The title of this contribution is almost identical to the one I used for a paper that I published in the OPEC Bulletin ten years ago. During those wonderful days I eventually came to believe that - where energy economics was concerned - I was OPEC's fair-haired boy, since they published everything I sent them, regardless of its content or quality. The same was true for several other journals - one of which listed me on the inside front cover as an editor.

As is said in a song that a neighbour of mine in Geneva (Switzerland) occasionally blared at the top of his obviously untrained voice, Those were the days my friend; we thought they would never end.

But end they did. Where my editorship was concerned, I was informed by the editorial director that there was to be an important change in his journal, and as I found out later the change that he was talking about consisted exclusively of eliminating my good self, both as an editor and a contributor. The OPEC Bulletin and the OPEC Energy Review also came to the conclusion that my work was a little too sophisticated for their readers, by which they meant much too honest, given the way that the oil market was developing. In any event, beginning several years ago my humble submissions were neither  returned nor was I accorded a 'Dear John' after they received and rejected my work. As far as they were concerned, I was demoted to the rank of a non-person.

That brings me once more to the title of this paper. Taking oil as a case in point, it might be true that the most imaginative myths in circulation today are those being generated by OPEC. Having come to appreciate the supreme importance of oil - and how it functions as a benchmark for the world's energy systems - that organization has informed the oil importing countries that if the oil price goes up and stays up, then they will invest in more production capacity, and also raise their output of oil.

*Invited lecture for a ProM workshop at Siena University (Italy), 23-24 October, 2009.

That sounds good - in fact it probably sounds like something you heard in an introductory economics lecture, or read in your favourite textbook or newspaper -  only it is completely untrue. It is a distinguished myth, and unfortunately a myth that is believed by many drowsy academics and their students, and probably more than a few influential but not very brainy decision makers.  Instead, although there might be exceptions, the aggregate of OPEC producers is not going to invest in additional capacity, and they are definitely not going to produce or try to produce much more oil. Why should they? Would you if you were in their place?

OPEC has also launched the theory that high oil prices are due to speculation   (i.e. gambling) and not fundamentals (or supply and demand). This allegation was supported by a finance professional named Michael Masters, who appeared before a sub-committee of the United States Congress, and offered virtually a sacred affirmation that it was speculation and not the physical market  that was ruining the lives of American motorists. Both OPEC and Mr Masters were in turn  supported by perhaps the most influential celebrity on Fox News, which is a television channel featuring some of the most obsessive voices on the U.S. conservative scene. The voice to whom I am referring on this occasion belonged to none other than Mr Bill O'Reilly, who informed his plethora of admirers that it was little guys in Las Vegas who created the problem.

Had this been true, President Bush could have taken the morning train or a helicopter to Wall Street, or jetted to Las Vegas, and using the very significant authority of his government, put things right before lunch was served.  Instead he climbed into Air Force One and flew to Saudi Arabia, where he asked  the Saudi King to produce more oil, and preferably sooner rather than later. That 'hat-in-hand' episode was concluded almost immediately after the delivery of the president's request, with King Abdullah thanking him for his concern, and wishing him a safe trip home.  Furthermore, the myth initiated by the Saudi oil minister some months earlier, which pictured Saudi Arabia raising its sustainable output to 15mb/d, and keeping it there for the next 50 years, was neither confirmed nor denied at that high level meeting.  In fact it was  ignored, because the Chief Executive was already in possession of enough energy fictions to keep him and his advisers occupied for the remainder of his term in office.

Before changing the topic, I want to emphasize that the successful dissemination of powerful myths cannot exclusively be attributed to the strong desire of TV audiences and blogosphere 'buffs' to expose themselves to the self-indulgence of the media. Instead, those ladies and gentlemen want to shine by demonstrating for their peers that they can latch on to what they think are a few perceptive nuggets in the torrent of nonsense that rushes through the ether every day. Where energy economics is concerned, these nuggets often turn out to be fools gold, because as  once emphasized in physics,  the important thing in science is not the pursuit of new ideas, since there are always plenty of those available, but abandoning bad ideas as  expeditiously as possible.

One person who has not been able to discard bad ideas, at least about energy,  is Mr Leopardo Maugeri,  a director or former director of ENI - perhaps the most important corporation in Italy - and who may still be enjoying the hospitality of some faculty at the Massachusetts Institute of Technology, which is the most celebrated engineering school in the United States.  Writing in Scientific American (2009), Signor Maugeri has  fashioned  still another fairy-tale about the lovely abundance of oil, and the unsoundness of wasting precious time and  vitality  contemplating what he thinks of as a hypothetical  peaking of the global oil production.

In thinking about his foolishness, I hope that everyone who takes this presentation seriously will take careful note of the following. Output in the U.S. peaked at the end of l970 at a value of about 9.5 mb/d - which is approximately the present output of Saudi Arabia and Russia, the largest producers of oil in the world. When that peaking took place there was still an enormous amount of oil  onshore or directly offshore the United States. Production then dropped to 7.5 mb/d, but when the giant Prudhoe Bay field in Alaska came on line, the total output in the U.S. turned up. Unfortunately however, the previous peak was never attained. Instead,  total U.S. production stopped short of that peak and once again began to decline. Today U.S. output is approximately 5.5 mb/d, and there is only one way for it to go, which is down.

Now take a good look at the production curves for the 300 largest oil fields in the world. Following that, after satisfying yourself that a large majority of these fields have unambiguously turned down (i.e. peaked), ask yourself how is it possible, in these circumstances, for anyone to sincerely believe that a global peak will not take place. Since we are talking about myths, please note the word sincerely. What it means is that there are people who know better than I do that a global peak will arrive, but have excellent reasons - of a career and financial nature - for  claiming  the opposite.

One of these people is the director of global oil and gas resources at an influential consulting firm, who has employed the picturesque word garbage to describe the work of peak-oil believers. If you encounter him some fine day, tell him that the output of the U.S. has peaked, as has the oil in the UK and Norwegian North Sea. Given the opportunity you should also mention that what was the second largest field in the world just a few years ago - the Cantarell  field in Mexico - is declining at a startling rate.

The Russian oil output is probably close to peaking, and in any event the director of one of the largest Russian firms says that his country will never produce more than 10 mb/d. This is a nice round number (that may be slightly wrong), but it happens to be one-tenth of the amount (= 100 mb/d) that the present CEO of Total (the French oil major) says is the absolute maximum for world production. If this is not sufficient, consider the following.  The discovery of what we think of as conventional oil peaked in l965. In the early l980s  the annual consumption of oil became larger than the annual discovery, and at the present time only about 1 barrel of (conventional or near-conventional) oil is discovered for every 3 consumed. According to a British Petroleum (BP) document, of 54 producing nations only 14 still show increasing production. 30 are past peak output, while output rates are declining in 10. To claim, as Mr Maugeri does, that all of this bad news does not imply an eventual peaking, is the same as implying that the (oil) whole is less than the sum of the parts, which is a myth that no intelligent observer would rush to accept  if they realized what they were saying or thinking.


In the last year or so I have heard or read a great deal about natural gas. The reason of course is that instead of collapsing, as some important scholars once thought, OPEC has become stronger, and since this is now increasingly understood by voters and consumers in the energy-intensive countries, an increasing amount of attention is being turned toward things like natural gas, nuclear and renewables. In the U.S. for instance, a popular expression that is making the rounds is 'energy independence'.

Russia is the largest owner of natural gas reserves, and it produces and exports a great deal of that resource. Outside the United States, the activities of Russia gas exporters are frequently observed and commented on, and very often some politics are involved in these discourses. I try to avoid paying  attention to this sort of thing, because as far as I am concerned the overwhelming  interest of the Russians is obtaining as much money as they can as fast as they can, and things like ideology and geopolitics  no longer play a crucial role in their exertions, if they ever did.  Of course,  that country has created a considerable amount of apprehension or antagonism among customers and potential customers, and it has happened that I found myself wondering if their behaviour in regard to natural gas is completely rational.

Lacking even a superficial  interest in the political aspects of this and similar issues, I prefer to concentrate on the matter of resource scarcity - or for that matter resource abundance. I presented a quotation by the late Professor Georgescu-Roegen at the beginning of this paper, and on the one occasion that I heard him lecture he expressed a belief that all wars are caused by the desire to come into possession of physical resources.  War is a different thing today than it was when he made that statement because of the widespread availability of  nuclear weapons, but even so the  tensions caused by resource shortages - or the likelihood of severe resource shortages in a not too distant future - will eventually be very difficult to ignore.

To my way of thinking, Russia has an enviable advantage in the natural gas game, and as a result cooperation with that country makes more sense than confrontation. My argument here turns on the theoretical value of Russian gas if it is exported to China instead of Europe. Like Europe, China needs natural gas, and ceteris paribus should have no difficulty paying for it.  Many of the pipelines from major Russian gas fields go towards the large gas consumers in Europe, and at the present time it is in the economic interest of both Russia and Europe to keep these lines filled, but in the medium to long run the natural direction for Russian gas is South, and this is where it is likely to go.

Moreover, the predictions that we often confront  about the profusion of natural gas are not easy for me to accept. The sudden increase in U.S. gas reserves strikes me as too good to be true, although it could be the real thing. However even if it is,  given the historic and predicted rate of growth of global gas consumption, somebody important should start thinking about the peaking of global natural gas production, and also the possible forming of a GAS-PEC. When I look at the rate of growth of gas consumption, and the reserve-production ratio for that resource, I immediately see the genesis of another myth that will result in voters and serious investors being tricked into believing certain things about natural gas that will not serve their countries well in the future. For instance, the occasional talk in the U.S. about energy independence that would be based on huge domestic supplies of gas might turn out to be bunkum.

Bunkum is a word that I seldom use in my lectures on natural gas, but it almost always finds a place in my lectures on coal. For instance, in a brilliant article Peter Huber (2009) points out that China is adding 100 'gigawatts' of coal-fired electric capacity a year - which is one third of the total coal burning capacity of the U.S. The bottom line here, according to Huber, is that the U.S. does not control the global supply of carbon, and I would like to make it clear that neither does e.g. Sweden and Denmark, despite their posturing and courting attention as environmental know-it-alls and icons in the corridors and restaurants of the European Union headquarters in Brussels.

Regardless of the outcome of the circus that will convene in Copenhagen this December, when so-called and would-be experts  from every corner of the globe assemble for the purpose of drafting resolutions for improving the world's environmental health, it  would be nice if the governments of energy-intensive countries began thinking in terms of economically and technologically optimal energy sectors, instead of thermodynamic travesties like carbon sequestration, whose only merit is their popularity with the anti-nuclear booster clubs.

 Carbon Capture and Storage (CCS) is probably one of the most grotesque myths in modern times, and here I always point to the Swedish utility Vattenfall. They are shouting to the high heavens praise for a pilot installation that they have opened in Germany that, in reality,  is only about a twentieth of the size of an average modern coal plant. Just as important, it will not be fully evaluated for at least another decade. By that time the man doing the most shouting, Vattenfall's director, will be retired and dividing his time between a luxury apartment somewhere in Germany, and his summer house in some part of the gorgeous Swedish archipelago. One of his successors will therefore have to explain that if this nutty practice is to make environmental sense, it may cost at least a trillion dollars in the U.S. alone.

The thing to remember here is that about half of the world's energy is supplied by coal, and many of the politicians who are now busy on the environmental front could not possibly expect to obtain a renewed mandate if they informed the electorate of the cost they would have to support if the noble intention  to  suppress or store only a small amount of the carbon dioxide emissions generated every year was realised.  Carbon sequestration is liable to be an important subject in Copenhagen, and I think that the best expression for describing what will be taking place in that wonderful Copenhagen is a STING, whose main purpose is to enhance the lives and careers of  certain politicians and bureaucrats, as well as celebrity environmentalists.  


The basic issue here is that many persons feel that they have a choice between nuclear and renewables, when in reality they have no choice at all. I am thinking in particular of persons who desire more money as compared to less, and less work as compared to more. Also people who want more security, more options concerning leisure and entertainment in their everyday lives, and who hope that the future will feature the kind of communities in which they and their descendents will have agreeable prospects in regard to  incomes and life styles. For me that means communities in which nuclear is allowed to play a larger role if that makes economic sense, though perhaps not to the extent as in today's France, and almost certainly not a larger role than renewables. Many more renewables are essential, but so is the reliability and flexibility of nuclear.

Flexibility? How can someone look at a nuclear facility and talk about flexibility? I wonder if people like Amory Lovins and Michael Dittmar were thinking of my position on this subject  when they challenged me to on-line debates - challenges which I ignored in the same manner that the king of Saudi Arabia probably ignored President Bush when the subject of increasing the output of oil in his country came up.  What I mean of course is the next generation of nuclear technology - the fourth generation (Gen 4), as compared to Gen 3 that is just going into operation in Finland and France. Gen 4 could being the same benefits to the countries that adopt it as Gen 2 brought to Sweden. It made Sweden the richest country in Europe, although of course this situation was abandoned for 'silly and illogical' reasons that cannot be taken up here.

I have been informed by several physicists that the Gen 4 reactors may never come into existence.  The only thing I remember about physics is that I failed the beginning course twice, and since I had also failed the beginning mathematics course twice also, the director of the engineering school I was attending in Chicago called me into his office and expelled me as a hopeless case. But the fact of the matter is that Gen 3 is quite sufficient for the time being, at least according to the economics and finance that I have taught,  and the history that I have read.

The reason for my saying this is that the optimal way to produce nuclear equipment is in factories, rather than in more or less piece-meal or custom-made operations. This has not been economical because only a handful of reactors are produced and put into operation every year; but at the present time about 400 new reactors have been planned or proposed. This is just the beginning, and the benefits from increasing-returns-to-scale could change a great deal when the manufacture of reactors takes place in an optimal setting. For instance, the new Gen 3 reactor in Finland, the largest in the world, was supposed to be constructed in five years, but it might take eight. This is discouraging, however on the basis of my study of this issue, I happen to be convinced that  if standardized reactors are produced in factories, it should not take more than four years to produce such a reactor, and it could take less. When I am certain that it will take less, then I might agree to participate in debates with  physicists like Lovins and Michael Dittmar, and among other things  I will announce and try to prove to them - and myself -  that nuclear energy can absolutely and certainly produce electricity for a lower cost than any other source.


A paper that I disliked on an initial reading was 'The return of Malthus (2008), by Jorgen Orstrom Moller (2008). The reason I disliked it was because I kept focussing on the part where Professor Moller seems to indicate that technology and free market capitalism can save the world from the depletion of non-renewable resources, and the miseries that we will suffer in the event of severe over-population. This is  the kind of myth that the late  Milton Friedman once gratuitously presented to Nobel Prize winners in Science and Medicine in Stockholm many years ago, and which they branded as absurd - though unfortunately not to his face, and only after the meeting was concluded. I was especially annoyed by the mention of the late Professor Julian Simon, who was naive enough to believe that large populations are better than small populations, because then larger quantities of brainpower will be available  (and willing and able) to solve the more vexing of the world's  problems.

Actually Moller is quite reasonable where this topic is concerned. Like  (Reverend) Thomas Malthus, he believes that runaway population growth could result in a very bad scene, and goes so far as to suggest that environmental (i.e. Malthusian)  issues present a challenge to the global commons that neither new territories, technology nor the function of markets alone can solve.  What about adding to those annoyances a shortage of space, pretentious and sub-optimal technological ambitions, malfunctioning markets, declining educational and moral standards, together with a world population of 9 billion souls - which is a likely scenario for 2050 or thereabouts. Some climate woes can also be thrown in, which may or may not be due to human activities.

In an article dealing with these matters, David Stipp (2004) noted that perhaps the most realistic study of the political and sociological aspects of this kind of situation  is taking place  in the U,S, in that very large building called the Pentagon. That being the case, it seems appropriate to cite a particularly germane observation by Professor Moller. Mr Malthus is a man that we would not like to meet in person. He is an unwanted guest, one well worth working to avoid. To which Stipp or one of his readers might add  after the cognac had gone around the table a couple of times, ' if he cannot be avoided, then he will have to be convinced by fair means or foul to visit other locales.'


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Huber, Peter W. (2009). 'Bound to burn'. City' Journal (Spring).

Hutzler, Mary J. (2009). 'The Pickens plan: is it the answer to our needs?' IAEE Energy Forum.

Lounsbury, John (2009). 'Natural gas: another great thing from a lobby near you.'  Seeking

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Maugeri, Leonardo (2009). 'Squeezing more oil from the ground'. Scientific American


Moller, Jorgen Orstrom (2008). 'The return of Malthus: scarcity and international

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Stipp, David (2004). 'Climate collapse'. Fortune (Feb. 9, 2004).