[virgincrude]

Interpreting The Evidence

There’s a noticeable feeling of expectancy around, and too much emphasis on a mythical one time occurrence called Peak of Oil Production as though this were going to be a seismic event that everybody would notice. We shall never see the headline : WORLD OIL PRODUCTION PEAKS, GOVERNMENTS CALL FOR CALM, because we’ll only know the precise date after the event. It’s obvious you can prove anything you want with statistics and creative accountancy, so there are masses of conflicting data available for both pessimists and optimists to prove their particular viewpoints. For every chart produced as evidence of world decline, someone somewhere produces another which proves there’s plenty of scope for more to be extracted, by interpreting the numbers in a different way. Every time somebody declares we are about to reach a world production peak, somebody else pops up and explains very plausibly how and why they are wrong.
For me it has boiled down to this:
- Current investment, technological tweaks, ongoing projects not yet on stream, and various untapped reserves can not improve output in the short term. In the long term, huge investments may show very good figures, but in the meantime, the world economic situation will have decayed to such an extent that we will all smell the decomposition, because demand is not programmed nor projected to decrease.
- Occasional hiccups will register slight declines in the price of oil, causing falsely optimistic analyses, and will simply prolong the process, or prolong the Long Emergency. Decline rates have begun at a gradual rate, which seems to point to an acceleration to come. If that acceleration happens suddenly, then all the doomers and pessimists will be proven right.
Most people we know are in the economic flat earth category, with a pronounced faith in technology. Technology has so far failed to prevent us getting to this stage (I believe oil production has peaked, world wide) so how they think it’s going to help us maintain the current economic model, I just don’t know. I share Kunstler’s view that the Long Emergency has begun, and not with a bang but a whisper. Here are a few things which helped me decide not to worry any more about Peak Oil, since we are in it right now, I’m interested to know your take on it:

1. -First, a few quotes from Stuart Staniford posted on The Oil Drum, March 1st this year
Why Peak Oil is Probably About Now
World production stopped increasing in late 2004. Decline rates of existing production are very high. The major international oil companies have not been able to increase production for some time. Saudi production is declining 5% to 12% each year.
Petroleum Intelligence Weekly got hold of internal Kuwaiti documents indicating their true reserves were less than half the claimed value.

2. -The French seem to have ‘got it’ as evidenced by this report:
Published: Tuesday 4 July 2006 | Updated: Thursday 6 July 2006
www.Euractiv.com
French Senate warns of looming oil shock, calls for energy transition
“A report by the French Senate calls on the EU to lead an energy transition to counter climate change and "an oil shock of great magnitude" which they predict will hit the world by 2020 at the latest.”

3. -In a study of the projections published by International Energy Agencies, titled The Countdown for the Peak of Oil Production has Begun – but what are the Views of the Most Important International Energy Agencies Published on 15 Oct 2004 by EnergyBulletin.net / EnergieKrise.de. the authors W. Zittel, J. Schindler, L-B-Systemtechn came to the following conclusion:
“The projections presented by USGS, EIA and IEA regarding the future availability of oil give reason to grave concerns because the comforting messages of these studies unfortunately are not based on valid arguments. These studies ignore future limitations in the supply of oil which are meanwhile apparent, and by doing this they send misleading political signals.”

4. -Matt Simmons lectured on June 20th at the Pentagon-sponsored seminar series Energy: A Conversation About Our National Addiction here’s what he had to say:
Published on 24 Jun 2006 by Culture Change. Archived on 25 Jun 2006.

The maturation of Matt Simmons, energy-industry investment banker and peak oil guru

by Jan Lundberg
"Realistically, we’re probably at peak now. If not, production will fall faster later" as a result of rising demand. This definitive conclusion is from a data specialist on the main assets of the petroleum industry: reserves and the whole industry’s ability to extract, refine and distribute at a profit. He is not surprised that peak is here, nor that we are caught unprepared. He offers his audiences instances of the public and leaders ignoring past warnings, such as M. King Hubbert’s on the peaking of domestic and global oil extraction.

How did oil analysts and the government get caught with their pants down? "Price volatility masked price signals." People were and are expected to trust samples for oil reserves, but he has seen "no proof that reserves still grow." There has been "only a theoretical 1.5 million barrel a day production cushion" to last three years. But the spare refining capacity is not there: if there is, it’s only for light, sweet crude that’s dwindling fastest. "The best Saudi oil is gone… Middle East production will go down by one third by 2012." He reported that an Occidental Petroleum official told him that they’re in the business of producing "brine stained with oil."
Simmons said that if any of the larger Saudi fields pumping up to six million barrels a day went off line, as he seems to anticipate will happen, then we can hit $500 a barrel: "A lights out issue."

5. -And here’s the best one, the one that set me off gathering up my saved articles and picking through so I could come to some conclusion rather than hold my breath while falling off a cliff without noticing: From ABC news online on the 10/07/05
Oil production limit reached: expert

An international oil industry expert says the limit of global oil production has been reached.

Academic and former National Iranian Oil Company executive Dr Ali Samsam Bakhtiari has told the Financial Services Institute in Sydney the world's oil fields are producing as much oil as they can.

He says giant fields in Saudi Arabia and Kuwait are struggling to meet production targets.

Dr Bakhtiari says the massive output declines in the North Sea oil fields and Mexican oil fields will have a major economic impact.

"Crude oil is the master domino," he said. "When you tumble crude oil, all the other dominos tumble."

Dr Bakhtiari says for the first time in 150 years, the world is entering an era in which it cannot have all the oil it wants.”

6. -The journals of the flat earth economists are also mentioning the D word (decline) if not actually acknowledging the P word (Possibility of Peak Production), here are a few examples:
Glen Carey, glen_carey@platts.com
Saudi Aramco boosts drilling efforts to offset declining fields
Dubai (Platts)--11Apr2006
Saudi Aramco's mature crude oil fields are expected to decline at a gross
average rate of 8%/year without additional maintenance and drilling, a Saudi Aramco spokesman said Tuesday.

7. -And this one

By Kevin Kerr, MarketWatch
Last Update: 11:45 AM ET Jul 7, 2006
NEW YORK (MarketWatch) – “Oil at $100 a barrel? Oh yes, and like most milestones, this is one that you are not likely to forget.
As we stand on the precipice of such lofty prices, I understand that there are those who believe that $100 oil is pure nonsense. We've been watching oil very closely. At $40 we said crude would hit $60. At $50 we said it would hit $75 within a year. Some scoffed and called me a fear monger. Now that we're at $75, I'm telling you that under the right conditions oil could not only hit, but sustain a $95 to $110 price per barrel by the end of the year. I say it's not only likely, but almost inevitable within 12 months. Truthfully, physical supply of oil isn't a factor for traders right now, or at least not a primary one. Fear is the biggest factor and perception of what "could" happen. Any actual disruption will build on the base of fear that's already been created.”

8. -Those of us who watch the US economy as a measuring stick to kind of guess when the shit will hit our fans will appreciate this one:

Is Cheney Betting On Economic Collapse?

By MIKE WHITNEY

Wouldn't you like to know where Dick Cheney puts his money? Then you'd know whether his "deficits don't matter" claim is just baloney or not.

Well, as it turns out, Kiplinger Magazine ran an article based on Cheney's financial disclosure statement and, sure enough, found out that the VP is lying to the American people for the umpteenth time. Deficits do matter and Cheney has invested his money accordingly.

The article is called "Cheney's betting on bad news" and provides an account of where Cheney has socked away more than $25 million. While the figures may be estimates, the investments are not. According to Tom Blackburn of the Palm Beach Post, Cheney has invested heavily in "a fund that specializes in short-term municipal bonds, a tax-exempt money market fund and an inflation protected securities fund. The first two hold up if interest rates rise with inflation. The third is protected against inflation."

Cheney has dumped another (estimated) $10 to $25 million in a European bond fund which tells us that he is counting on a steadily weakening dollar. So, while working class Americans are loosing ground to inflation and rising energy costs, Darth Cheney will be enhancing his wealth in "Old Europe". As Blackburn sagely notes, "Not all bad news' is bad for everybody."
The Bush-Cheney team has racked up another $3 trillion in debt in just 6 years. The US national debt now stands at $8.4 trillion dollars while the trade deficit has ballooned to $800 billion nearly 7% of GDP.

This is lunacy. No country, however powerful, can maintain these staggering numbers. The country is in hock up to its neck and has to borrow $2.5 billion per day just to stay above water. Presently, the Fed is expanding the money supply and buying back its own treasuries to hide the hemorrhaging from the public. Its utter madness.

Last month the trade deficit climbed to $70 billion. More importantly, foreign central banks only purchased a meager $47 billion in treasuries to shore up our ravenous appetite for cheap junk from China.

Do the math! They're not investing in America anymore. They are decreasing their stockpiles of dollars. We're sinking fast and Cheney and his pals are manning the lifeboats while the public is diverted with gay marriage amendments and "American Celebrity".





[b]

[Doly]

$this->bbcode_second_pass_quote('', '
')World production stopped increasing in late 2004. Decline rates of existing production are very high.

[Jack]

$this->bbcode_second_pass_quote('Doly', '
')1. Inflation figures are going to be so badly massaged as to be meaningless, so the inflation protected fund may still lose money in real terms.
2. The US government may default on its bonds.
3. The situation in the US may get so nasty that it will be wise to get out of there. That's the only case where you care a lot if other currencies are a lot stronger than the dollar.

[rogerhb]

$this->bbcode_second_pass_quote('Jack', 'A')nd, Doly, my compliments on calling Peak.

[sch_peakoiler]

$this->bbcode_second_pass_quote('Jack', '')$this->bbcode_second_pass_quote('Doly', '
')1. Inflation figures are going to be so badly massaged as to be meaningless, so the inflation protected fund may still lose money in real terms.
2. The US government may default on its bonds.
3. The situation in the US may get so nasty that it will be wise to get out of there. That's the only case where you care a lot if other currencies are a lot stronger than the dollar.

[miraculix]

Since the most cited stats from EIA and IEA lump all oil into all liquids it is easy to masked the production peak.
As far as my understanding goes the +/- 86 mb/d include oil productionm from tar sands, biofuels and other nonconventional "oils".
As their share rises the actual "oil" production may very well be in decline for some time now.
I think the reckoning will finally come when the unconventional oil can not grow fast enough to offset the decline in "real" oil.

[MC2]

Great thread! Thanks for posting this up. Very interesting about Cheney's financial disclosure!

I think peak has passed, too, but we'll probably not see many acknowledge it for another six months. I've been thinking we'll see 90-100/bbl oil inside of twelve months, too.

Things are going to get "interesting" very quickly...

[XOVERX]

I personally listen very carefully to what T. Boone Pickens says.

Pickens says the Saudis will likely increase production in the next few years, but says that world production will not increase correspondingly, but, at best, remain static, because of depletion of fields elsewhere in the world.

Pickens also thinks the world is at, or past, peak.

We live in interesting times.

[Zardoz]

Great post! Add up all the evidence and it's hard to come to any other conclusion than this one:

$this->bbcode_second_pass_quote('virgincrude', '.')..I share Kunstler’s view that the Long Emergency has begun, and not with a bang but a whisper...

[duke3522]

Great insight. I also think that we are past peak, and that $5+usd gas is very much in the cards for next summer.

As I have said many times before, the coming economic, political, and social upheavals will be a bottom up event. Effecting the working poor and lower middle classes long before anyone at the top takes notice.

[madmatt]

Can we really interpret the evidence???

Surely the problem is just way too complex to understand even the first thing about PO and its effects on us.

You would have to know about international politics, economics and finance, group psychology, imigration and emigration, international trade, modern marketing, international law ---- ad infinitum???

The governments would have a group of experts as long as your arm trying to figure this stuff out. They would have PHD's in this and PHD's in that.

I just don't know if its worth trying to figure it out anymore.

Seriously. I don't think anyone has even the slightest idea. Even the "experts" because its just physically impossible for them to have a PHD in bloody everything.

It's taken us millions of years to evolve to where we are now and at least 5000 years to develop our modern form of global economics and I just feel that we are kidding ourselves that we can de-construct the issue in a couple of web-blogs.

Feel free to throw rocks.

[SchroedingersCat]

$this->bbcode_second_pass_quote('madmatt', 'Y')ou would have to know about international politics, economics and finance, group psychology, imigration and emigration, international trade, modern marketing, international law ---- ad infinitum???

[vision-master]

$this->bbcode_second_pass_quote('', 'I')t’s obvious you can prove anything you want with statistics and creative accountancy, so there are masses of conflicting data available for both pessimists and optimists to prove their particular viewpoints. For every chart produced as evidence of world decline, someone somewhere produces another which proves there’s plenty of scope for more to be extracted, by interpreting the numbers in a different way. Every time somebody declares we are about to reach a world production peak, somebody else pops up and explains very plausibly how and why they are wrong.

[Lighthouse]

Interesting points you've made here. But please don't forget that the established systems will struggle to survive. That means market forces will drive the economy up and down like a tsunami.

Prices skyrocket, inflation running, demand falls, prices fall, demand skyrocket, inflation running again and so on. (In fact it is a bit more complicated, but I simplified "a bit" for the sake of this discussion)

This struggle for survival of the systems is what scares the hell out of me. TPTB will feel the urge to control everything and everyone and will exactly do this. Sooner or later they will realise that they have lost control and try something else to ensure the survival of the establishment. It will not end with a bang, it will be a long and painful death like a doomed cancer patient, but there will no painkillers be available ...

[perdition79]

$this->bbcode_second_pass_quote('duke3522', 'G')reat insight. I also think that we are past peak, and that $5+usd gas is very much in the cards for next summer.

As I have said many times before, the coming economic, political, and social upheavals will be a bottom up event. Effecting the working poor and lower middle classes long before anyone at the top takes notice.

[Ludi]

Wages for most people are currently flat in the US. Though the "economy is booming" and average income is up, this is due to the massive increases at the top, the financial disparity which is growing in the US.