The peak oil crisis: The summer ahead
Last week they began kidnapping foreign workers at an alarming pace —22 foreigners kidnapped in 36 hours— and overran offshore platforms and production ships. On Monday, the strongest militant group issued a chilling ultimatum. “All foreign and local nationals working with multinational oil companies and their contractor should vacate Ijaw territory (the oil producing region) immediately.” “All foreign embassies should withdraw their nationals from our homelands.” “Nothing can protect them --- No more hostages taking -- Any national caught shall be summarily dealt with.”
By the way, these guys have a good track record for doing what they say they are going to do. The next morning, three major oil pipelines were bombed, shutting down another 150,000 barrels per day of oil production. Total production shutdown by the insurgency is now on the order of 900,000 barrels per day. The insurgents have demonstrated that they have the capability of shutting down most, if not all, of Nigeria’s oil production.
Should this happen, we might find our imports running a million barrels a day short this summer, unless we can outbid the Chinese. Replacing this much lost Nigerian oil production will be very expensive at the gas pump.
If we get through the stockpile and Nigerian situations, then it will be time to consider the situation in Venezuela. In case you missed it, President Chavez managed to expropriate about $30 billion worth of oil company processing facilities last week and is currently negotiating the terms under which the oil companies will remain in Venezuela. The negotiations do not seem to be going well and there seems to be a good chance one or more of the foreign oil companies will pull out and head for the courts.
We have been importing about 1.4 million barrels of oil a day from Venezuela, which the government would gladly sell to China or nearly anybody but the US. The speed with which a breakdown of relations between Chavez and the oil companies will affect US oil imports is difficult to predict.
As the interaction between oil production and a hurricane is unknowable until a few days before it strikes, there is not much useful to be said other than that the oil companies are working hard to mitigate damage from future hurricane strikes in the Gulf and forecasters are predicting a banner year.
The future of Iraqi oil exports depends on the course of the insurgency. The US is currently getting about 400,000 - 500,000 barrels per day from Iraq, and so long as each of the insurgent groups gets to steal a share of the oil or revenue, nobody seems inclined to kill the golden goose. As there seems to be very little in Iraq not susceptible to being blown up, the current situation must be satisfactory to all concerned. Sooner or later, however, somebody will become discontented and precipitate a drop in production.
Finally, we will have to watch the slow-movers – declining Mexican production (we get 1.5 million barrels a day from there), lower Saudi production, and even the continuation of frenzied growth in China. All these seem destined to add a few, or a lot of, cents at the pump before the year is out.
So there you have it, from unusually low gasoline stocks in the spring to frenzied Chinese economic growth later in the year -- all seem destined to play a role in how much money you will be leaving at your favorite gas pump later this year.
What do you think? Leave a comment below.
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