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Daniel Yergin Day, July 13, 2006

SAN FRANCISCO (MarketWatch) -- The front-month futures contract climbed past $76 a barrel Thursday for the first time ever on the New York Mercantile Exchange, with August crude touching $76.30 and last trading at $76.21, up $1.26.

In regard to efforts to deny the reality of Peak Oil, I have previously described what I call the "Iron Triangle," which I define as: (1) most auto, housing and finance companies; (2) most of the mainstream media and (3) most major oil companies, major oil exporters and the energy analysts that work for the major oil companies and major oil exporters.

In my opinion, the Iron Triangle has a vested interest in denying the reality of Peak Oil, and they are, in effect, working together to encourage Americans to continue buying large vehicles, in order to continue driving large distances to and from large mortgages.

My reasoning is as follows.

The auto/housing/finance group wants to continue selling and financing large autos and houses.

The media group wants to continue selling advertising for large autos, houses and loans.

The major oil companies are concerned that if they admit to the reality of Peak Oil, they may face punitive taxation. The major oil exporters are afraid of military takeovers, if they admit to the reality of Peak Oil. The energy analysts are hired guns. This group provides the intellectual ammunition for the other two groups.

In all fairness, there are some notable exceptions. Mike Jackson, CEO of the AutoNation group, has called for a much higher gasoline tax, in order to reduce oil consumption. The Dallas Morning News, and some other papers, have run pro and con pieces on Peak Oil. ChevronTexaco, while not quite admitting the reality of Peak Oil, has come close. However, these are isolated exceptions in an ocean of Peak Oil denial.

ExxonMobil is a good example of the major oil company faction. Opec of course is the Organization Of Petroleum Exporting Countries. Cambridge Energy Research Associates (CERA), founded by Daniel Yergin, is a good example of the energy analyst faction. Following are recent direct quotes, in chronological order, regarding Peak Oil, by these three factions.

CERA:

Rather than a 'peak,' we should expect an 'undulating plateau' perhaps three or four decades from now.

Mr. Robert Esser
Senior Consultant and Director, Global Oil and Gas Resources
Cambridge Energy Research Associates
Huntington, NY,
Understanding the Peak Oil Theory
Subcommittee on Energy and Air Quality
December 7, 2005
energycommerce.house.gov

EXXONMOBIL:

Contrary to the theory, oil production shows no signs of a peak... Oil is a finite resource, but because it is so incredibly large, a peak will not occur this year, next year, or for decades to come

ExxonMobil Advertisement in New York Times, June 2, 2006
www.exxonmobil.com

OPEC:

We in Opec do not subscribe to the peak-oil theory.

Acting Secretary General of Opec, Mohammed Barkindo
July 11, 2006
www.mg.co.za

It is interesting to note that Mr. Esser's testimony in front of a congressional subcommittee corresponded to Kenneth Deffeyes' estimate that the world had used about half of its conventional crude plus condensate reserves, which is about the same point that US Lower 48 oil production, as predicted by M. King Hubbert, started declining.

Since Mr. Esser's declaration that we were years to decades away from anything resembling Peak Oil and since Dr. Deffeyes declaration that we were at Peak Oil, world crude plus condensate production is down by 1%, the Saudis have admitted to a production decline of about 5% and US net petroleum imports have shown a very interesting pattern. US petroleum imports and oil prices suggest that we have started a series of progressive cycles of demand destruction, where declining net oil export capacity worldwide is allocated to the high bidders, with the low bidders forced to reduce their consumption.

In any case, in a column in Forbes Magazine, published on 11/1/04, Daniel Yergin, in response to a question about the future direction of oil prices, dismissed concerns about oil supplies and asserted that oil prices on 11/1/05 would be at $38 per barrel. Note that oil prices exceeded $60 in the summer of 2005, prior to the hurricanes.

In my opinion, Mr. Yergin serves as an excellent symbol of the major oil company/major oil exporter/energy analyst group. And since oil prices are now trading at close to $76 per barrel--twice Mr. Yergin's prediction--I hereby designate July 13, 2006 as "Daniel Yergin Day," in honor of Mr. Yergin's continued efforts to, in effect, persuade Americans to continue driving large debt financed vehicles, on long commutes to and from large mortgages.

One of the little ironies about the Peak Oil debate is that it is those who are trying their best to warn Americans about the dangers posed by Peak Oil---Matt Simmons; Colin Campbell; Kenneth Deffeyes; Boone Pickens, Jim Kunstler etc.--who are most often blamed for rising oil prices. I think that it is just the opposite. It seems logical to me that those who are asserting that we have plentiful supplies of oil are doing far more to encourage consumption--and thus higher oil prices--than those who are asserting that we have problems with oil supplies.

If you believe Matt Simmons, et al, about the future direction of energy prices, you will drastically reduce your overall consumption, especially your energy consumption, by living in a small energy efficient home, close to where you work--which would ideally allow you to walk or take mass transit to work, or at least result in a short commute.

In my opinion, it is those who are telling us that Peak Oil is decades away--such as ExxonMobil, Opec and Yergin--who are most responsible for, in effect, encouraging Americans to continue driving $50,000 SUV's on 50 mile roundtrips to and from $500,000 mortgages in the suburbs.

My personal take on this issue is that we have to kill consumption--via a large tax on energy consumption, offset by tax cuts elsewhere--before consumption kills us.

Jeffrey J. Brown is an independent petroleum geologist in the Dallas, Texas area.
e-mail: westexas@aol.com

Editorial Notes: Also posted at www.graphoilogy.blogspot.com

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