Peak Oil

The recent rise in energy prices is assumed by some to be more of the same type of fluctuations we have seen over the past 30 years.  Others say “not true” and offer a compelling argument as to why high oil prices are here to stay, and in fact, may go much, much higher, topping $105 per barrel within the next five years¹.

Why is this spike in prices different than what we have seen in the past? Market forces are acting in typical fashion, and demand is outstripping supply. Does this mean we are running out of oil? No, just that demand is at records rates and increasing, and supply channels, oil fields, and refining capacity is aging, and many major oil producing fields are being depleted, and not able to produce as much oil as fast as they used to.

Further, in past periods of energy shortfalls, there have been those willing to “open the taps” and increase oil crude production. During the 1973 and 1979 shortages, oil from Norway and Great Britain was able to take up the slack. Furthermore, in 1973, oil imports to the US were only about 11% of domestic oil use. Today, 58% of domestic oil use is imported².

World Oil Demand

According to the International Energy Agency, world demand for oil is currently at 82.5 million barrels per day (MBD) Current supply is 82.5 mpd.

Demand from China is accelerating at a record pace. China is now the second largest oil importer in the world and is aggressively seeking to purchase larger and larger shares of the oil markets. From making arms for oil deals with Iran, to financing pipelines and refineries in Venezuela, China is investing heavily into securing agreements for oil flows in the future. This is in keeping with a modernization program that is similar to the US interstate Highway system developed in the 1950’s. At 6.7 mpd in oil imports and rising, China is the 800 pound gorilla who has the money to be a major player in the world oil markets.  Anticipated demand will be over 84.6 MBD by year end 2005. ⁴

Currently the world is using approximately 4-6 barrels of oil for every one it discovers.

World Oil Supply

The OPEC oil ministers met Wednesday, June 22,  and increased their total oil production by 500,000 bd. This is seen as legitimizing the already exceeded quotas, so real production increases are not anticipated. Current thinking is that OPEC has about 1.5 mpd capacity to increase production, but cannot sustain that for long, without costly improvements to oil production infrastructure. Actual sidelined capacity sits at about .5 MBD³. Aging infrastructure and a shortage of refining capacity, coupled with a surge in demand, combine to create a supply imbalance, and prices are likely to stay above $50 per barrel for the foreseeable future, and if any disruptions occur, could shoot much higher.

Oil supplies come to the US from about 15 different countries. Of the top seven importers, five have political systems in instability or have outright hostility toward  the US. These include Saudi Arabia (#2 importer) Venezuela (#4), Nigeria (#5) Angola (#6) and Iraq (#7). Canada (#3) and Mexico (#1) are the only two that are stable, and friendly toward the US. Disruptions in any of these countries could cause oil prices in the US to spike upward. In the fall of 2004, hurricane Ivan wreaked havoc on the oil platforms in the Gulf of Mexico causing prices to spike upward.

Matt Simmons, a former energy advisor to the current President Bush, in his book, “Twilight in the Desert,” makes the case that Saudi Arabia is at or near its peak, and that the giant fields of Ghawar, Abqaiq, and Berri are all aging and in some cases well past their peak and near depletion. He has reviewed over 239 scientific peer reviewed papers on oil production worldwide, and concludes based on that review, that the supplies promised by OPEC are not achievable.

It is significant that the 2005 first quarter production of most of the major oil companies is falling : ExxonMobil -3%; Chevron -6% ; Shell -8% ; Repsol YPF -7%., while Phillips-Conoco maintained its level with BP at least reporting a 2% increase (see Petroleum Review, June 2005).

Reserves

Proven reserves of oil are usually closely held secrets by nationalized oil companies, and other who might know. Stated reserves are suspect. For political or economic reasons, oil companies and oil producing nations want to show they have ample reserves on hand to meet demand. A closer look at these numbers raises many serious and disturbing questions.

Following the oil shocks of 1973 and ’79, OPEC was able to control the market and keep prices high. When high prices of oil caused recessions in the US and Europe, demand fell and prices collapsed back to about $9 bbl, falling form highs of over $30 bbl.  The OPEC nations agreed that reserves would dictate production quotas and within a year (1985) Venezuela, Iraq, Iran and the United Arab Emirates doubled their reserve estimates. Abu Dubai tripled theirs, and Saudi Arabia increased their reserves estimate by 50%. [1]

Furthermore, in many of the estimates put together by organizations such as the United States Geological Survey, Petroconsultants of Geneva, and others, these reserve estimates have not changed since 1985, even though 20 years of oil production has occurred since then.

Colin Campbell, Jean Leherrere and other people who are trying to figure out how much conventional oil is left in the known fields estimate the production since these reserves were published, and the veracity of the original claims, given that there was a very large incentive to inflate reserves to increase shares of production quotas. Their best estimates are that we are very close to having produced 50% of the known reserves of conventional oil. As this point approaches, production becomes more expensive on the second half of these reserves.

Geology

Oil exploration has covered most of the terrestrial globe. Oil geologists are able to look at geology and pinpoint with a high degree of accuracy the formations or “plays” oil is likely to reside. Offshore explorations have covered much of the continental shelves, and the only area on earth left for large scale exploration is deep ocean, which is inherently more expensive to produce.

Discoveries

The chart below shows discoveries of major oil fields by decade since the 1930’s.

While it is likely that there is oil yet to be discovered and in areas that are accessible, the steep declines in discoveries since the 1960’s means that production from these major fields is greater than the discovery of new fields.

Stuart McGill, Senior Vice President of ExxonMobil, noted that world demand for oil and gas is expected to increase by 1.7 percent per year, while the world's oil and gas fields on average are declining in production at a rate of 4 to 6 percent per year. This base decline, coupled with the growing demand for oil and gas, means that the amount of new daily production needed in 2020 is nearly equivalent to replacing all of today's daily production.

If this is a case of Never Cry Wolf, there was a real wolf in that story. If we make our country and Alaska more energy efficient, and peak oil is not happening soon,  we increase our competitiveness, reduce our carbon dioxide output and decrease the warming our scientists say is taking place, especially in the arctic. If we fail to increase our efficiency, and peak oil happens this year or next, with prices rising dramatically as many predict, we are in for some tough times indeed.

The drums of war are beating again, and the terrorists are winning. George Bush, has declared war, and congress is silent.  The NATO alliance is fracturing. Each Taliban prisoner held in Cuba contravening the Geneva Convention, and each US citizen held in jail deprived of his constitutional rights means the terrorists are winning.

Christian leaders like Dr. Jerry Prevo and Fox Graham spew open hatred toward Muslim peoples.  Broad new powers are given to the FBI to listen to our phone conversations and read our e-mail. Inadequate inspections persist at borders and airports, and every action taken that abridges the right to life, liberty and the pursuit of happiness, mean the terrorists are winning.

The Taliban have fallen, Al-Qaeda has gone to ground, and the under-funded department of Homeland Security tells us to buy duct tape. This country was founded on principles of freedom, individual rights, a free press and a right to practice one’s own religion without interference. Every time we gather and recite the pledge of allegiance, and say nothing about the erosions of our liberties means the terrorists are winning.

Every time we stand with hands over hearts and sing the star spangled banner while disregarding US policies that placed and keep millions of Muslim peoples subject to corrupt, despotic leaders, means the terrorists are winning.  We have met the enemy and they are us. They take the form of anti-patriotic executive orders that knock down our freedom and liberties one by one. They take the form of US foreign policies that create  distrust and hatred of the United States, and potentially spawn future Bin-Laden’s. And they take the form of millions of apathetic US citizens, unwilling to stand up to voice opposition to erosions of our constitutional rights.

200 years ago, our forefathers stood up to King George who was restricting their liberty and freedom, keeping them under a yoke of oppression. All patriots today should stand up to this George and prevent him from doing the same.

Scott Waterman

The electorate has spoken and now the executive branch, the congress, and judicial branch are fully controlled by one party, greatly influenced by a radical fringe. This rare and unholy amassment of power sends shivers down the spines of those familiar with history. The United States is currently, without question, the most powerful nation on earth. Never before in history has so few held power over so many in the world. Those in charge have an awesome responsibility; to avoid the corruption of absolute power.

Great civilizations such as Greece, Rome, China, or the Aztec and Mayan fell not to foreign oppressors; but from rotting internal structures. The transfer of public wealth to those close to the leaders, a wide gap between rich and poor, class divisions and a divided populace, coupled with constant war, led to the collapse of their societies.

The media are sometimes called the fourth estate, according to the concept of ancien régime in pre-revolutionary France. The press is the only industry explicitly protected by the US Constitution. The media has become final level of checks and balances structure of our government.

With one party power, the press needs to be ever more vigilant. Today, the checks and balances envisioned in the Constitution by the founding fathers of the United States are wiped off the board. Who watches the government? At a time when we need the media most, they are in turmoil. Corporate mergers have eliminated thousands of local news outlets, and the basic tenants of journalistic principles are slipping badly.

Former US House speaker Thomas O’Neill said “All politics is local.”  Local politics need local media in order to work. Corporate news does little to investigate, their interest is in ratings.  In the next few years, the media has an awesome responsibility; tell the truth, no matter who’s toes might be trod upon. The media needs to be digging like beavers in the void not covered.

September 11, 2001 went down as a day that changed history, like Pearl Harbor, or Patriots’ Day, April 19, 1776, when a ragtag militia stood against the mightiest army on earth, and said, “NO MORE!.”

Something happened to the media following 9-11. A twisted concept of patriotism has come to stifle and trump good journalism. If one speaks critically of the powerful, it borders on treason. The media allowed a party spun definition of patriotism to come into the vernacular, and that definition tarnishes those who questioned the veracity of the people in power. When we stop exercising our right of free speech, there are those who will seek to cap it. 

How have so many Americans come to believe that Saddam Hussein was somehow responsible for the attacks of September 11, or that he was somehow aiding Al-Qaeda?  These beliefs came from a lap-dog media, accepting spoon fed news releases from press conferences like so much cotton candy spun onto their microphones. Air and sugar are spun into a sweet concoction; with no nutritional value; we are left in a sticky mess.

There is no way to tell a complex story like how the Geneva Convention might be applied to Abu Graib or Guantanamo Bay in less than thirty seconds, including video footage and sound bites. Thomas Jefferson wrote that information is the currency of democracy. Without the information of what our government is doing, on a daily basis, how can the electorate make informed decisions?

Our media must do a much better job in the next few years if we are to hold onto the core values America stands for. A basic responsibility of every reporter in these United States is to verify every fact told to them, by an anonymous informant or by the President. We also hold the responsibility to let those media know when they report something we suspect is untrue. The checks and balances provided for in the constitution through the creation of the executive, judicial and legislative branches are gone. Only the media are left. God help us all. Our government surely won’t.

Scott Waterman