Richard Heinberg: Peak Oil and the Globe's Limitations

Prof. Richard Heinberg provides an overview on the basics of petroleum depletion, and the socio-economic consequences thereof.  

WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices (Guardian UK)

To students in my University of Redlands course, SOAN 265-01 ("The Political-Economy of Energy Resources--Oil in the Global Economy"):  This recent information from Wikileaks, if true, bears out what many in the Peak Oil community have surmised / suspected / concluded from long ago.  Saudi Arabia, in the early years of the 21st century, and as the world's "swing producer," was very close to or at its inflection point in oil extraction.  Or, as the late Matt Simmons liked to put it:  "Once Saudi Arabia has peaked, then the world has effectively peaked."   This article points to a clear Saudi peak.  Furthermore, the US Gov't, operating in conjunction with several other governments and organizations, has actively tried to keep this information away from close public scrutiny for the past several years--presumably for fear of what it could do to markets.  Well, guess what?!   The cat is now out of the bag.  Only time will tell how the international community ultimately responds to all of this.  

While much of the world has been focused on events in Egypt recently (also important, to be sure), we should keep an eye on how the circulation this information might affect global energy markets, as well as political and economic policy-making (forming additional feedback loops to global energy markets, etc.).    


Special Note on Oil Price monitoring: At the very bottom of this web page, you can also find real-time prices for two different baskets / markets for oil--"Brent" (from the North Sea, off the coast of northern Europe), and "WTI" (West Texas Intermediate, from the Gulf Coast of the USA; and also the benchmark oil price used on NYMEX).  These are permanent apps located on this site, and they are constantly being updated.  

The link to the Guardian article is here: 

http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks

Please click on the above link, and read this article, and be prepared to discuss its possible implications in class.  Those interested in further reading on this subject may wish to check out the Matt Simmons book, Twilight in the Desert.  

Blaine D. Pope

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FULL TEXT OF ARTICLE HERE ALSO (formatting may vary slightly from original)

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WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

US diplomat convinced by Saudi expert that reserves of world's biggest oil exporter have been overstated by nearly 40%

WikiLeaks cables suggest the amount of oil that can be retrieved has been overestimated.

The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.

The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.

The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on global demand and tensions in the Middle East. Many analysts expect that the Saudis and their Opec cartel partners would pump more oil if rising prices threatened to choke off demand.

However, Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, met the US consul general in Riyadh in November 2007 and told the US diplomat that Aramco's 12.5m barrel-a-day capacity needed to keep a lid on prices could not be reached.

According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point.
This crunch point is known as "peak oil".

Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.

One cable said: "According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray."

It went on: "In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.

"Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output."

The US consul then told Washington: "While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist.His pedigree, experience and outlook demand that his predictions be thoughtfully considered."

Seven months later, the US embassy in Riyadh went further in two more cables. "Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period."

A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabia may further constrain Saudi oil exports. "Demand [for electricity] is expected to grow 10% a year over the next decade as a result of population and economic growth. As a result it will need to double its generation capacity to 68,000MW in 2018," it said.

It also reported major project delays and accidents as "evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production." While fears of premature "peak oil" and Saudi production problems had been expressed before, no US official has come close to saying this in public.

In the last two years, other senior energy analysts have backed Husseini. Fatih Birol, chief economist to the International Energy Agency, told the Guardian last year that conventional crude output could plateau in 2020, a development that was "not good news" for a world still heavily dependent on petroleum.

Jeremy Leggett, convenor of the UK Industry Taskforce on Peak Oil and Energy Security, said: "We are asleep at the wheel here: choosing to ignore a threat to the global economy that is quite as bad as the credit crunch, quite possibly worse."

END OF ARTICLE

http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks


 Those interested in further reading on this subject may wish to check out the Matt Simmons book, Twilight in the Desert.

Political-Economic Turmoil and World Energy Prices

UNREST IN THE ARAB WORLD, Bahrain, Libya and Iran among flash points: 
Anderson's discussion with Fouad Ajami and James Woolsey



Source:  www.allthingsandersoncooper.com/2011/02/unrest-continues.html

To the students in my class at the University of Redlands (SOAN 265-01, "The Political-Economy of Energy Resources--Oil in the Global Economy"):  Please view the above 10 min video from the 17-Feb-11 CNN program "AC360."  Scroll about half-way down the page.  Take special note of what former CIA director James Woolsey had to say about political turmoil in the Middle East, and its potential impact on petroleum markets.   The next segment of reading for our course will focus on international security issues, as they relate to global energy markets in general, and petroleum in particular.  Please recall the "Oil Shockwave" simulation exercise we did a few weeks ago.  We are now seeing some of those issues actually come to light.  So, congratulations everyone!  You are now light-years ahead of the general American public (and most of your fellow university students) on these issues.  In the weeks ahead, we will continue to track global events like these, in real time, relating them to your coursework, along the way.

To general readers of this blog: We are here dealing with overlapping factors of international security policy, world energy markets, petroleum pricing, medium- to long-term international political-economic development issues, and how each of these then feed-back to issues of international security.  Increased levels of political insecurity can disrupt markets--especially oil markets.  Once that happens, and if the insecurity is sustained for a protracted period, we may begin to see increased prices at the gas pump.  Of course, students in my class now know that there is more to it than that, as virtually everything we consume today is touched by petroleum, or crude oil, in some way.

For those who don't know much about these issues but wish to know more, I would suggest starting with Blood and Oil, by Dr. Michael Klare (either the book or the DVD).

Blaine D. Pope


  

International Energy Agency Acknowledges Shortfalls in Petroleum Prodcution, Worldwide

The following is from the web site of the International Energy Agency (IEA), which is a sub-division of the Organization for Economic Cooperation and Development (OECD). The OECD is the coordinating body that collects information and suggests policy and standards for the 30 or so wealthiest nations in the world. The IEA was formed by the OECD in the wake of the energy crisis of the 1970s. What follows are snippets, collected by the IEA, from the world press on the current global energy situation. It makes for an interesting read.

This information comes from . . .

http://www.iea.org/journalists/headlines.asp

Below each snippet topic is a brief comment from me. Happy reading!

Blaine

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China Business Weekly, 01 December 2008 Era of Cheap Oil is Over

During a visit to Beijing to present the results of the World Energy Outlook 2008, IEA Executive Director Nobuo Tanaka noted that the financial crisis is an appropriate time for China to develop clean energy and said that despite diving oil prices, “it is certain that while market imbalances will feed volatility, the era of cheap oil is over.”
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COMMENT BY BLAINE: As usual, we must not get lost in the "Forest of Numbers," as displayed in daily market reports (e.g., as usually depicted on TV). We are dealing with a long-term trend, which is best measured in years and decades. Therefore, we must keep our eyes on the long-term trends in both pricing (after we factor in inflation) and availability (measured in either "barrels" or "tons" of oil). In spite of recent (downward) price fluctuations these past few weeks, energy "prices" are still trending upwards (since the turn of the century), in inverse relation to "availability," which is trending downwards.


The Australian, 26 November 2008 Call to Not Delay Greenhouse Measures

Attending the Clean Energy Council conference IEA Executive Director Nobuo Tanaka urged countries such as Australia not to delay greenhouse measures due to the global financial crisis. "The global financial crisis should not delay measures to mitigate climate change because the cost will only get higher in the future," he said and warned oil prices could soar after the financial crisis and urged governments to spend some of their fiscal stimulus on renewable energy and energy efficiency projects.
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COMMENT BY BLAINE: Although the immediate topic here was "Australia," the basis for the discussion was rooted in "global" trends. We ignore such trends at our peril. What are the implications here for a "new economy?" How would we need to (re)tool our industrial base and (re)train our workforce, in the months/years to come? What are the economic and social justice implications here, if any? Who gains, who loses?


Wall Street Journal (Re: Africa), 22 October 2008

Asked about oil prospects in Africa, which are starting to look dimmer because of the credit crunch, geopolitical problems and price hikes, IEA Chief Economist Fatih Birol sustained the idea that Africa’s days as a supplier of additional oil may be numbered. “We have benefited from additional oil volumes from Africa, but given the production profile of off-shore fields, we need to see significant new discoveries to sustain that trend”, he said and added, “it’s not clear that will happen.”
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COMMENT BY BLAINE: As I've been saying for some time, Africa--long viewed as the last great refuge of concentrated energy supplies outside the Mid-East--may well have been over-hyped. The US foreign policy implications (as well as energy policy implications) are huge. Where will the US (or China or Japan or the UK) turn next? Please note that the situation with US domestic energy supplies is like Africa--only more so. We can still drill for (and still extract) more oil in the US, but only at tremendous cost now (i.e., economic, social, and environmental costs). And then? We could also lean more heavily on foreign sources. But what happens after the global spigot begins to run dry, when we can no longer economically extract oil from the ground, in many more parts of the world? [Hint: Part of the answer lies in the previous paragraph on Nobuo Tanaka’s comments to the Clean Energy Council.]


Arab Oil and Gas, 30 September 2008

On the occasion of the publication of the new IEA Natural Gas Market Review 2008, the Agency’s Head of the Energy Diversification Division Ian Cronshaw voiced his concerns about long-term world gas supplies. In an interview with Arab Oil and Gas he said that there was a “risk” that gas supply may not meet demand and added that, next to more investment, the main solutions were to “increase energy efficiency in the power sector (…), ensure a healthy degree of energy diversification and develop new gas projects, especially liquefied natural gas projects, which offer far greater flexibility.”
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COMMENT BY BLAINE: Reading between the lines—“We have a serious problem here,” and “We’re not really sure of what to do about it, except to do a lot more of the same!” I’ve been following the energy policy statements of the IEA for a few years now, and that’s how I am interpreting these comments. Bear in mind that oil and natural gas are typically co-located in the same pockets, underneath the Earth’s surface. They are both non-renewable energy resources. They are both subject to depletion. Most peak oil advocates will tell you that natural gas depletion is only about a decade (two decades at most) behind oil. Then what? Much of our home heating (esp. in the northeast section of the US) comes from natural gas. That market cannot hold up much longer, after oil. We need a "Plan B," soon.

END

Shock, Denial and Anger: Talking about the Economic Impact of Peak Oil in the Black Community of Southern California

This blog article was not easy to write. It does not fit easily into one specific topic heading. It covers politics, economics, ecology, culture, and even psychology. It is being posted the day after the conclusion Senator Barak Obama’s historic presidential campaign. President-elect Obama has made a great achievement, and we should all wish him well. I say this, in part, because after the usual (abbreviated?) honeymoon period in early 2009, President Obama will face some of the most intractable economic problems facing any US president in living memory.

The most immediate problem is the US economy, in relation to the global economy. What most Americans have so far failed to realize is that—in the long-run—the domestic economy is a direct function of global “ecology.” It is a function of the Earth’s natural processes, which human beings occasionally harness for their own (political and economic) ends.

Most of us have been trained to think in terms of the overlapping domains of “The Market” and “Technology.” Both The Market and Technology have come to be viewed of the creators and saviors of so-called “modern” civilization. However, both The Market and Technology are based upon an ecological and environmental platform that has seldom been acknowledged in either the popular media or the academic media. Nowhere has this problem become more glaringly apparent than in the role of the natural resource oil, in relation to the global economy. And this is, in turn, is captured under the heading of “Peak Oil,” which has to do with dwindling oil supplies, worldwide.

What is Peak Oil?

Peak Oil doesn’t mean running out of all the oil in the world; it merely means running out of all the cheap oil—which is where we are today. Trying to make this idea clear can be tough, sometimes. Considering that neither “the market” nor “technology” will help replenish the Earth’s finite oil supply, Peak Oil is an especially tough issue. Finally, Peak Oil can be a tough sell in the Black community in particular, in terms of convincing some of our leaders of the gravity the current situation presents. Just a few months ago, in an important gathering by a prominent member of our own community here in the Los Angeles area, we were told that “energy and environmental issues are not ‘Black’ issues.” What could be inferred here is that David Miller (my collaborator on this issue) and Blaine Pope might spend their valuable time focusing on “more relevant issues,” like the price of food, housing, and health care in Los Angeles.

What the prominent community member failed to grasp was that the price of food, housing, and health care (along with most other commodities and services) are all directly related to energy prices in general, and world oil prices in particular. Our on-going challenge has been to help our people see that events in oil-producing countries like Saudi Arabia, Nigeria, and Venezuela (and even in the oil-producing regions of the United States) are directly related to the prices of every day goods in Los Angeles, and elsewhere in the State of California.

Shock, Denial, Anger: What Should We Do?

In the summer of 2008, we were “shocked” at the price of both gasoline and groceries. We have been in “denial” as to the root causes (with “Big Oil” conspiracy theories running rampant). And we continue to remain “angry” at a social, political, and economic system which remains at best insensitive to the needs of many of our most vulnerable citizens.

The first thing we have to do is understand. We must understand not only what is taking place around us, but also within us. Human psychology plays an important role. According to the late Dr. Elizabeth Kübler-Ross, human beings will cover a gamut of emotions when confronted with a sudden and profound sense of loss. Many discussions of Peak Oil are often related to a sense of loss, of what we will have to give up. This process, or cycle, is often referred to as “The Grief Cycle.” Involves seven distinct emotional stages which can be broken down as follows[i]:

• Shock: Initial paralysis at hearing the bad news.
• Denial: Trying to avoid the inevitable (reality).
• Anger: Frustrated outpouring of bottled-up emotion.
• Bargaining: Seeking for a way out (often in vain).
• Depression: Final realization of the inevitable (reality).
• Testing: Seeking realistic solutions.
• Acceptance: Finally finding the way forward.

It is also not uncommon for people to move back and forth, between the various stages, in a meandering fashion (a la “three steps forward, two steps back”). This can happen for a while, until the sheer weight of either evidence” or “circumstance” forces the human mind into “acceptance.” As individual people can go through these stages, so can entire communities and societies.Our sense is that American society is now meandering between shock, denial, and anger—with the likes of the lame duck Bush Administration (and conservative media outlets like Fox News Corp.) cynically leading the charge, in both denial and anger over much of the past eight years. Most of us have not yet begun to approach even the bargaining and depression stages, let alone the testing and acceptance of our predicament.Work for Change: Fight the Power!The second thing that must be done is to get at the root of the problem.

The Root of the Problem

The real fight is not against some far off, illusive and shadowy figment called “Al Qaida.” The real fight is also not against so called “Big Oil,” either. The real fight starts with you, me, our relationship with our political leaders--and most importantly--our collective consumption habits. At roughly 4% to 5% of total world population, US citizens consume approximately 25% of the world’s petroleum every year.China, on the other hand, with almost 20% of the world’s population, presently consumes about 8% of world petroleum; moreover, the Chinese say that they are morally entitled to a corresponding 17% to 18% of world petroleum. Sounds fair, doesn’t it? The only problem is that there is not enough extra oil in the world to meet China’s stated or desired goals.

Some nations or regions of the world would have to give up their some of their access to oil. This global situation will likely be the source of much conflict in the near-term future—as region after region, and nation after nation, perhaps even city after city, will vie against one another in a scramble for what’s left in global petroleum reserve.Our main goal in the US should therefore be to efficiently and equitably “Power Down”—both globally and locally. We must learn to do with less and “live normally”, in terms of our energy consumption patterns.

Examples of this would include more aggressive action in the following areas: car pooling; walking and bike riding; urban gardening and patronizing of local farmers markets; recycling of virtually everything possible; canning and old school-type food preservation techniques; and possibly even hand washing and drying our clothes. As unpleasant as these things may seem, billions of people around the world have lived like this for a long, long time. We should not be so naïve to think that this “simplification” of our way of life is impossible. In fact, within the next decade (if not sooner) much of it actually probable!

But, there are also legitimate equity and access issues to be addressed here. Peak Oil is an indiscriminant global phenomenon that will affect both the rich and the poor. However, in today’s hard economic times, can we realistically ask the poor to tighten their belts further, while the US “retools” its infrastructure for a more green and energy-efficient future? This is perhaps another topic for another article; however, we must build in equity issues (and environmental justice issues) into any set of alternative energy proposals and planning.

Planning for an Uncertain Future

We believe that planning at various levels of governance across both the public and private sectors is key. We must begin to think ahead. We must prepare ourselves—our state, city, and individual communities—for not being able to transport or produce the goods and services to which we have become so accustomed.

Approximately a hundred and fifty years ago and more, manual labor of African origin based in the fields of the South helped America become a global power. One hundred years ago as a result of the industrial revolution, and even more so after World War II, America stayed on top because machines that ran on oil made us even more productive. Now we foresee the end of the Age of Oil and it’s time to start doing virtually everything differently in response—and preferably in advance.

Question: If you were living in New Orleans, and you “somehow knew” Hurricane Katrina were coming a month ahead of time, what would you do?

You would either move out of the way or protect yourself and your stuff in every way possible. Why wouldn’t this same rationale be applicable here? As people are beginning to drive less, why aren’t we also building more buses in the City of Los Angeles, for example? Why aren’t we making cars that pollute less and are more fuel efficient? Why aren’t we manufacturing and then installing solar panels all over this city where it seemingly “never rains”? Why aren’t we creating neighborhood cooperatives to barter fruits and vegetables, perhaps in exchange for other people’s trade skills and services?The Storm of Peak Oil Looms on the Horizon

Again, we should all be proud of what we have recently achieved, as a community, in terms of seeing our brother Barak in the White House. As African-Americans, we have a long history of struggle in the political sphere, from which many Americans have benefited. We have been somewhat less adept at linking political factors to economic factors. More challenging still is in making the linkage between economic factors and ecological factors. In these areas we have been woefully blind, silent, and dumb. But we cannot afford to remain blind, silent, and dumb any longer: let Hurricane Katrina be the template for the future, perhaps. The political, the economic, and the ecological are linked. We must now sound the clarion call and warn our people. From the Valley to Compton, from Baldwin Hills to Nickerson Gardens, we have to pool our resources: we must pool our human, material and financial resources alike, and prepare ourselves.

There is No Time to Waste

After the short-term euphoria of Barak’s election wears off, we will still have our long-term economic grief to face. Nelson Mandela’s rise to power in formerly Apartheid South Africa is a potential harbinger of this—wealth and race are still highly correlated.

But no condition is permanent. In terms of our economic “Grief Cycle”, after our shock, denial and anger wears off, we must begin to move past bargaining, through depression, and toward testing and acceptance. Acceptance of our situation is what we must achieve, so as to bring about rational public policy and culture change, focused both on consuming less and sharing society’s burdens more equitably. Call this “socialism” if you will, but the reality is that the neo-liberal, capitalist, free market status quo has failed us (most of us, anyway) quite miserably. Ultimately, in concrete terms, that means we must quickly begin testing new ways of living, and accept the idea that our collective future started yesterday.


Blaine D. Pope

World Energy Crisis = World Financial Crisis

Colleagues:

I recently got my Ph.D., within the past year. What I now see taking place in world financial markets is giving me "PD-PTSD" (post-dissertation post-traumatic stress disorder)! Why? Well, I saw it all coming--again--sort of. At the time, I felt I could not finish writing my dissertation fast enough! The more research I did, the more I saw I was in a race against time. I concluded we were headed toward an energy-induced depression. We are in the early / prelim stages of that process now, I fear.

What does this all mean?

In the final analysis, the "financial system" is based on the "Earth system." One of the best indicators of the financial system (in terms its medium- and long-term trajectories) is human relationship with the Earth system--as seen in the human-built, global energy sub-system. And the chief proxy indicator within that system is medium- to long-term petroleum pricing and availability (year-after-year analysis; daily/weekly price analysis would only confuse). In short, follow the oil resources in order to follow the financial resources. The key is to look at the Big Picture.

The following is extracted from my dissertation, which I completed in December, 2007. Here, I look back to the early/mid-1970s, and the global economic impact of high oil prices at that time.

Ask yourselves, "Might history be repeating itself, once again?

"***William Engdahl (2004) wrote of the impact of unusually high energy prices during the period of the initial global energy crisis, during 1973/74, as follows:

"Most of the governments of Europe fell during this period, victims of the consequences of the oil crisis on their economies.

But for the less developed economies of the world, the impact of an overnight price increase of 400 per cent in their primary energy source was staggering. The vast majority of the world’s less developed economies, without significant domestic oil resources, were suddenly confronted with an unexpected and unpayable 400 per cent increase in the cost of energy imports, to say nothing of the cost of chemicals and fertilizers derived from petroleum. During this time, commentators began speaking of ‘triage,’ the wartime idea of survival of the fittest, and introduced the vocabulary of ‘Third World’ and ‘Fourth World’ (the non-OPEC countries).

According to the IMF, developing countries in 1974 incurred a total trade deficit of $35 billion, a colossal sum in that day, and, not surprisingly, a deficit four times as large as in 1973—precisely in proportion to the oil price increase." (p. 140)

Engdahl—an economist—continues on in the same section to make a strong case for the connection between global oil prices and national debt levels; however, all too often, issues of energy resource pricing and availability have simply not been sufficiently linked to issues of economy by mainstream economists, when addressing economic development (Auer, 2004; Catton, 1980; Hanson, 2001). Why might this be so? This dissertation will explore some of the assumptions that have gone into economic development discourse over the thirty year period under review here.***

End of dissertation excerpt

For more details on the theory behind all of this, please see my Dissertation.

The main idea here is that human "thoughtways" and human-built energy systems operate in symbiosis, forming positive feedback loops. Humans then structure all of their organizational systems (including financial systems) accordingly.

Please feel free to question or critique this work. I welcome your feedback.

Dr. Blaine