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Countdown to $100 oil (39) – Big Oil running out of oil

Jerome a Paris, Daily Kos
…the impertinent amongst you might point out to the essentially flat oil prices over the past 2 years as proof that I was scaremongering all along … or simply wrong, and that my silence was simply reflecting my belated acknowledgement of reality…

But the quarterly results of the big oil companies have provided me with some new data:…That table tells us that none of the big oil companies has been able to increase its oil production over the past year – in fact, most have seen a decline in their production.

And, in fact, this is not a temporary blip: oil production for these companies has been flat or declining over the past 5 years: …

So we have an incontestable trend here: Big Oil is unable to increase its oil&gas production. And this, after almost 8 years of almost non stop oil price increases: …

What’s going on? Aren’t markets working? A price increase, especially such a longlasting and massive one, should be a signal to producers to produce more, and to consumers to consume less. As we know, consumers are burning more oil thanks to record economic growth in China and elsewhere, and demand appears to not be very sensitive to prices in both emerging economies and oil producing countries as the good times roll. Despite flatter consumption growth in the developed world, demand is going up overall, and drives prices up.

But supply should then have delivered. And indeed it has, as spare production capacity around the world has been put in service. But new capacity, in particular that developed by the oil majors, should have followed. And yet we see from the above numbers that it hasn’t. Again, BigOil has been unable to increase production in the past 5 years.

One thing is obvious – it’s not for lack of money. The companies are enjoying record income and profits, thanks precisely to those high oil prices. It’s just that this money has been used to a much larger extent to buy back shares (effectively handing the money back to shareholders) than to invest in oil&gas production.

BigOil is effectively telling the market that it thinks its shareholders can use their money more profitably in other sectors of the economy.

Despite the significant increases in their costs (everything has gone up: raw materials, rigs, qualified personnel, as well as tax rates in oil producing countries), the profits from those assets they have put in production are high enough to suggest that oil companies would invest if they could.

Thus it means that they can’t. Quite simply, they no longer have access to new reserves.

Many articles in the MSM lately have criticized oil producing countries for not opening their reserves to foreign investors, as well as for not investing enough themselves, via their national oil companies. Whether this is caused by incompetence, short-sighted politics (governments limiting investment to grab the cash), long term strategy (hoarding while enjoying the higher prices on current production) or geopolitical posturing (the “energy weapon”), or, as is likely, a combination of all of these, is fundamentally irrelevant.

What matters is that we have effectively lost control of oil supply (and by “we”, I mean Western oil companies whose goal is to bring as much oil as possible to the market to fulfill existing demand).
(8 May 2007)

Review of Pfeiffer’s Eating Fossil Fuels

Dan Armstrong, Mud City Press

Eating Fossil Fuels: Oil, Food, and the Coming Crisis in Agriculture
By Dale Allen Pfeiffer
New Society Publishers (2006, 125 pages)

Without your support I would have given up on this long ago. And without your positive input, I would have drowned in pessimism.

The lines quoted above were written by Dale Allen Pfeiffer to his wife in the dedication to his book Eating Fossil Fuels. What does it mean when an author begins a work with an allusion to his “drowning in pessimism” and ends with a chapter entitled “Twelve Fun Activities for Activists”? With Dale Allen Pfeifer, it must be an insight into how gravely he views his subject and how hard he has worked to gain any kind of positive perspective on it. What his book describes regarding world food production is as sobering as the darkest side of global warming. It warrants this kind of grim concern.

Eating Fossil Fuels begins and ends with a very basic assessment, something that too few people completely understand or think about, and yet is absolutely critical to our well-being on planet Earth: our food supply is highly dependent on hydrocarbons, whether as fossil fuel or petrochemical additives. In the 1950s and 1960s when population growth threatened to outrun food stores, an international agricultural program, now referred to as the Green Revolution, was initiated to increase farm production all around the world through the intensified use of petrochemical fertilizers and irrigation. The results were impressive. Production nearly tripled. In the years since, low cost fossil fuels have increasingly become a critical part of all facets of industrial agriculture from the growing to the packaging to the transportation to the preparation of the product-to the extent, as Mr. Pfeiffer would say, we are all but eating fossil fuel.

Unfortunately, this kind of petrochemical farming has proven unsustainable as a long term strategy. It depletes the natural life of the topsoil, compromises the water supply, and with peak oil on the horizon, will soon be too expensive to maintain. Pfeiffer makes it very clear that if we don’t change the way we grow food, peak oil will do more than increase the price of gasoline. It will take food off the table of significant portions of the world. Clearly his own deep concerns for the situation are at least part of the reason for the pessimism we should all be glad he overcame.
(6 May 2007)

Gas Gouging Legislation

Jeff Vail, Energy Intelligence
Summer driving season is almost upon us, and with low gasoline inventories (especially in some areas like Denver) we can expect two things this Summer-higher gas prices, and calls for the government to “do something” about gas gouging. 81 percent of consumers seem to think that gas prices are “unreasonable.”

It’s becoming an annual exercise in trying to explain the basics of free market economics. Don’t get me wrong-our global economy is anything but a perfectly free market, and often free market rationale is simply wrong (though usually for failure to properly account for future costs, structural costs, and marginal values in pricing, but don’t get me started on that).

One case where the free market works admirably well on a micro-level: distributing a scarce resource to those who most need it through dynamic pricing of that resource. In the case of gas, so-called “gas gouging” is one of two things: price-fixing, or free market pricing. Price-fixing is certainly anti-competitive, and is exactly the kind of thing that governments should address-for example, if all the gas stations in an area formed a cartel and agreed to raise prices by 50%. The kind of coordination required to pull off such a feat is quite visible, however, and would immediately run afoul of existing anti-trust laws. There is no need for new legislation to address this, and quite frankly, this is not why gas prices will be high this summer.

The other kind of pricing-when a free market raises prices to reach an equilibrium between supply and demand-is highly beneficial to consumers. It ensures that gas is available-you may have to pay more for it, but if it isn’t worth the price to you, then don’t drive. At least if it is worth the price, you won’t find yourself in a two-hour line because of rationing, or simply find the pumps out of gas.
(8 May 2007)
Jeff points out that the oil companies are being set up to be scapegoats for the high gas prices. The question isn’t whether one likes the oil companies or not. The question is whether the accusation is based in reality. If it’s not based in reality, then we misunderstand the problem and lurch off into pointless and ineffective action. Other favorite scapegoats are national oil companies (NOCs), OPEC, and environmentalists.

The symptoms of scapegoating are:

  • Not talking about the underlying problem (in this case, peak oil)
  • Ignoring one’s own complicity in the situation (our profligate energy consumption).
  • Casting all the blame on one villainous group, as determined by one’s political worldview.

Expect more scapegoating as prices rise and stresses intensify. -BA

AP Moller Maersk believes oil production in North Sea has reached its peak

AFX News via ABC Money (UK)
COPENHAGEN (Thomson Financial) – Management at AP Moller Maersk’s Maersk Oil & Gas division believe oil production in the North Sea has reached its peak, daily Boersen reported.

‘Production is, under all circumstances, expected to decline during coming years, but our task is to counteract this as far as possible,’ Maersk Oil & Gas deputy director Anders Wurtzen said according to Boersen.

However, the Danish Energy authority expects new technology will help increase oil production in the North Sea, Boersen added.
(8 May 2007)

ODAC News May 9
Oil Depletion Analysis Centre (UK)
1/ IEA and EIA Forecast UK To Be Net Oil Importer for 2007 (ODAC, Wed 09 May)
2/ Automobile Manufacturing in Russia Up 15.6% to 372,000 in 1Q07 (FC Novosti, Mon 07 May)
3/ Silence on geothermal deafening (Toronto Star, Mon 07 May)
4/ Peak Oil or Dependence on Russian Gas – Which is more important for Turkish Public? (Turkish Weekly, Mon 07 May)
5/ Nuclear power no cure for global warming (Arabian Business [Reuters], Thu 03 May)
6/ Green groups dismayed as flights soar to record high (The Independent, Wed 09 May)
7/ Taiwan, not Texas, may squeeze summer gasoline (Reuters, Wed 09 May)
8/ Infrastructure projects in UAE exceed $300b (Khaleej Times, Wed 09 May)
9/ U.S.’s thirst for liquid natural gas growing (MSNBC, Tue 08 May)
10/ Exxon Mobil Says Peak Oil Unlikely in the Next 25 Years – Feedback (Dr Mamdouh Salameh, Mon 07 May)
(9 May 2007)
Glad to see that ODAC posting their headlines directly on their website. ODAC frequently has long comments on the articles it cites. -BA