Peak Oil Revisited – The Bill Collector Calls
© Copyright 2004, From The Wilderness Publications, www.fromthewilderness.com. All Rights Reserved. May be reprinted, distributed or posted on an Internet web site for non-profit purposes only.
I must not fear.
Fear is the mind-killer.
Fear is the little death that brings total obliteration.
I will face my fear.
I will permit it to pass over me and through me.
And when it has gone past, I will turn the inner eye to see its path.
Where the fear has gone there will be nothing.
Only I will remain.
-- Frank Herbert, DUNE
The one thing that every Middle Eastern leader, manager, and planner who dreams of holding his country together fears now, is that there will be a widespread uprising, inspired by the perceived victory against Spain after Madrid, and Spain’s withdrawal from Iraq, that it might prompt much of the Muslim world to start attacking oil facilities everywhere. This is the way they see that has worked to defeat the West and to avenge their grievances. May God help us all if that happens. Stabilitymust come to Iraq. But how?
-- Anonymous Middle Eastern Participant at the Third Conference of the Assoiation for the Study of Peak Oil and Gas – Berlin, May 2004
JUNE 21, 2004: 11:00 PDT – (BERLIN, LOS ANGELES), FTW began writing about Peak Oil in the summer of 2002. It was much more difficult then to discuss Peak Oil, what it means or how certain, quick and defiant was to be its arrival. Denial in many minds was so instant and overwhelming that only a trained eye could see its millisecond appearance before encountering the brick wall of a closed mind.
That was then. This is now.
By the spring of 2004 things had changed dramatically. This is both the good news and the bad news. In May of 2004 I attended the third annual conference of the Association for the Study of Peak Oil and Gas (ASPO) in Berlin Germany. Although I have a great many friends in ASPO, I tend to leave these conferences feeling as though I’ve had a big meal but am still hungry. Governed as they were by scientific protocols, the 2003 and 2004 conferences seemed to occur in vacuums. With the cool professionalism that’s proper to scientific discourse, the conferences marshaled excellent resources of data and analysis while remaining eerily detached from political and economic developments in the outside world; detached from 9/11; from violence and intrigue in Iraq, in Saudi Arabia, in West Africa, in Venezuela; detached from bitter conflict and bloodshed, and from economic disintegration
That disconnect was nowhere near as obvious in Paris in May of 2003 as it was in Berlin a year later.
From May 24th 2004, as people arrived for the conference, through the final day on May 26th, the hottest conversations were as much about what was going on in the headlines as was what being discussed inside the room. The two didn’t converge nearly enough. Peak Oil - Berlin was almost twice as large as Paris had been. Many of the 250-plus attendees arrived on both mornings with papers under their arms containing stories about oil shortages and economic issues connected thereto. They tended to meet outside for drinks or meals asking, “Have you seen the cover of the June 2001 National Geographic? It’s Peak Oil!”; “Did you see the International Herald Tribune today on global production and supply?”; “Do you think the Saudis really can increase production or are they bluffing?”; “Did you see where Shell has downgraded their reserves, again!?” “Did you notice that someone finally attacked a Saudi oil facility? Now the Saudis won’t have to prove that they can increase production, either to their people or the markets. It’s the perfect excuse”
A packed house in Berlin.
This had been no overnight development. For almost the entire year between the Paris and Berlin conferences the icons of the mainstream press – the ones known and employed to mold public and business perception – had been acknowledging Peak Oil’s reality, sometimes reluctantly, sometimes less than directly, but also sometimes very boldly. CNN, the BBC, the New York Times, the Economist; dozens of media giants had begun to respond, like a giant ship turning slowly in the water. The ship had clearly changed course, but was it enough? Was it in time? I had saved close to 200 of these stories and I asked my staff to prepare a list of the headlines. But the list soon got out of hand – it’s too long. Looking at just a few of them makes the point well enough.
- “The End of Cheap Oil” – National Geographic (Cover Story) – June 2004.
- “What to Use When the Oil Runs Out” – BBC – April 22, 2004
- “Adios Cheap Oil” – Interpress News Agency – April 27, 2004
- “Refining Shortfall Goes Global, Drives Oil Strength” – Reuters – April 26, 2004
- “G7: Oil Price Threatens World Economy” – Moscow Times –http://www.fromthewilderness.com/04
- “World Oil Crisis Looms” – Jane’s --http://www.fromthewilderness.com/04
- “US Procuring the World’s Oil” – Foreign Policy in Focus – January 2004
- “Are We Running Out of Oil? Scientist Warns of Looming Crisis” – ABC News.com –http://www.fromthewilderness.com/04
- “Alarm as US gas supplies hit low” – Financial Times –http://www.fromthewilderness.com/03
- “American Account: Iraqi crude won’t flow fast enough to cut oil prices” –The Sunday Times –http://www.fromthewilderness.com/03
- “Big oil’s dirty secrets” – Economist –http://www.fromthewilderness.com/03
- “Shell bosses ‘fooled the market’” – BBC –http://www.fromthewilderness.com/04
- “Blood, money, and oil” – US News –http://www.fromthewilderness.com/03
- “Black gold is king” – Asia Times Online –http://www.fromthewilderness.com/04
- “Not in Oil’s Name” – Foreign Affairs – July-Aug 2003
- “Soaring Global Demand for Oil Strains Production Capacity” – Wall Street Journal –http://www.fromthewilderness.com/04
- “Check That Oil” – Washington Post – www.fromthewilderness.com/03
- “War of Wars, China Builds Up Oil Reserves” – AP –http://www.fromthewilderness.com/03
- “Asia: Strapped for Energy Resources, China and India Look for Alternatives” – Radio Free Europe/Radio Liberty –http://www.fromthewilderness.com/04
- “China, Japan Both Eye Russian Oil” – The Korea Times –http://www.fromthewilderness.com/03
- “China’s demand for foreign oil rises at breakneck pace” – Knight Ridder &ndashhttp://www.fromthewilderness.com/04
- ’World oil and gas running out’ – CNN – www.fromthewilderness.com/03
- “GLOBAL OIL SUPPLY: ARE WE RUNNING OUT? Experts to Analyze Saudi Arabia’s Energy Future” – The Center for Strategic and International Studies, Media Advisory –http://www.fromthewilderness.com/04
- “Debate Rages on Oil Output by Saudis in Future” – The New York Times –http://www.fromthewilderness.com/04
- “Oil reserves” – The Economist –http://www.fromthewilderness.com/03
- “Energy crisis ‘will limit births’” – BBC News –http://www.fromthewilderness.com/04
- “Energy Agency Raises Oil Demand Estimates” – AP – www.fromthewilderness.com/03
- “3 At Duke Energy Charged With Fraud” – Reuters –http://www.fromthewilderness.com/04
- “Freeze strains northeast power grid: cold kills 5 in Michigan, AP reports” – CNN –http://www.fromthewilderness.com/04
- “Fossil-Fuel Dependency: Do oil reserves foretell bleak future?” – San Francisco Chronicle –http://www.fromthewilderness.com/04
- “Fuel disruption test planned [Australia]” – AAP –http://www.fromthewilderness.com/03
- “The End of the Oil Age: Ways to break the tyranny of oil are coming into view. Governments need to promote them” – The Economist – www.fromthewilderness.com/03
Present in Berlin for the ASPO conference on May 25th and 26th were some newcomers, senior representatives from British Petroleum, ExxonMobil, and the International Energy Agency. They came as nobles called to a commoner’s court: polite, courteous, but waving their flags just the same, unperturbed by the growing mess around them. If nothing else, their presence served as a reminder that Peak Oil was squarely on the table. Even from their denials came startling revelations.
As the press reports describing a disintegrating world outside rolled on, the debate inside still seemed removed from it all. It felt strange to discuss Peak Oil in a purely data-driven way while knowing how utterly it will shatter our growth-driven industrial civilization. “Let them eat cake,” said Marie Antoinette on being told of the great crowds rioting outside her palace, crying for bread. When there is inadequate fuel for food production, electricity, and transport, the people will cry for energy; officials in government and industry will respond: let them burn water.
Left to right; J Peter Guerling, conference organizer,
ASPO Chair Kjell Aleklett, Jean Laherrère, Richard Heinberg.
The big three of ASPO, Colin Campbell, Kjell Aleklett, and Jean Laherrère – accompanied by the de facto star of the event – investment banker Matthew Simmons – had their work cut out for them; not with the audience but with those who had come to deny. Natural gas issues facing Europe took up most of the first day. Two things quickly became clear on that account. First, almost all of Europe, soon even perhaps Ireland, was going to become dependent upon Russian natural gas to stay warm (Britain has just become a net gas importer in the face of North Sea decline). Second, Russia had much less natural gas than the economists and bookkeepers had predicted. Simmons asked rhetorically why anyone would stake their future on four large Russian fields that had been shown to be in permanent decline.
It was a good question, especially in light of the fact that Laherrère, with his renowned calculations, concluded that natural gas demand in Europe was going to grow at 6.4% per year; that the global natural gas cliff would hit by approximately 2030; and that there would be zero reserves left by 2050. He calmly announced that, as far as Russian gas reserves went, there was a 50% difference between the technical data on Russian gas and what he called the “political” data.
Simmons pointed out that North America hit its natural gas peak in 1973 and is now falling off the production cliff. Presentations exploring Liquefied Natural Gas (LNG) imports to the US concluded what FTW already knew. The cost is too expensive, the lead time too long, and the capital investment too great to make much of a difference here.
Matt Simmons on US natural gas shortages.
Everybody, even the German giant power companies like RWE, talked about coal. Nuclear was also, at least for some, an option but there were no other viable near-term solutions presented. Token representatives of hydrogen and alternative energies made presentations but, for those who had looked at hard numbers, this was more for show than substance.
Saudi Arabia’s promise to increase production to meet US and world economic needs was the hot topic. Much discussion and hard data was devoted to the fact that Ghawar, the largest field in the world, along with all of Saudi Arabia’s other large fields, was old and tired. In recent years both water injection and so-called “bottle-brush” drilling have been employed to maintain production and both of these techniques tend to accelerate decline and damage the reservoirs. They are desperate measures.
With bottle brush drilling, a shaft is drilled horizontally over long distances with a number of brush-like openings. As water is forced under pressure into the reservoir, the oil is forced upwards toward the well heads and extraction is thereby increased. However, when the water table hits the horizontal shaft, often without warning, the whole field is virtually dead and production immediately drops off to almost nothing. This comes as surprise in most cases. As several at the conference noted, this is exactly what had already happened in Oman, Syria and Yemen.
As William Kennedy, a UK observer at the conference noted afterwards, “For the record, Ghawar’s ultimate recoverable reserves in 1975 were estimated at 60 billion barrels – by Exxon, Mobil, Texaco and Chevron. It had produced 55 billion barrels up to the end of 2003 and is still producing at 1.8 billion per annum. That shows you how close it might be to the end. When Ghawar dies, the world is officially in decline.”
No one, not even from the major oil companies or the economic camp rose to defend Saudi Arabia’s claim that it could increase production rapidly. The BBC’s Adam Porter nailed the International Energy Agency’s chief economist Faith Birol over his confident assertion that there was still plenty of oil.
In public, Mr Birol denied that supply would not be able to meet rising demand, especially from the buoyant economies in the USA, China and India.
But after his speech he seemed to change his tune.
"For the time being there is no spare capacity. But we expect demand to increase by the fourth quarter (of the year) by three million barrels a day."
He pinned his hopes for an increase in production squarely on troubled Saudi Arabia. "If Saudi does not increase supply by 3 million barrels a day by the end of the year we will face, how can I say this, it will be very difficult. We will have difficult times. They must invest."
Can Saudi deliver?
But even Mr Birol admitted that Saudi production was "about flat".
Three million extra barrels a day would mean a huge 30% leap in output in just a few months.
When BBC News Online followed up by asking if this giant increase in production was actually possible rather than simply a desire he refused to answer. "You are from the press? This is not for you. This is not for the press." [F – BBC Porter]
In his presentation, Matthew Simmons, CEO of Simmons and Company International, the world’s largest investment bank reeled off a litany of “mistakes” made by the energy industry over decades. He described some of these mistakes as:
- Demand was never understood properly;
- Supply was merely aspiration (not actual reality)
- Decline curves became waterfalls
- We didn’t have enough rigs (infrastructure)
- There was little fuel substitution
- There were few technology gains
Simmons used last year’s Northeast US blackout to highlight some of the counter-productive reactions that had appeared during its worst moments. These, he suggested, paralleled the global rationale that had been brought to bear on current energy policy. “People were idling their car engines just to charge their cell phones. We couldn’t refine or pump gas. You need electricity to do that.”
Left to right; Ali Bakhtiari, Colin Campbell, Fritz Vahrenholt (RE Power),
Hans Wilhelm Schiffer (RWE Power), Hartmut Schneider (BMW), Faith Birol (IEA).
Simmons described these mistakes as cascading and compounding over time and suggested that the underlying cause of all of them was the inherent assumption pushed by the financial markets that growth could possibly be infinite when nothing else in the physical universe is; when no organism or species has ever avoided the cycle of growth, maturity and decline that governs the natural world. He chided that financial analysts on today’s markets remember the false alarms about shortages in the 1980s and said that those crises (which never materialized), where many lost jobs by predicting permanent shortages had failed to understand that they were describing and reacting to political events rather than geologic ones. Many in the markets, he said, were still saying to themselves, “That’s never going to happen to me again.”
He likened them to the French Army which in 1940, having spent hundreds of millions to build the Maginot Line of fortresses, had just become ready to fight World War I on the eve of World War II.
We know how that turned out.
Colin Campbell, the “godfather” of the Peak Oil movement, with a bit of pique, divided the conference presenters into three camps: The Surveyors who were reporting hard data and not abstract modeling; The Economists who were denying reality and asserting that money produces energy and not the other way around; and the Pretenders “who know full-well what the situation is, but pretend otherwise for short-term political objectives.
In the last camp, he placed Faith Birol, chief economist for the International Energy Agency (IEA), supposedly the world’s energy watchdog. Even Birol made his own startling revelations on the second day.
Birol confirmed that another new trend, new since Paris, had become dominant. Many presenters from German and European industry had begun listing a new priority for future energy planning I had not heard before. They all emphasized “energy security” as the top or one of their most important concerns for the future. I checked my notes from Paris. I didn’t record it being mentioned once. That sounded military to me, at least in terms of building geostrategic alliances which always have military options included. When confronted directly on that point the presenters retreated to assertions that what they really wanted was treaties and economic agreements. Well, I thought, what enforces those things?
Birol also hit hard on this point. Then he engaged in a kind of irrational presentation in which he put forth four points. There first two were telling.
First, he said that the IEA was absolutely certain that there was enough energy to guarantee economic growth until 2025.
In his very next point he said that (in light of Shell’s downward revisions and pending revisions from other major oil companies) there was sufficient uncertainty about the true nature of stated world reserves that a new “transparent” reserve accounting system should be established to provide the needed trust for the financial markets.
In other words, his first point was meaningless.
Colin Campbell, seated on the panel with Birol quipped, “If there were transparency it would be clear that we are at peak now and everything might fall apart.
Again, I thought of the headlines and war and said to myself, “Um, it already is.”
British Petroleum and Exxon Mobil also stepped through the looking glass. After presenting a series of slides which almost everyone in the audience was quite capable of reading, BP spokesman Francis Harper, addressing the issue of “reserve growth” refused to answer two direct questions about how his charts had just absolutely confirmed an imminent peak and decline. He just didn’t answer. He did say that “Reserve estimates are uncertain and can vary widely throughout field life.”
Later, ASPO founder Campbell speculated that BP was perhaps the worst book-cooker of all the majors when it came to reserves and that there might be some large surprises coming as increasing pressure was put on the majors to produce transparent and verifiable calculations.
Exxon Mobil’s G. Jeffrey Johnson, while saying that supply was sufficient to satisfy growth until 2020, also admitted that current decline was at 4-6% per year. Economic growth is not possible without increased energy production. When asked by me where Exxon Mobil was working feverishly to find new reserves, Johnson rattled off a list of countries and regions already well familiar to FTW readers: West Africa, the Middle East and South America. Not one of those well-explored regions has anything near the two-or three Ghawar fields we need to find immediately to avert a crisis.
Infrastructure and investment
Assuming that sufficient oil was found, how much money would be needed to develop it and bring it to market? Exxon Mobil’s spokesman indicated that a global annual investment of $530 billion would be required. The IEA’s Faith Birol stated that a total of $16 trillion would have to be invested before 2030 to develop oil and gas reserves that – even he admitted – no one was sure existed.
Matt Simmons – One on One
Peak Oil advocates quote Matthew Simmons frequently because his voice is refreshing. They also note that there is a duality to his thinking that leaves them scratching their heads from time to time. Those advocating economic reform or seeking to change the financial system built around oil do not always agree with him on those points. He is still a Republican and a die-hard investment banker. I found myself liking him sincerely on a personal level, disagreeing with him on some economic levels, yet remaining grateful for his candor on reserves.
I had him alone in Berlin for almost an hour. Some of his observations were telling.
He insisted that it was imperative that we (the US) begin to examine every area where we use energy and find ways to become more efficient. As an example he said that using a burner tip in a multitude of industrial practices, or in boiling water, was immensely more efficient than converting gas into electricity. He suggested gong to a “three-shift” economy, where everyone would be required to work graveyard shifts about one-third of the time, was a way to avoid overloads to the grid. The reason is simple, he said. Power generating stations run all night while very little electricity is drawn. Plants cannot be shut down and restarted. After you turn an electrical generating station off, it takes a week to bring it back on line. That’s called “spinning” and it’s extremely expensive. “Instead of having everything peak between 4 and 6 PM you can spread it out and still have some growth because you’ll be making use of capacity that is not being used during off hours.”
I thought about how far ahead Europe, and especially Germany was in its thinking. All electrical uses in hotel rooms are made possible only when your room key is inserted into a slot. Leave the room, take the key, and everything shuts off automatically. Every gas station I saw in Germany had the option for people to purchase biodiesel, the cheapest grade of fuel, at about 90 US cents a liter. (And you think US gas prices are bad! Premium gasoline was selling at just under $5 (US) per gallon). At those prices it’s easy to understand why German drivers, when they come to ubiquitous railroad crossings, automatically shut off their engines until the train passes.
Public Enemy Number One, according to Simmons, is not SUVs but air conditioning. His top priority would be to design and build vastly more efficient air conditioners. Ironically, he believes that when gasoline reaches $7 per gallon (and he does), there may be a lot of people riding together in SUVs rather than in smaller cars. Let’s hope!
But he and I part company on the price of oil; not only does he see it rising to $182 a barrel, he thinks that it might be beneficial, especially when it comes to generating some of that $16 trillion that needs to be invested in new oil and gas infrastructure. At $182 a barrel Simmons predicts the pump price will be $7 a gallon. “But”, he added cautiously, “we’re not going there overnight.”
“$41 oil last week was $18 oil in 1980. A year ago we had $30 oil and now we have $40 oil. Has the economy slowed?” he asked rhetorically
I avoided a long discussion about how the economy is rigged and supported by many hidden incentives like Afghanistan’s burgeoning heroin trade and the resulting cash that floods New York banks and brokerages.
Where he lost me completely was when he postulated that prosperity for developing oil producing nations would be neatly financed with oil at $182.
“If they can export 25 million barrels per day for the next ten years at that price then they can finance their prosperity. The shareholders will benefit.” Yes, I thought, but only by buying more “things” that need energy to operate or manufacture.
Yes, this was the same Matt Simmons who just as steadfastly argues that this kind of production is not possible; the same Matt Simmons whom FTW has quoted as saying that future economic growth is not possible. Then he came back to a left-handed point I think I have been hearing him make but which he has never fully acknowledged. In his presentation on the floor he had referred to the necessity of reducing demand. I had always understood that to be the byproduct of a recession.
He bypassed the question in private but did observe, “I’m very worried about sustainability at any price. But at low prices it’s a nightmare.”
On the question of Saudi Arabia he was unequivocal. “The Saudis are out of capacity. That’s my opinion… They have no infrastructure or extra pipes or gas, oil, and water separators (very expensive large globes used to separate what comes out of a water injection well). They have very heavy oil which, through a conventional refinery, produces asphalt. We don’t need asphalt. We need gasoline. It takes a complex refinery to make gasoline and it only takes 7-10 years to build one.”
After two years of study and two days at the conference, it was obvious that a crash building program begun today by Saudi Arabia would make no difference if most of the Saudi fields (especially the biggest ones) had already gone into, or were near, decline. As we have already seen in FTW, the uncertainty of return on investment was the principal reason why more power generating stations weren’t built in the US in the last five years. There wasn’t enough natural gas to run them and pay off the debt. The same cost-benefit issue arises in Saudi Arabia.
We’re back to money again.
Ali Samsam Bakhtiari
Another fixture at ASPO conferences is Ali Samsam Bakhtiari, Vice President of the National Iranian oil Company (NIOC). A suave and genial Persian, on whose tribal land the first oil well in the Middle East was drilled, Bakhtiari was doggedly followed by journalists and documentarians looking for relevant quotations. Frequently in the company of Simmons, he remained available throughout the conference.
Bakhtiari is firmly in the camp of the Surveyors, warning about Peak Oil and convinced of its certainty. It was he who, in Paris, dropped the first hints to me and others that Saudi Arabia might have peaked in May of 2003. I have come to call him “The Prophet Ali,” a label which makes him quickly blush and wave his hands in embarrassment.
Like others from the region attending the conference, Bakhtiari brought new warnings to Berlin. He cited the data about sudden and unexpected declines as the result of bottle-brush drilling in the region and expressed his strong doubts that Saudi Arabia could increase production under any circumstances. While a bit more reticent to express his fears about growing instability within the region, he was more candid in his assessment of the global energy picture.
In his presentation, Bakhtiari told the conference, ‘The crisis is very, very near. World War III has started. It has already affected every single citizen of the Middle East. Soon it will spill over to affect every single citizen of the world.
Syria’s oil production is in terminal decline. Yemen is following. Major Middle East producers, including Saudi Arabia, will peak soon or have already peaked.’
Off the stage he was even more direct, “The present war cannot be confined to the Middle East. It will soon spill over to the rest of the world. The final implications will upset the global applecart.”
RIMINI – A Start
Colin Campbell has, from a true expert’s viewpoint begun the search for immediate, if admittedly incomplete solutions. In his final presentation he submitted a draft of a plan to manage decline ethically. Called the Uppsala Protocol (formerly the Rimini Protocol, available at http://www.peakoil.net), Campbell’s simple proposal approached Peak Oil from humanitarian and egalitarian imperatives rather than market forces.
Though simple in concept, the two proposals for future consumption in the Uppsala Protocol may ultimately force mankind to make a fundamental choice about what its moral “True North” really is.
NOW IT IS PROPOSED THAT
1. A convention of nations shall be called to consider the issue with a view to agreeing an Accord with the following objectives:
a. to avoid profiteering from shortage, such that oil prices may remain in reasonable relationship with production cost;
b. to allow poor countries to afford their imports;
c. to avoid destabilising financial flows arising from excessive oil prices;
d. to encourage consumers to avoid waste;
e. to stimulate the development of alternative energies.
2. Such an Accord shall have the following outline provisions:
a. No country shall produce oil at above its current Depletion Rate, such being defined as annual production as a percentage of the estimated amount left to produce;
b. Each importing country shall reduce its imports to match the current World Depletion Rate.
3. Detailed provisions shall be agreed with respect to the definition of categories of oil, exemptions and qualifications, and scientific procedures for the estimation of future discovery and production.
4. The signatory countries shall cooperate in providing information on their reserves, allowing full technical audit, such that the Depletion Rate shall be accurately determined.
5. Countries shall have the right to appeal their assessed. [F – ASPO]
As the conference ended, Campbell and others debated whether to take the conference to Brussels (“Broadway” as he called it) – home of the European Union -- in 2005 or to go to Portugal. I couldn’t help thinking, “What are you waiting for?”
Dow Jones Watches
The start of the Berlin conference on Peak Oil was oddly marked by the simultaneous release of an Op-Ed from the Dow Jones Newswires. As it turns out – in a sign that there was some convergence – the story’s author was also covering the conference with a critical eye.
THE SKEPTIC: Politicians Take Notice
By Stella Farrington
A DOW JONES NEWSWIRES COLUMN
LONDON (Dow Jones) – Desperate pleas for OPEC to pump more oil are not only futile, but serve to perpetuate the myth that high prices are a temporary problem the producer’s group can easily fix.
The sooner it’s recognized that high oil prices are not going to go away overnight, and that the Organization of Petroleum Exporting Countries is largely helpless to alleviate the problem, the sooner politicians and industry can hammer out a different solution.
Certainly there’s reason to be alarmed by current prices. At $40 a barrel, the oil price is inflationary and will eventually choke global economic growth.
Consumers are being hit by soaring gasoline prices, which are at all-time highs in the U.S. and fast approaching the record of four years ago in the U.K. – a period marked by fuel riots…
…The only country with sufficient spare capacity is Saudi Arabia, which currently pumps 8 million barrels a day and claims it can hike output sustainably to 10 million barrels a day quickly…
And is suits OPEC to maintain the impression it can open the spigots at the drop of a hat. The last thing it wants is for people to sense an oil shortage looming, even only a temporary one, as that could lead to energy conservation and a longer-term decline in demand…
And there’s no point in looking outside of OPEC for a quick fix. [F –DJNW]
The World Awaits
When I got back from the extended trip to Berlin, Cologne and Toronto, it was like all the “real-life” things that weren’t mentioned in Berlin ganged up on me. My inbox was flooded with Peak Oil stories from all over the world. The stories were coming out daily now and they seemed like pellets from a massive shotgun blast which people had not yet realized had been unleashed by only one trigger pull and only one shooter. It had always been inevitable that, sooner or later, people, politicians, and the markets would get it, perhaps all at once. It was the “later” possibility that scared most of us in Berlin.
If one scratched any surface in early June of 2004, as the G-8 nations gathered in Georgia with energy and the Middle East as their most pressing concerns [F- CNN, June 8, 2004 see below]; as gasoline prices continued to rise; as a wave of terror attacks forced foreign technical service workers to flee Saudi Arabia; as Saudi Arabia continued to not increase production; and as more data streamed in suggesting that they couldn’t; one could almost feel panic lurking.
People want to be told why they are afraid instead of looking inside to find out for themselves. On other fronts anxiety also rose as a torrent of stories implicating the highest levels of the Bush administration in sanctioned torture eroded the self image of most Americans. The sudden resignations of CIA Director George Tenet and his Deputy for covert operations in early June marked a watershed in a torrent of high-level and damning criticism of the Neocons from senior military leaders and former government officials.
Americans were being confronted on a daily basis with gut-wrenching documentation and photographs of widespread and horrendous torture at Iraq’s Abu Ghraib prison camp. It had been sanctioned, condoned, and approved by the highest levels of the Bush administration: even the President, the Attorney general and the Secretary of Defense. The torture had happened all throughout occupied Iraq, not just Abu Ghraib.
The result has been cognitive dissonance of the highest order, as many Americans retreat in the spring of 2004 into their inner selves and say, “But we don’t do that.”
On behalf of every American who has tried through great sacrifice to stop it for decades, “Oh yes we do!”
The biggest fear however, subtly acknowledged by global policy makers, and not-so-successfully masked, is about energy.
On June 6, 2004 Peak Oil arrived in the Washington Post. In a story titled “After the Oil Runs Out,” James Jordan and James Powell wrote:
If you're wondering about the direction of gasoline prices over the long term, forget for a moment about OPEC quotas and drilling in the Arctic National Wildlife Refuge and consider instead the matter of Hubbert's Peak. That's not a place, it's a concept developed a half-century ago by a geologist named M. King Hubbert, and it explains a lot about what's going on today at the gas pump. Hubbert argued that at a certain point oil production peaks, and thereafter it steadily declines regardless of demand. In 1956 he predicted that U.S. oil production would peak about 1970 and decline thereafter. Skeptics scoffed, but he was right…
It now appears that world oil production, about 80 million barrels a day, will soon peak. In fact, conventional oil production has already peaked and is declining. For every 10 barrels of conventional oil consumed, only four new barrels are discovered. Without the unconventional oil from tar sands, liquefied natural gas and other deposits, world production would have peaked several years ago…
… Lost in the debate are three much bigger issues: the impact of declining oil production on society, the ways to minimize its effects and when we should act. Unfortunately, politicians and policymakers have ignored Hubbert's Peak and have no plans to deal with it: If it's beyond the next election, forget it…
… To appreciate how vital oil is, imagine it suddenly vanished. Virtually all transport -- autos, trucks, airplanes, ships and trains -- would stop. Without the fertilizers and insecticide made from oil, food output would plunge. Manufacturing output would also drop. Millions in colder regions would freeze… [F- Washington Post, see below]
It was a tepid entry from the Post, but a start. The story relied on generalities about peak and decline, to the exclusion of all the hard data that has surfaced over the last two years. Simultaneously, it tried to give false comfort without foundation.
A month before on April 26, the Moscow Times had been a bit more direct. “G-7: Oil Price Threatens World Economy” was the headline, and the story minced no words. Russians seem to take this kind of news in stride much better than Americans.
In a statement released after talks in Washington, the G-7's central bankers and finance ministers singled out energy costs as a risk to global growth. Crude oil prices are up about 37 percent from a year ago and have risen 11 percent to nearly 11-year highs around $37 per barrel since the officials last met in Florida on Feb. 7.
"It is obvious that rising oil prices can have a negative effect on world GDP growth," said U.S. Treasury Secretary John Snow. German Finance Minister Hans Eichel said the Organization of Petroleum Exporting Countries must "live up to their responsibility for the global economy." [F – MT, below]
These stories were followed shortly thereafter by more , which edged dangerously close to the panic line. And all the Throughout May and June of 2004 pundits spun out webs of sophistry and misleading data spun forth by pundits who misrepresented data throughout May and June of 2004 with only one real intent: in a desperate effort to “protect” the markets , ; that effort had apparently failed. Some, like Sterling Burnett in a Houston Chronicle Op Ed , blithely claimed that there was enough oil last for 500 years. [F – HC] Not even the chief critics of Peak Oil would do that. Others, like Victor Canto of The the National Review said it was all a matter of economics; need and price would produce a painless substitution with some new energy source he wasn’t quite able to describe or hadn’t fully researched. [F – TNR] Even the shameless George F. Will, writing in the New York Post, while not fully able to say that Peak Oil wasn’t real, suggested that everything was a function of price and that throwing money at the problem would soften the blow while – at the same time – offering an unfounded morsel of hope for the easily frightened by saying, “But, then, Alaska may have three times more reserves than originally estimated.” [F – NYP]
George, we’ve been there: Estimated reserves? Probable reserves? Proven reserves? Ultimately recoverable reserves?The kind of reserves that caused Shell to downwardly revise its “booked” reserve figures four times in one year? [F - CBC] The kind of reserves that caused the IE A’s chief economist Faith Birol to state that a deep new transparency is needed in the reporting of so that if we can are to find out how much there really is? The kind of reserves that British Petroleum was forced to defend on June 14 th while warning that new calculations might result in downward revisions? [F- APBIz] The kinds of reserves that serve only to define share values and which exist only in the minds of economists, brokers and stockbrokers? The kinds of reserves which cannot and will never be pumped into your gas tank, or used to grow and transport your food, or get you to work?
The kinds of reserves that prompted BusinessWeek to ask on June 21 st 2004, “Why Isn’t Big Oil Drilling More?” [F- BW], or the Denver Post to write on June 13 th, “US Faces reality Check Over Oil.” [F-DP], or the New York Times to write a story asking why, for six years ChevronTexaco’s stated oil reserves have risen while their production has steadily fallen. [F – NYT] Are we drilling more now and enjoying it less? Where is the money to drill with coming from as oil companies buy back shares, streamline and build up cash reserves?
Big oil isn’t drilling more because they know there are no more large finds out there to drill in. More drilling doesn’t mean more supply. It means more holes in the ground. This is what people like , M . King Hubbert, Kenneth Deffeyes, Richard Duncan, Walter Youngquist, Colin Campbell, Kjell Aleklett, Jean Laherrère, Richard Heinberg, Julian Darley, Matt Simmons and all of our colleagues have been warning about for years.
That is why I have taken such pains over the years to document how the world’s economic system is hopelessly corrupt and absolutely incapable of telling the truth. Yet, even still so, there are signs that the thin veneer between outward confidence and fear; between a half-truth which is really a lie and a whole truth which can lead to real solutions; is fast approaching. dissolving. Until that Rubicon is crossed the deception and denial are overcome, there will be no real solution other than continued war, bloodshed and destructive behavior which is blocking us from more peaceful, longer-term and more humane solutions.
George Bush and Dick Cheney may have meant it when they said that the American way of life is not negotiable. But it most certainly is on life-support and being sustained by cruelty, brute force and lies.
The markets just can’t hide it anymore.
On April 7th, J.P. Morgan hosted a two-day private conference call for its analysts and major investors titled “Peak Oil , : Fact or Fiction?” FTW secured permission and got veteran investigative journalist Suzan Mazur on the line to listen to that conference and we reported on it to our subscribers. (I listened too.) Although barely sticking a toe into the water, the mere fact that Morgan had decided the subject was important enough to address, was a watershed moment. [F – FTW] This, even as Bloomberg and Forbes , were advising their more sophisticated readership about profit opportunities and likely consequences of Peak Oil’s arrival. That , of course, raised the unholy specter of wild speculation that could cause untold human suffering as prices gouged and crippled through price gouging.
It reminded me of the recommendation of Matthew Simmons in Berlin that oil futures and speculation insist upon should require a 50% margin requirement for investing in oil derivatives (futures)
Finally, at long last, someone said it all in plain English on June 13, 2004. On that day the Seattle Times wrote an editorial titled “Oil and S&P connection points to grim news for stocks.” Finally! [F- ST]
Even as this was finally admitted, CBS News MarketWatch issued a bulletin saying that US new home sales had fallen sharply in April. That was followed shortly thereafter by another bulletin from another source drawing attention to a sudden and dramatic increase in America’s M3 , credit-based , money supply.
The Federal Reserve has confirmed our Stock Market Crash forecast by
raising the Money Supply (M-3) by crisis proportions, up another 46.8
billion this past week. What awful calamity do they see? Something is up.
This is unprecedented, unheard-of pre-catastrophe M-3 expansion. M-3 is up
an amount that we've never seen before without a crisis - $155 billion
over the past 4 weeks, a $2.0 trillion annualized pace, a 22.2 percent
annualized rate of growth!!! There must be a crisis of historic proportions coming, and the Federal Reserve Bank of the United States is making sure that there is enough liquidity in place to protect our nation's fragile financial system. The amazing thing is, the Fed's actions mean they know what is about to happen. They are aware of a terrible, horrific imminent event. What could it be? [F – Safe]
We have to pay for $100 (or higher) a barrel oil somehow. Why don’t we just print the money? Anyone who has heard of the damage done by inflation and hyperinflation to those least able to cope with it should think back to Germany’s Weimar Republic in the 1920s. Perhaps they should also look ahead to future wars as the US Navy announced on May 31 st that it was deploying a US aircraft carrier battle group to the Gulf of Guinea off the West African coast for a joint exercise with our new-found friends; the tiny island nations of Sao Tome and Principe which had just experienced a US-friendly coup. [F-VO A].
I no longer need to defend Peak Oil and Gas. My assistance on that front seems wholly unneeded. It’s doing fine all by itself. It is what we are doing in the face of it that presents mankind’s greatest challenge and the challenge of my future work.
As if to punctuate this report and remind us of the great fear expressed by one attendee at the Berlin conference, on June 16, CNN reported that the security chief for all oil operations in northern Iraq had been assassinated by ambush as he left for work that morning. This, but a one day after another bombing of a major Iraqi pipeline. [F – CNN2]
[BBC Porter] Porter, Adam, “Is The World’s oil Running Out Fast?", BBC News, June 7, 2002.
[F – DJNW] Farrington, Stella, “THE SKEPTIC: Politicians Take Note: OPEC Can’t Cool Oil , The ,” Dow Jones Newswires, May 21, 2004.
[F – CNN] – “G8 offers opportunities for Bush , ,” CNN, Monday June 7, 2004
[F- Jordan, James and Powell, James, “ After The Oil Runs Out”, The Washington Post, June 6, 2004, page B07].
[MT] “ G-7: Oil Price Threatens World Economy , The ,” Moscow Times , April 26, 2004.
[HC] Op Ed, Burnett, H. Sterling, “Enough Oil to Last 500 Years”, The Houston Chronicle , May 29, 2004.
[TNR] Canto, Victor A., “Hubbert’s Holes”, The National Review , June 4, 2004.[NYP] Will, George F. “ America After Oil ”, the ,” New York Post , June 13, 2004.
[CBC] – “Shell Reduces Estimates for Fourth Time This Year ”, ,” Canadian Broadcasting Company, May 24, 2004.
[ APbiz] Stanley, Bruce, “BP defends oil reserve estimate method ”, ,” A ssociated Press Business Wires , June 14, 2004.
[BW ] “Why Isn’t Big Oil Drilling More?’ , BusinessWeek , June 21, 2004.
[DP] Raabe, Steve; “US Faces Reality Check Over Oil ; The ,” Denver Post, June 13, 2002.
[NYT] Berenson, Alex, “ An Oil Enigma: Production Falls Even as Reserves Rise ”, The ,” New York Times , June 12, 2004.
[ST] Burns, Scott, “Oil and S&P connection points to grim news for stocks ”, The ,” Seattle Times , June 13, 2004.
[VO A] Belida, Alex, “US Navy to Deploy Aircraft Carrier Strike Group in the Gulf of Guinea , ,” Voice of America News, May 31, 2004.
[CNN2] “Oil Security Chief Slain in Iraq”, CNN, June 16, 2004; http://www.cnn.com/2004/WORLD/meahttp://www.fromthewilderness.com/16/iraq.main/index.html.
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