost shocks, negative demand shocks, positive (consumer) price shocks). The end result, of course, are (producer) prices.

Or, in the author’s own words:

Another contrived effort to redeem Hubbert’s prediction consists of ignoring all production that falls outside a recently invented narrow categorization of “conventional oil” comprising only heavy crude produced by terrestrial vertical rigs from classic geological traps… Even using this specious category of “conventional oil,” there is no evidence of a peak or cliff in global crude production, but rather continued responsiveness to capital investment.

Herein is another notable excerpt:

There are other reasons why I hold to the sustainable oil view, including my own research and analysis of fossil fuel energy return on investment (EROI) and oil production versus drilling effort. An essential part of this analysis that many get wrong is to ignore the often lengthy delay between oil industry capital investment and ROI. During the crisis window of perceived scarcity, there is much capital investment and negative cashflow as a flurry of wildcatters chase prospects. Once the glut is recognized, the capital investment dries up and there begins a lean period of low prices which includes a painful battle for market share and brutal consolidations, as most of the wildcatters fold up and are absorbed by larger companies with more fat to live on. Then finally comes a long period of steady, profitable production from reserves that seem to miraculously grow and grow without much further investment – this is the payback period that is usually ignored because the crisis is long past. Any ROI or EROI analysis that does not include the full bust-and-boom cycle will yield false results. When the accordion-effect lag between capital investment and ROI is properly considered, U.S. oil production EROI has remained above 10:1 for its entire commercial history. Oil yields today are still about 40 barrels per foot drilled, the same as in the mid 1980s. If scarcity starts to rear its head as an emerging force in shaping oil production, we should first see it in falling EROI and yields per foot. I don’t yet see that signature.

Blog Post Source: Todd “Ike” Kiefer. A Tale of Two Sigmoids. Watts Up With That?. 01 Mar 2017. Original content accessible: https://wattsupwiththat.com/2017/03/01/a-tale-of-two-sigmoids/

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