Further Evidence of Saudi Arabia's Oil Production Decline

This a guest post by ace.


My post is related to Stuart's and Euan's stories as my post discusses the declining Saudi Arabia's future production rates. The discussion about Euan's and Stuart's stories further validates Saudi Arabia's forecast decline.

My forecast decline for Saudi Arabia is in disagreement with Euan's previous statement: "According to my view, Saudi Arabia, together with other OPEC countries will raise production to meet this demand challenge". This demand challenge is stated by Euan to be that "The IEA are forecasting demand to rise strongly by around 3 million bpd between the second and fourth quarters." My assumption in my forecast in that Saudi Arabia does not have any long term ability to raise their production. This assumption is confirmed by Riyadh Bank's recent forecast of 8.44 mb/d average production for Saudi Arabia in 2007.

Stuart stated in his story "Saudi Arabian oil declines 8% in 2006". that "I'll bet $1000 with the first person who cares to take me up on it that the international oil agencies will never report sustained Saudi production of crude+condensate of 10.7 million barrels or more." My analysis gives further support to Stuart's prognosis that Saudi oil production is in decline, while showing a temporary increase back to 9 mb/d in 2011. However, the 900 kb/d total increase in capacity from Manifais the last of Saudi's known megaprojects. Consequently, Saudi oil production will begin steady irreversible decline, starting at the end of 2011.

Further evidence is presented from Hans Jud's article which uses field by field HL to forecast a decline in Saudi Arabia production. A hypothesis of URR=205 Gb is tested and proven to be false using a two cycle HL chart. Consequently, Saudi Arabia URR is showing a strong trend towards 165 Gb, of which about 110 Gb has already been produced. It's also worth noting that in BP's statistical review, Saudi Arabia reported reserves of 169.6 Gb in 1987, which is close to the URR of 165 Gb, and 255 Gb in 1988. How could this be when the last giant Saudi field of Lawnah (1.17 Gb) was discovered in 1975.

Finally, the future decline of Saudi production implies that peak total liquids is forecast to occur in mid 2009. This means that coordinated conservation plans need to start now.

Further evidence supporting Saudi Arabia's production decline continues to emerge.  The evidence is not only technical and economic, but also behavioural.  The analysis of the further evidence, described below, shows that Saudi Arabia is highly unlikely to produce over 8.5 million barrels/day of crude oil and lease condensate, on an annualised basis. 

Saudi Arabia is in decline now.  This means that the world's production is in decline now.  Future supply will be unable to meet forecast demands.  Governments, corporations and individuals need to start making coordinated plans to prepare for the decline in world production.

Recent Statements

Two recent statements provide further evidence of decreased Saudi oil production and the continuing struggle to convert resources to production.

Riyadh Bank predicts that Saudi oil production is expected to fall to 8.44 million bpd in 2007.

Andrew Gould, Schlumberger chief executive says "The age of easy oil is over" and "rapid decline in existing fields were slowing the growth of energy capacity worldwide".

Saudi Arabia Production Forecast to December 2011


My current forecast shows Saudi oil production to be 8.43 million bpd in 2007.  This is similar to the 2007 production forecast by the Riyadh Bank.

Fig 1. Saudi Arabia Production Forecast. Click to enlarge.


Saudi Arabia's Failed Attempt to Bring Forward Production from AFK


As it is becoming more likely that Saudi has no surplus capacity, the importance of the near term big projects of Shaybah and AFK (Khursaniyah) becomes critical.

This Nov 2006 CSIS presentation by Obaid makes the following statements:

Khursaniyah (AFK) was ”originally scheduled for December 2007” but in Nov 2006, Obaid says that it will be earlier: ”by June 2007 to reach 500,000 b/d”.

Shaybah expansion was ”originally scheduled for January 2009” but again Obaid states an earlier date: ”by April/May 2008: 250,000 b/d will come on stream”.

On Mar 4, 2007, Phil Hart said that ”Khursaniyah group of fields..is not expected on stream until the end of 2007.”

In Figure 1, I’ve assumed Khursaniyah (AFK) first oil is Feb 2008.

The desperation to deliver first oil earlier from AFK and Shaybah together with Riyadh Bank's downgraded oil forecast shows that Saudi Aramco is struggling to increase production rates. The forecast in Figure 1 from 2008 to 2011 may be too optimistic.


Saudi Arabia field-by-field analysis by Hans G. Jud: "We are in decline NOW"

Figures 2 to 6 are from the presentation by Hans Jud.

Fig 2. Small Saudi Fields show “Great Future”?. Click to enlarge.

The figure above is partly based on information also from Obaid’s CSIS presentation. The figure shows that there is justified scepticism over Aramco’s promise to suddenly produce huge amounts of oil from old small fields. Look at Manifa and Khurais – huge production rate jumps!!

Fig 3. HL for Saudi Giant Fields. Click to enlarge.

Figure 3 shows a cumulative HL plot for the giant fields of Ghawar, Abqaiq, Berri, Safinaya, Zuluf and Marjan. The URR is 125 Gb. Jud also does HLs for each of these giant fields in his presentation.   His analysis of Ghawar is further broken down into its subfields.

Fig 4. HL for Saudi Arabia – all fields. Click to enlarge.

Figure 4 above shows a URR of about 165 Gb.

Fig 5. Two cycle HL. Click to enlarge.

For this chart, Jud optimistically assumes that Saudi Arabia has an additional 40 Gb of secret oil to produce. This gives the dashed blue line. This is added to the dashed red line (URR 165 Gb) to give the dashed green line as a forecast for Saudi production.

In the last few years, note also in the figure above the production drop in the 6 giant fields while total production is increasing. Are the MRC wells in the giant fields starting to show accelerated decline rates due to increased water cut?

Fig 6. Where are the missing fields?. Click to enlarge.

This last figure shows that Jud’s optimistic assumption of an additional 40 Gb is most likely false. This means that Saudi’s URR is about 165Gb. Figure 5 shows the dashed red line for the URR 165 Gb which might be the best HL fit for Saudi. This could imply a sudden decline in Saudi production as shown by the natural decline as the dashed black line in Figure 5.

Saudi Arabia's Decline means that the World's Production will not supply the Forecast Demand

The forecast in Figure 1 assumes that old small fields such as Khursaniyah (AFK), Khurais and Manifa can deliver huge increases in production. Figure 5 shows these forecasts to be overoptimistic (Matt Simmons would probably agree).

It is highly unlikely that Saudi Arabia will ever produce more than 8.5 million bpd (Crude Oil and Lease Condensate). This means that if any supply disruption or sudden demand increase occurs, do not assume that Saudi Arabia can be “called” upon to supply extra oil. Assume that oil price shocks are likely to occur starting the middle of this year as shown below.

Fig 7. We are in the Amber Zone and approaching the Red Zone!. Click to enlarge.

Green Zone:

Supply was able to meet demand. Sufficient surplus capacity existed. Prices showed only moderate volatility. This zone ended on about May 2005 which coincidentally is the peak for crude oil & lease condensate production.

Amber Zone:

Saudi Arabia has become supply constrained. Prices show more volatility. Price shocks occur in 2007Q4 and 2008Q4. Surplus capacity is going to zero. Supply is struggling to meet demand. Increased production from natural gas liquids and ethanol delays the total liquids peak to July 2009, which is the end of this zone. The desperate attempt to use subsidised ethanol has doubled corn prices and is now indirectly increasing other food prices. Nationalisation of hydrocarbon reserves continues. Refineries need to be modified to accept the heavier and increasingly sour crude stream. Horizontal MRC wells have become common practice but have steeper decline rates. Old infrastructure needs replacing. A shortage of skilled people exists. CONSERVATION PLANS NEED TO START NOW.


Red Zone:

Starts just after the total liquids peak in mid 2009. There is no more surplus capacity. Supply falls far short of demand leading to drastic demand destruction. The name of the last basin is called “conservation” – world must use less oil. Saudi Arabia announces further “voluntary cuts” in production. Oil prices increase at a faster rate than during the amber zone. World economic growth rates become lower. The IEA emergency sharing system may be invoked and rationing occurs......

Further Reading on Saudi Arabia:

by Stuart Staniford

Water in the Gas Tank
Saudi Aramco's Astrologers
A Nosedive Toward the Desert
Saudi Arabian oil declines 8% in 2006

by Euan Mearns

Saudi production laid bare
Saudi Arabia and that $1000 bet

Ace - How did you calculate the price forecast shown in Fig 7?

Great post. Thanks

Oops...posted in the wrong thread.

The price is forecast using estimates of short and long term demand elasticities. The price is a weighted average price which includes heavy and light crudes. The price should be used as a rough guide and the trend is more important than the absolute price.

Here is also a long term forecast for Saudi Arabia

There are no known scheduled megaprojects after 2014

Hello TODers,

I realize this thread is getting age-dated, but I wanted to post this link near the top in the hopes that SS, F_F, and Euan will see it & comment:

Technology Update: Haradh III: A Milestone for Smart Fields

Now to me, but I am not an expert, this mostly reads like a 'rah-rah' press release rather than a detailed analysis of Haradh III. Feel free to disagree TODers. Please see the pictures in the link.

Even more importantly, the northwest portion of Haradh III was diagnosed to provide a superhighway of communication because of the presence of faults/fractures—an eminent risk to offset crestal wells (because of accelerated water encroachment). Note the rapid rise and fall in pressures at observation Well HRDH 1500 in response to the injection from HRDH 1711.

Fig. 5—Isobaric map showing pressure distribution 3 months after startup of preinjection. The top plot shows the pressure response in an observation well resulting from injection at the offset injector.

The quick diagnosis and subsequent response (i.e., cutback in injection) most certainly averted premature water breakthrough and loss of oil production in the northwest segment of Haradh III.

IMO, cutting back in injection does not change the hidden geo-structure of this area: KSA merely prevented the problem from getting worse [preventing water breakthrough into the centered high flux area topcrest]. My guess is, even with extensive seismic mapping before drilling, that unseen discrete fracture networks [DFNs] and/or pressurization-caused fractures suddenly started causing runaway waterfront flooding, so they then shut the injectors down. Aramco probably has no choice but to produce this area at much less than desired extraction/time levels plus additional drilling for bypassed pockets, or else accept much higher watercuts in the northwest segment of Haradh III.

It would be interesting to know how the other wells are performing to plan too. To my eyeballs: it looks like the same problem may be happening in the Fig. 5 Northeast sector too [red encroachment].

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Thanks for that and I've read the rah rah before.

I wonder how they're making the planned 300,000 BOPD if the had to curtail injection in area(s) from planned???

What is the major difference between having a pressure sensor in the ground that tells you bad news is on the way and the bad news showing up on your doorstep in the form of injected water.... what's going on in the reservoir didn't change... can you kiss recovery and volumetric sweep of that area of the reservoir goodbye??

Just some questions with no easy answers I know.... but spin goes both ways.


Bob - you're obviously working overtime on this problem and the last 2 week debate for me has brought out one of the real strengths of TOD - data mining by committed posters.

This article I had in fact seen before - and would you be surprised to hear that my take on this is a bit different to FF.

They know in this area from the distribution of possibilities that there is going to be some bad news but don't know where its comming from. So the observation wells provide insight to bad news months / years before it arrives. This allows them to adjust their water injection strategy accordingly, and they will be expecting water to arrive prematurly at some arms of producers - which can be shut off in these so called intelligent wells.

One thing though, now that I've gotten very accustomed to looking at 3D images of Ghawar from every angle apart from below - I note that the Haradh 1 zone seems to include about half of the area formerly known as Hawiyah - now that is big, big news. Perhaps, you, FF and Stuart woud like to look at the images - I'm looking at jpg called Image 78 that you dug up - and would care to comment - combined with Greg Croft's map.

I (and others) are working on reserves estimates for Ghawar - and this one observation may just wipe a few billion off the slate.

The plot thickens.

Are humans smarter than wells?

What about Zuluf? I've read forecasts that say it could be increased to 800,000 b/day. Is that field currently being used?

Correction - current production from zuluf is 500,000b/day. They are working on increasing production with 3 well heads according to Platts to reduce decline rates from 8% to 2%.

Thanks Ace, great work.

I have been playing with the megaprojects data a lot lately, and have said that, IMHO, the bottom up analysis should scare us silly.

Dugg it.

CNN says cheaper gas in 2007 ?????????????


How do they figure gas will be cheaper???????

Nowhere is Now Here!

I notice everything BUT PO is mentioned as a reason for the overall high gas prices in the last couple of years... but then the piece seems to be looking at short term trends (i.e. above ground factors weigh in heavily) rather than the long term trend of increasing supply problems...

"You can never solve a problem on the level on which it was created."
Albert Einstein

Ace, Khebab,

I've never quite understood how you get the fig 1 graph. Not only do the full size of the addition fields never seem to be reflected in the figures, but the 06-07 decline rate seems to disappear, never to return.

Can you say something of how you come by these figures? Although I end up somewhere near the same final total figure, I get a very different shape.

Remark that each project has a lead time before attaining full capacity.

The Khurais Exp, for example, is not reflected has a sudden 1.1 Mb/d jump, but has a ramp-up that seems reasonable (at least to me - I must have used a similar ramp-up rate, because I get a chart extremely close to Fig.1).

Hi Garyp,

Some assumptions for Fig 1 graph:

No surplus capacity

EIA and IEA state there is about 2 mb/d surplus capacity but then EIA and IEA state it takes 30 days to deliver this capacity and would last for a minimum of 90 days. Also I think that this spare capacity, if it really exists, might be mostly heavy crude that refineries don't want to process. One piece of evidence for the spare capacity being heavier crude is the decreasing price differential between Saudi Heavy and Saudi Light. This implies that Saudi is cutting supplies of heavy crude.
Mar 30, 2007 Saudi Heavy was $57.06/b; Saudi Light $60.26/b. Diff of $3.20.
Oct 13, 2006: Saudi Heavy $49.12; Saudi Light $54.07; Diff$4.95

Ghawar, excluding Haradh

Ghawar is assumed to be producing at 4.35 mb/d for Jan 07 declining at an annual rate of 8%.

Existing fields

Existing old fields such as Berri, Safiniya and Zuluf are assumed to have annual decline rates of 6%.

New projects

Only Haradh(ghawar) and Nuayyim have the lowest decline rates of 4%/yr.

New projects which are workovers of old fields

Projects such as AFK, Khurais exp, Manifa, Shaybah(difficult field) are assumed to have decline rates of 6%/yr.

Project ramp up and plateaus

Future projects have a ramp up period to the peak plateau. Ramp up periods are about one to two years. In the case of Khurais - it might take three years. Peak production stays on plateaus ranging from one to five years.

Production versus reserves

I've just posted (see above) a long range forecast of Saudi Arabia to Dec 2020 to reconcile forecast production to Dec 2020 to Saudi reserves.

I assume that reserves are 2P reserves=URR. I assume that URR for Saudi is 165 Gb. I assume that URR produced to year ending 2006 for Saudi is 110 Gb. I calculate using the Dec 2020 forecast that additional URR produced from 2007 to 2020 is 40 Gb. URR produced at Dec 2020=110=40=150Gb. This leaves 165-150=15Gb which appears reasonable.

This is the seventh post now on sauidi and the pieces of the puzzle slowly but surely are slotting home. I've drunk so much coffee reading these articles and ditched a few books recently!! The missing bits of the puzzle?

Now it is time for Roger Conner to spill the beans. Come on Roger what do you know? What are you not telling us? Why are you not wading in with empirical data to support the contrarian viewpoint and restore balance to the force?

I'm running out of coffee brands here waiting!!!


I also had to restock on coffee last night :)

Maybe we need to do a quick check on world coffee supplies :)

. shaking hands

Peak Coffee...

Think about that, and tremble in fear...

According to this link (http://www.unicamp.br/fea/ortega/energy/Oscar.pdf), conventional coffee production (only growing the beans!) requires ca. 14 kg of various pesticides and 2000 kg of fertilizer/ha/year and 50l of petrol fuel/ha/year, among many other things.

The burning, packaging and transport requires more, of course. Peak coffee, however, doesn't seem to come in sight yet, as the low price of coffee has prompted attempts to use it as, indeed, an energy source (http://www.teaandcoffee.net/0801/world.htm)(scroll down).

whew :)


I'm trying to grow my own coffee plants in Southern CA and they are not doing well. They seem pretty picky.

Gotta have the Bean Juice

Everyone calm down. You can make a coffee sub by roasting the roots of chickory or dandylion and grinding. Tastes like shit but any port in a storm? No? Well then stock up I know I will.

I'm going to get those coffee plants growing.
I think I know my calling if TSHTF local greenhouse coffee and tea barista. You can drink your dandelion crap.

Even roving bands of mutants need coffee.
No one would dare attack me :)

Moonshine might be a better bet, unless you are near the tropics. There's a lot more than temperature involved in growing coffee. Daylight length, soil type, drainage, etc.

I heard of this Filipino man who smuggled thousands of macadamia nut trees into the Philippines, planning to start a mac nut farm. No one told him the latitude was wrong for mac nuts. The trees grew, but they never bore nuts. Daylight length is what triggers flowering in mac trees, so they never flowered.

This is why I'm not sanguine about keeping food production up despite climate change. Just moving crops north is not going to be a solution.

Speaking of food production. I picked up a copy of Capital Press( Ag news weekly). Front cover $112,480 in fines for spraying illegal chemicals to control thrips on onions( no other control is known).
back page of second section. Monsanto and dairymen upset by other dairy companies touting that thier milk is rBST
(artificial hormone) free, which is illegal, because the hormone was tested and found to be safe, and advertizing non-rBST is deceptive advertizing. rBST makes cows produce up to an extra 10 lbs of milk a day.
This is only 1 week - makes you want to grow your own food PO or not.

"which is illegal, because the hormone was tested and found to be safe"

That's pure bullshit, though of course any milk, organic or hormone-laced, is full to the brim with disease and disease-causing crap. Monsanto and the "dairymen" are amoral, poison-pushers...hope no one confuses these greedy fucks with regular the regular small farms which they have done such a good job destroying...

"TSHTF Coffee Co." It has potential IMHO.

There's also the Kentucky Coffee Tree which grows easily in much of the U.S.

A few words of caution, however:

The common name "coffeetree" derives from the use of the roasted seeds as a substitute for coffee in times of poverty. They are a very inferior substitute for real coffee, and caution should be used in trying them as they are poisonous in large quantities

I doubt that the bean contains any caffeine, but I don't know this for sure.

Independent Lens on PBS just had a documentary on how the collapse in the coffee price has impacted Ethiopian farmers. It left me wishing I could pay MORE for coffee.

It left me wishing I could pay MORE for coffee.

But you can! Don't you have trade-aid coffee available where you are? I have drunk nothing else for the last ten years. Generally small growers are under contract and paid a fair price. Often organic too. Even without the conscience money, I find the quality justifies the price differential.

I think it's large-scale planting in Vietnam which has driven world prices down.

Thanks for the tip, the show did mention a Minnesota roaster that used Ethiopian beans.

Don't you have trade-aid coffee available where you are?

Probably not. "Fair trade" products seem to be a European thing. It's almost unheard of in the U.S.

It started off as a boutique thing, but even the supermarkets carry fair-trade coffee now.

Here's a link to a list of certified fair-trade coffee suppliers in the US

Coffee is an easy vector because people are so passionate about it, it's a lot harder to extend the principle to other consumer goods.

Still looks like a boutique thing to me. Not many places on that list, and most of them seem to be concentrated in big cities or tony resort areas.

Fair trade coffee is available in Whole Foods and Wild Oats markets. It can also be ordered online.

Starbucks is the largest purchaser of Fair Trade coffee in North America. They don't serve it in brewed form but they sell it in bags. So if you're lucky enough to have a Starbucks in town :) then you should be able to find Fair Trade coffee.

The 'spice' is found only on Arrakis! :-)

The coffeeberry that grows on the west coast (Rhamnus sp.)is good mainly as a laxative.

Marco asks,

"Now it is time for Roger Conner to spill the beans. Come on Roger what do you know?"

I know enough not to take Stuart and Khebab on in a statistical fight...I have never pretented to be a match for that kind of firepower! :-)

Once more we are back to my pet three: Khurais (referred to here as “an old small field”, it is the second largest oil bearing structure in KSA [per Simmons], the Saudi’s seem to believe in it enough to spend billions, would they just throw that kind of money in the garbage on a bluff?), the empty quarter (Shaybah for now, more later? Who knows?), and offshore (the assumption here seems to be there is nothing there to speak of, but if that’s true, KSA is wasting a lot of money bringing in those offshore jackups)

But, as I have long said, we are running in the blind. We are having to place our bets somewhere between our mouth and Saudi money....and I feel a bit uncomfortable betting against the latter.

Who knows. We may be there, we know that “peak time” has to come for KSA sometime, now is as good as any I guess. If so, one prediction of mine is holding strong: The price will be no warning. As I looked just a few moments ago, crude prices were just over $61 a barrel. That would be insanely, INSANELY cheap if we are within months of Saudi peak. But, that was the case when U.S. peaked in '70, oil was dirt cheap. It came virtually without warning.

What do I know? I know I am paying down debts. I just made a spare $300 plus spare place per month in my budget, so if Diesel goes to $6 to $7 per gallon, I can still get around! Next step may be apartent shopping closer to work....we are so overbuilt on apartments, townhouses and condos in our area it should take a while to fill them all up....now as to the condition of my employer :-(........who knows. Either way, we will know by end of summer, let's all meet up here after Labor Day and see how it went!

Roger Conner Jr.
Remember we are only one cubic mile from freedom
(but aparently, reserves are disappearing on paper even faster than we are burning them! How does that work....? I have heard of "reserve growth", now we are getting massive "reserve shrink"!) :-)

Further evidence supporting Saudi Arabia's production decline continues to emerge. The evidence is not only technical and economic, but also behavioural. The analysis of the further evidence, described below, shows that Saudi Arabia is highly unlikely to produce over 8.5 million barrels/day of crude oil and lease condensate, on an annualised basis.

Saudi Arabia is in decline now. This means that the world's production is in decline now. Future supply will be unable to meet forecast demands. Governments, corporations and individuals need to start making coordinated plans to prepare for the decline in world production.

These are mighty strong and confident words. How many of the TOD senior staff and contributors agree with this conclusion?

Hello Dragonfly41,

As a regular TODer, I agree with ACE. Consider that billionaires Richard Rainwater and T. Boone Pickens, and multi-millionaire Matthew Simmons have clearly staked out their Peakoil positions already.

Absent fresh KSA data that provides proof positive of greater extraction: I think the Law of Diminishing Returns predominates going forward.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Bob...I didn't say I disagreed. I just want some official statement from SS, F_F, Euan, et al. saying that they all back up this statement. I am not trying to put them up against the wall. I've just heard it come from different articles and comments and wondered if it is time to say it with one TOD voice..."PO IS HERE!!!"

Of the 3 you mention, I would propose that only Rainwater has 'staked out' his PeakOil position - the others are financially involved but perhaps not 'dug in' to the extent of the former.

Remember, there are three major parts to the Peak Oil debate (at least):

1) What is the definition of Peak oil (crude oil, all liquids, net liquids available to non-energy society, etc.) ?
2) What is the date of 1) ?
3) What happens to the global system and society, etc after 2) ?

People who agree on 1) may not agree on 2). People that agree on 1) and 2) may not agree on 3), etc. The people that have spent a good deal of time reading and learning sociobiology (Jay Hanson, Ron Patterson, Matt Savinar, Grey Zone, yourself, etc) are probably considerably more 'entrenched' than the typical financial folks who understand 1) and 2) clearly.

Hello Nate,

Good points. We don't know if Pickens has an Eco-Tech bunker/farm, but clearly he has the means to set one up very quickly with hired expert help. He may be figuring that he is too old to want to do this, and instead, that he is better off maximizing his wealth so that his last days are as comfortable as possible. If his offspring is even listening to their father's warning: it would be interesting to know what his kids or grandkids are doing/planning. Probably in denial like most people.

Simmons will probably be seen as the 'goto guy' postPeak; politically protected for a long time for being such a successful public prophet. If he is careful, he probably has sufficient funds/connections to stay one step ahead of the mob; good chance he will not die an unnatural death.

Obviously, the rich and powerful, who are not in denial, still have a 'shrinking window' for personal mitigation options that most of us on the lower levels of the human food chain do not, or will not have access to; our best chance is to develop needed postPeak skills/knowledge.

Once we are past a certain level of societal breakdown, it will be too unpredictable for either rich or poor.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Although I'm sure to be taken as a doomer :)

The issue here for everyone is pretty simple. We are 100% certain that doing nothing about the issues facing us including peak oil is possible. The only question is it viable ? Can we successfully do nothing and react late and poorly to obvious problems and still succeed ?

In my opinion the chances of success if we execute the do nothing strategy are slim. Arguing over exactly what will cause the biggest problem or when to act is not relevant.

If doing nothing is not a viable solution we know that meaningful mitigation will take a lot of money and politics so the chance to mitigate could well be past us but the chance to try is not.

Notice the spin from the biggest advocate of do nothing.
And of course the current situation in the US housing market
is a direct result of the successful do nothing approach.


The IMF said there is still a threat that the woes of the sub-prime market could spread to other markets, including structured mortgage credit products held by international investors. It expressed confidence that the effects would be contained and said there were signs that the slumping U.S. housing market has started to stabilize.

``Major dislocation still appears to be a low-probability event,'' the IMF said. The report warned that the risks to the financial system would be heightened if other varieties of subprime loans started to weaken simultaneously.

I found a really nice risk analysis that counters the IMF.


Of course it does not include commodity price issues esp oil or global warming.

But this gives a detailed explanation of the risk situation we are entering.

And one final thing. Assuming even some of this comes true the chances of being able to successfully execute mitigation strategies that involve taxes and infrastructure investment are practically nil.

Regardless of your feelings about peak oil if we don't begin aggressive mitigation now we proabably simply cannot afford it later.

At some point people simply need to take the argument we have today and fight to get action like it or not. Waiting till your certain or the do nothing approach is not viable.

But we're in such a weak state to do anything. Governments, corporations, cities, institutions, schools, family's, even political parties are all so deep in debt they're unable to do anything. Society is so constrained and weakened by debt that the effort to mitigate GW and PO is probably impossible (possibly why Bush holds his contrarian stand against what most believe to be sensible regarding GW & PO). Even if we don't factor in a looming economic collapse.

Society is in no fit state to make the necessary changes. It's up to individuals to act in their own interests and manage the fall-out best they can. As it stands, there is no way society can meet this head-on and come out the other side intact IMO (meaning institutions will also fail, such as government, democracy, social welfare, etc.).

The combined effects of economic failure, Peak Oil and Climate Change will simply overwhelm any societal response to the crises. And that's without adding the fact that political and economic machinations have produced a class of child-like citizens incapable of understanding anything that doesn't meet their (ie. advertising induced) wants.

Those that can, do, those that can't, don't. C'est la vie!

I'd also proffer that it would be better to be stuck in a socialist state (if any still truly exist) rather than a capitalist state. The end result probably being stuck in a totalitarian socialist state or a fascist capitalist state.

Please tell me I'm wrong.

The stark reality is that the Oil based economy needs to declare bankruptcy and start over. The debt is a figment of peoples imaginations it does not exist its a few bits of iron oxide. The fiat currencies don't work in a collapsing economy anyway. Better to replace them with something that represents real wealth like a energy based currency or resource based currency system.

I'm pretty sure this is where we will end up. On the financial side peak oil makes default almost certain in the short term and global warming does the same longer term.

As far as I'm concerned the first thing we need to do is restart our financial systems. Only then with a firm stable currency not subject to inflation can we make the long term infrastructure commitments we need to make to solve all the problems we face you cannot invest in 100 year projects with inflation yet this is the way we need to start thinking.
If people go back to building buildings that last 100 plus years then cost is not and issue and ownership is exposed as what it really is a lifetime transferable lease plus taxes.

Personally one of the best things I ever did was walk out of my PhD program as I was writing my thesis after four years of grad school. My professor was shocked and said you cannot do this. I just said watch me. Sometimes you just have to walk away.

Hi memmel,

Thanks for your posts here. Okay - action now.

Re: " The stark reality is that the Oil based economy needs to declare bankruptcy and start over."

Could you please expand upon this? Do you mean for the world? The US? Is this a case where unilateral action can be done?

Is it necessary or desirable to undo the legal basis of the existence/creation of large corporations?

Or, another version of this, allowing municipalities and states to enact laws in violation of WTO/NAFTA,(and other) entities, so that governments can mandate or encourage the necessary (assumption) re-localization?

My list (offered for additions, corrections and comment):

For the US:

1) re: Internationally: An announcement of recognition of the problem; that the world needs to work together (don't know how to say this, perhaps you can fill in the details),
- the "Energy Summit" Matt Simmons talked about.

Specific offers, consisting of (please fill in the blank) -
alternative/renewable tech sharing, (blank)(etc.) (As you mentioned one time a while back - something even as simple as distribution of solar ovens.)

What else? Nuclear non-proliferation, legitimization of plans for world social forum, etc. (not that I'm familiar w. these).

2) Nationally
a) immediate conservation measures, as discussed on drumbeat a few days ago - Enforce 65 mph speed limit, "drive easy"

b) Specific steps and plans for each area of energy use:
transportation, housing, industry.

Breaking those down -
One of my first list items is for distributed energy using only wind/solar (I said I'm just putting these out there!) in order to secure - (let me use the word, I know security is not possible, really)- water purification and transport.
Next up, agriculture.

I have other ideas. The point is to suggest a list, suggest perhaps discussion such as the one we had the other day, (even though someone called it "resistance" to the idea of a speed limit), I actually thought it was an interesting and fruitful discussion, which took place in a short amount of time, and resulted in what looked to me like areas of agreement and one concrete suggestion (reached by consensus, in the sense that it was the one that fit all comments, namely enforcement of the 65 mph speed limit, perhaps along w. a campaign for "drive easy".)

My question to Matt Simmons is:

If OCs (or let's use the generic "we") drill off the CA coast, (as an example), find and extract oil, without a policy in place that addresses the urgency of "peak", will we not be in an even worse position? I.e., Is it not the case that we need a plan that ties any new oil/NG extraction activity to actions that make sense in context of "peak"?

Re: " The stark reality is that the Oil based economy needs to declare bankruptcy and start over."

Could you please expand upon this? Do you mean for the world? The US? Is this a case where unilateral action can be done?

Here is a basic example of how our grand global economy works today.

I go to a bank and borrow 100% or more of the value of a home from a bank using a exotic bank loan. The only real cash in the transaction is bank fees. Remember this since throughout the only real money is bank fees.
The bank then sells the loan as a MBS mortgage backed security. We are told that the investment money for these are generally coming from Asian savers. But guess what this is not true. What everyone is doing is borrowing yen at a very low interest rate from banks ( for a fee ) to buy these bonds. This is the yen carry trade. Basically at the end of the day from a global perspective the banks are allowed to loan infinite amounts of money to buy assets and to buy the loans. This is not stable so to bring at some semblance of stability they sell CDO's collateral's debt obligations.
This supposedly work like insurance and protect the holder against default based on the collateral that underlies the CDO. And guess what they use for collateral ?
Why MBS's of course.

Today it would probably take our world GDP for 200-500 years to pay off all the existing debt which has a maximum generally of 30 years. Basically we need the world economy to grow at between 5-15% to make it. The idea is you simply take all the debt and then take the worlds gdp
and divide its not trivial and my best guess is its 10-100 times the world gdp. I don't exactly know how to do this but its pretty obvious we have borrowed more money then we will make in my lifetime and my children's if peak oil happens stopping global economic growth.

The gross world product is about 46 trillion dollars.

Understand a lot of this is the base economy i.e basics like food clothing and shelter not discretionary spending.

Here is a link to world debt.

Global debt is estimated at 100trillion but this is debatable and probably low. Its difficult to account.
But lets assume 100 trillion.
And lets assume we can use 5% of our gwp for paying down debt. This gives a 2.3 trillion a year in pay down but this debt carries interest lets assume 5% and you can see we owe a compounded 105 trillion at the end of year one and have only paid 2.3 trillion leaving us about 2.5 trillion in the hole every year. Consider what happens if the GWP slows or goes negative its obvious that this situation will blow up.
Right now its not clear the world can service the interest on its collective debt much less pay it off.

The underlying problem is the central banks simply left interest rates too low for too long and now have lost control of the money supply and worse the ability to raise rates. Given a robust economy we probably could unwind slowly and eventually get the economy back on track. But peak oil is the nasty surprise that will slow then stop economic growth at a point we can least afford it. Not to mention causing asset deflation as assets that are not viable post peak lose all value further undermining any attempt to sell assets to cover debt.

By declaring bankruptcy I simply mean stepping off this runway train and stopping the game.
My suggestion is to stop it on purpose and let all this debt unwind and default in a sense declare bankruptcy. Or you can take the do nothing approach and it will unwind on its own with unpredictable consequences. Chances are that they will do it inadvertently by simply changing one of the parameters in this vast unstable web of debt. I'm advocating recognizing the problem and at least attempting to bring it to a close in a orderly fashion to limit the carnage.

Once you actually know how much real money exists you can do a number of things to make investment in renewable energy desirable. A simple thing is to give a big tax break for homes that have PV panels installed and communities that install windmills. On the global warming side you can use punishing tariffs against countries such as China and the US that refuse to implement a carbon tax. The US can tax china until it at least conforms to the US levels of pollution controls and Europe can tax the US. Simply forcing a level playing field at the pollution level would be enough to balance the world economy. You don't need to do anything specific simply force people to pay the true cost of using fossil fuels. To spur electric railroad development you can simply remove the federal highway subsidy and charge a carbon tax for non electric rail. To get rid of suburbia remove all the tax breaks for single family homes.

The only place your adding money is to support PV/Wind power since these have a high up front costs that can be payed down over many years and favoring electric rail simply because it has lower carbon usage than individual diesel trains. The rest simply consists of removing the artificial props that allow our current oil economy to work and allowing the market to pick the right direction. Their is no reason for the government to try and do a detailed intervention and in fact its counter productive the economy needs to change as naturally as possible. Attempts by governments to meddle will simply distort the situation. The only meddling they need to do is some basic support for covering infrastructure costs so alternative can compete with the entrenched infrastructure and to me this is more a issue of ensuring a level playing field.

Surely the most probably response to the coming debt crisis is for national governments (read: central banks) to print more money to cover debt obligations, causing global hyperinflation.

The US government appears convinced, by the events and duration of the Great Depression, that a deflationary depression is to be avoided at all costs. They believe they can inflate their way out of anything, hence the Fed Reserve Chairman's nickname - Ben "Helicopter" Bernanke, from when he suggested that in a worst case the US government could use helicopters to drop money on neighborhoods to spur more spending. This is the man in charge of the dollar.

Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett

Hi m,

Thanks. I appreciate this. And I'd very much like to hear more. After all, the economic implications of "peak" are the problem.

So, could you possibly take this a little further for the sake of discussion (and proposed action).

For example,

re: "By declaring bankruptcy I simply mean stepping off this runway train and stopping the game.
My suggestion is to stop it on purpose and let all this debt unwind and default in a sense declare bankruptcy."

Could you please sketch out for me:

1) Who stops the train? Who, exactly does what?
The US gov't does X, Y, Z?
Corpos do X, Y, Z?

2) "...debt unwind" What does his mean? Can you draw me a picture of what this looks like in the real world?

3) Okay, it seems two responses (to your reply) below say this will not happen, or is not most likely.

Granted. This gets us into the generalizations about "human"

My question is: Could you please respond in some way to this idea?

In other words, I'd like to see this - (I know it's work!) - laid out in such a way that someone without extensive knowledge of economics, (or even w. some knowledge) could read it and grasp it.

This is so important (IMHO). It's the basis of what we're talking about, when we talking about the scenarios, collapse, etc.

4) re: "...removing the artificial props"

Who does what here? What are the props? Who removes them and how?

5) What is the role of multinational corporations in all of this? Actors? Acted upon? By whom? What about "offshore" and "out of reach" corporations?

6) And what about (if you can) my question to Matt Simmons, when he advocates more extraction. Without tying exploration and drilling (eg. Calif. coast) to an energy policy based on the reality of "peak", would this not merely be a set up for a worse situation?

7) Gail, if you're around, could you possibly add to this discussion?

I don't know to be honest I just know from reading that our current monetary system is not surprisingly geared to supporting the status quo. And we have recently stressed the system to the breaking point. And finally its designed around controlled monetary inflation to drive investment and growth.

I don't see it is a system that can survive peak oil for long nor the correct one to use after peak oil.

With the chance of major monetary problems other issues that needed to addressed to handle peak oil global warming etc etc become difficult or impossible to address.

I've finally decided that I don't think their are any answers to our current situation. Or more correctly we need to make so many changes that its impossible for us to come together to make a smooth transition.

Every time I think we might be able to work this out when I try and put the big picture together it all falls apart.

Unfortunately most of the people that do think we can succeed focus on individual issues and the solutions that don't seem to put together the required overall interacting transitions needed to move off of oil.

I wish I could answer your questions but I'm out of even possible solutions. Your right for example about the multinationals they have way to much power and are not going to change. Artificial props are subsidies primarily and using taxes to subsidies oil consumption i.e highway funds removing these would be a huge political battle.

But on further thought this is just the tip of the iceberg
we need to fundamentally change the way we do business to support sustainable living I cannot see this happening.

Hi m,

Thanks for responding, and I appreciate your honesty.
Also, I'd encourage you to share your thinking, if you feel like it - how you think, what exactly happens when the big picture then doesn't make sense. It seemed like you were on to something there (for a while, anyway).

re: "Your right for example about the multinationals they have way to much power and are not going to change."

I've heard of individual municipalities enacting laws to challenge the superseding dominance (legally) of the multi-national. I was trying to find links earlier, and couldn't. It has to do with the way NAFTA and other similar agreements are written - so as to circumvent local pollution laws, for example. Still, it seems people have done it.

I was also trying to find POCLAD on the web, and couldn't. I think they've been working on this a long time.

Also, there's a county - (again I'll look) - that gives tax breaks to organic farmers, to encourage local, organic ag.

These seem to be in line w. what you're thinking.

If you can still ponder the "big picture" ideas...to me, this is worth thinking about...how to change or limit the debt structure. I'd like to encourage and support you in this.

Another way to perhaps get at is...

When you say "...we need to fundamentally change the way we do business..."

Can you describe the end point? (If not how to get there.) ie., What are some of the features of the ideal way?

this is the opposite of pimco's position.

Not sure what you mean by position you mean for pimco they publish a number of reports I'd have to read the report.
Send a link.

If enough defaults occur in the bond market it will crash. The bond market unlike banks has no protection against runs. And the rating services are deeply involved the products they are supposed to rate.

Once enough bonds default and faith is lost in the bond rating services like moodys you will have the equivalent of a bank run on bonds crashing the market.

Jacking interest rates sky high will be the only way to stabilize it. Same with the stock market. Most people think we cant have a depression since banks are protected but almost all the money in the world is invested in stocks and bonds and their is not protection for this money. Bank deposits are a tiny part of the modern money supply.

The only thing protecting the bond market right now is the dubious models of the bond rating services for pricing risk.
Once the systematic risk they have allowed for their own profit is exposed I think many people will realize they have become the equivalent of the fox guarding the hen house.

The bond market doesn't have any form of protection agaionst a run because it doesn't need any.

Very few bonds are "callable" and those that are usually have tight conditions (ie preset times). If China, for example, wants to get rid of a 20 year US treasury, they can not ask for immediate payment. They have to find a buyer on secondary markets. No matter what happens, the US doesn't have to pay that bond back for 20 years after issuance.

In theory, there could be enough bond defaults to undermine crebility to the point where bonds are sharply devalued, but it would take quite a lot and there would be worse upstream impacts on equities.

When bond defaults increase, yields on similar bonds go up, which means borrowing costs increase. If a large percentage of bonds defaulted, the price that similar bonds would get in the market would go down (since yield = coupon/cost, yield then goes up).

If by interest rates you meaning the central bank policy rate, there is no reason it would need to change. Interest rates on bonds (the yield I mention above) would increase until their credit risk was compensated for. The main impact would be that risky borrowers would get priced out of the market.

The problem and why I call it a run is if the market destabilizes it cannot correctly asses risk and thus set interest rates. Right now they are way low compared to the risk this will change and change fast. The base of our money supply is actually bonds so a flight from the bond market is exactly the same as a bank failure and even less protected than banks where in the 1920's. And since most companies and state and local governments have low credit ratings themselves pricing them out of the bond market will lead to them failing which leads to existing bonds defaulting which leads to higher interest rates ...

I call that a run on the market.

I disagree with your categorization of this as a run on the market. It seems like your basic crash to me. However, that is not important.

It does seem likely that interest rates on bonds are reflecting a lower level of risk than they should be. However, these things are very hard to measure and, in fact, can only be right or wrong in hindsight.

You argument seems to be that an economic crash could lead to a credit tightening that could further fuel the crash. I can't dispute that, but don't see why it is probable. Neither do I see why an inability of some marginal borrowers to borrow more would lead them to default in a significant quantity.

Are there really that many cities that are so perilously close to default that debt interest rate increases would entirely shut down borrowing? And do these cities need new borrowing to pay back existing debt? If so, what percentage of the bond market does this represent?

I think the case is even weaker for corporate bonds. I agreed above that the credit spread for risky instruments seems lower than it should be. That means that investors are accepting a lower level of compensation for taking on the risk beyond what is in a "risk free" bond (treasury). But this doesn't mean that there is huge default risk.

I expect that the vast majority of debt is to companies with pretty good credit ratings and significant equity. In most cases all of this equity would have to be wiped out before the debt is even touched. Even when this happens, in the vast majority of cases, the bond holder does receive a portion of their investment back. I haven't seen any evidence that US (or global) corporate debt is at anything but an acceptable level.

So, if there is an economic downturn, investors who consciously took on risky investments (presumably as a small part of portfolios that are fairly diversified) lose some money on the debt portion of their investments.

But that's the way it works. Equity holders take on a lot of risk in hopes of a big payoff. Bondholder often take on smaller amounts of risk in hope of a more predictable, but still risky payout.

If those investors that decided to make wagers on risky debt lose some, or all, of their substantial gains from th last decade, so be it. Again, for the most part these are sophisticated, diversified investors.

Would this mean that no one will ever invest in bonds again? No, credit spreads would go up a bit until complacency sets in again.

If your argument is that peak oil is going to create a short-term crash and that many, many things including the bond market will be destroyed along the way, OK. But you could apply this same argument to sidewalks, schools, libraries, and probably even blogs. I don’t see that bonds have a unique exposure to an economic downturn that should make it a special focus of our already abundant fears.

I'm using the term run to represent irrational fear. Crashes are in my opinion the result of over valuation. And I'm calling it a run to emphasize that the bond market has replaced banks as the key store of the worlds value.

To me the bond market is one of our best modern financial instruments done correctly it is both low risk and a promoter of growth and a market that is not easily used for speculation.

This was destroyed recently by games in the MBS market and I'm sure with other types of bonds and securities to present high risk debt as low risk.

Bonds are unique since I feel like they are the corner stone of the fiat currency world generally the bond market cannot be easily manipulated and its what keeps our world chugging a long. Its considers the safe haven etc etc. In short our economy is underpinned by the bond market. If the bond markets crumble people literally have no place to put their money.

As far as debt goes I suggest you read about the debt levels of our companies and the worlds state local and national governments. First in general taxes have been kept low resulting in the issuing of bonds as a proxy for taxes. Next the low interest rates has lead to a orgy of borrowing. Few companies or governments have AAA ratings any more. In general everyone has been spending way beyond their means using borrowed money.

And finally in thinking about how we would live in a post peak world the bond market seemed to be one of the institutions worth keeping if left uncorrupted. And it does
not need inflation to operate in fact it works best with zero inflation.

A functional fair bond market is required to finance infrastructure development. What I'm think is that by combing the role of the central bank with the bond markets and getting rid of fractional banking in a sense but replace it with CB loans to fund some bonds or a percentage of every bond we would have a very stable economy system backed by the assets of the world. This would limit the amount of money possible to say twice the amount of assets which have no debt associated. Money would then simply be bearer bonds which are now frowned upon but should have been our currency. Money is created by having the new Bond based CB buy up bonds by issuing bearer bonds. So I'm think the role of the central bank is filled by introducing liquidity via this process. Money supply is contracted by converting these bearer bonds back into longer term fixed debt. So in general all the CB can do is change how much money is in circulation
or in reality how much risk exists.

To sum it up.
1.) Bearer bonds replace money they can be used to purchase goods and services and ultimately recycled by converting other bonds to bearer bonds.
2.) The role of the central bank is replaced by simply converting the highest grade bonds with the best security directly into bearer bonds. This high grade debt is whats really used to pay interest. So interest can be seen as simply borrowing from the future by converting safe bonds into bearer bonds to use as money.

The amount of money is tied directly to what we value. Assets the perceived ability to create assets etc. New money is created by creating a new highly valued asset thats directly convertible to bearer bonds and is destroyed if you let a asset's value decrease.

Stocks would not exist I think since the value of companies is needed to create bonds forcing a real risk pricing and forcing companies to focus on value add.

Good comment. I think much of what you are saying is logical and my disagreements are only with certain elements. These mainly concern some of your conclusions, rather than the basic analysis.

It is taken as a given in many circles, and especially here, that debt is terrible, that we have much too much of it, and it is going to lead to ruin.

I think the debt market is more robust and that, while there are pockets of excess, it is not clear that the world is only held together by an interlocking web of debt that will inevitably collapse, Ponzi-like.

It is as easy to contrive a scenario in which it will all work out as one in which it will all collapse. I am not saying one is more likely than the other, only that it is easier to focus on one extreme potential outcome - either doom or boom - than to pick the whole thing apart and come up with a forecast that you have to live with.

I am a financial analysts, so this is not new to me. When your living depends on analysing situations, advising people to invest on that basis, then have to face them afterwards, you being to view forecasting in a colder and more pragmatic fashion.

As far as debt goes I suggest you read about the debt levels of our companies and the worlds state local and national governments. First in general taxes have been kept low resulting in the issuing of bonds as a proxy for taxes. Next the low interest rates has lead to a orgy of borrowing. Few companies or governments have AAA ratings any more. In general everyone has been spending way beyond their means using borrowed money.

I have already done the reading you suggest. I repeat my claim that there doesn't seem to be evidence that corporate debt, in the US or elsewhere is at high levels or otherwise presents a large systematic risk. If this is a point on which your argument rests, I think it is reasonable to ask you for evidence. Please provide a link, or at least some data on this point.

I don't know about municipalities and so am willing to accept your point here.

For most companies, debt rating is a strategic decision. Any corporate finance textbook will have a chapter on capital structure which explains this. Companies balance their investment opportunities, risk, cost of capital in arriving at the optimimal amount of debt to put in their capital structure, and hence what rating is right for them.

For a company in a sunset industry with few growth opportunities, cost of debt is extremely important so they will pursue a high rating. For growth companies, the rating is less important. If they have abundant investment opportunities they will want to gear up, even if it means a slightly higher cost of debt. The difference between an AAA rating and an A or even BBB rating is nothing compared to the ability to access capital for companies with ample investment opportunities above their hurdle rate.

Criteria for debt rating agencies is fairly clear and it is not hard for companiers to select and achieve the rating that they determine is optimal.

So, while I think your overall point is interesting and valid, I think you are taking an overly pessimtic approach to viewing levels of debt accross the board and the ability of the system tio adjust to problems.

Hello Jack,

Thanks for your response.

Is there any chance you could take a look at memmel's basic argument, and respond?

(If not here - then, in a future article or drumbeat? Perhaps here is not the best place, though I'd very much like to have this discussion.)

Q: What economic consequences do you foresee re: "peak" in general, and an early "peak" (like...now) in particular?

Q: Do you see any mitigation measures possible?

Q: What do you think about the idea of the monetary system no longer working?

And what do you think about what memmel is saying wrt a way to "let debt undwind", etc.?

Here's a quick reply, I'll try more later.

Q1: I don't know the answer to this one. To the degree that I can contribute to the discussion, I would only say that the future is extremely hard to predict. I tend to look at it in terms of three main scenarios, and then try to put probabilities to each. The scenarios would be something like:

1. Things work out better than we think (decline is slower, economies adjust to declining oil more easily than we think, alternatives come on stream, etc) - no major economic displacement

2. Peak oil leads to major disruption, but no crash. We get hurt, we adjust. World goes on with population and economic system in place, but potentially huge damage to human life

3. Crash - pretty well described here already.

My current probability weighting is around 34%, 51% and 10% respectively. In other words, I see it as probably that there will be significant disruption, death and change, but that we will adjust. As I note below, anyone with a 100% probability in one future scenario is an ideologue.

Q2: Yes. I think the world could operate on half to two thirds of current energy use with very little economic or social impact in a perfect transition. Currently we waste huge amounts of energy and food. I bet that if the world went vegetarian tomorrow, the problem would be pushed back ten years. Over time I also see a transition to electricity fueled vehicles as being a potential solution. I do think conservation has to be driven by price. I do think that eventually population will over run the world. But that was no less accurate 500 years ago. I don't see compelling evidence that the over run point is 1, 3 or 5 years away. It could be, but it could also be hundreds.

Q3: I don't have a lot of sympathy for the various arguments that say that the current monetary system is fatally flawed. I think these basically take old arguments and recast them in terms of peak oil. Broadly, I think they start by underestimating the value of a market system in allocating risk and resources. Then, since the have taken the most important element of the current system out of the equation, don't see things adding up.

I see this debate as political more than economic, ideological rather than pragmatic. If you start with the assumption that rich countries got rich ONLY by stealing from others and exploiting cheap energy, then, yes, it appears to be a pyramid scheme.

If, however, you see much of the market system, as ways to put values on resources and to apportion risk so that better decisions are reached and resources are used more efficiently, then there is no fundamental problem. This is the answer to why people think the world can grow exponentially with finite resources. Yes, a given resource may be finite, but we can change and adjust. I don't think anyone can really argue that it is theoretically possible to move beyond oil, only that the barriers are so high we may fail to do it.

Basically, I see these two arguments as theoretical bookends that frame the discussion. Almost all of us lie somewhere between. Those at either end, and those who think they know the future, are ideologues.

Hi Jack,


Since I've lost my post once already, this will be short.
I'm putting this link at the top, since I lost my entire post trying to find it to insert later...

I really appreciate your response and I'd like to encourage your thinking and sharing (if you like) - because these seem like such crucial topics, and we've barely touched on them. (Or, at least not nearly in the depth of other topics.) I mean, the entire issue of the economy, under the conditions of "post-peak" - this is what will effect people's lives.

So, I hope you think and write more (when you can).

This is really interesting, what you say about the ability of the market to allocate resources.

Here's a question for clarification (and I so wish we had a process that could work more easily over days at a time! As I'd like to continue this discussion...)

re: "...rich countries got rich ONLY by stealing from others and exploiting cheap energy"

Are you saying that there's a combination of "steal" and "not steal" involved?

Or, that it is only "not steal"?

A couple of things that strike me:

1) It seems one way to make the distinction would be to ask "When does the use of violence and force come into play? And how?"
Thus, I'd consider it a "steal" if coercion, force, violence, whether by state or non-state actors. Perhaps Jeff Vail speaks to these points.

My guess is - there can be a particular "supply chain" where there is violence on one end, unbeknownst to those who participate in (and profit by) a different "point in time" and/or "location" of the chain. For example, take above link, wrt, say...oil or just about anything else. I suppose "blood diamonds" (though haven't seen the movie and am only superficially aware of the topic) might be an example, though I'm sure there are others. (Perhaps some would make the case this is generally true.)

In other words, some people using violence, and yet, your friendly neighborhood jeweler wouldn't dream of such a thing and would probably be upset to learn about it.

What do you think of what I've said so far?

re: "I don't think anyone can really argue that it is theoretically possible to move beyond oil, only that the barriers are so high we may fail to do it."

Can you elaborate?

1) Can you draw for me the picture of what the "beyond oil" world might look like?

2) And what the barriers (specifically) are?

To me, there are some obvious things to do...taking every dime now put into expanding roads, etc. and instead put it into solar. To me, there would be a priority list...water first (to link to renewable energy sources).

(Just to try to chime in w. what might be my reply to my own question.)

I'm very interested in your views (and those of others as well), because of your education (I assume) and experience in looking at what we call the financial system.


Take a look at "We," if you haven't already. This my offer some deep insight into a few of your questions, and, perhaps, offer new avenues to explore. Especially when taken in the context of the cold realities of Peak Oil, "We" is an eye-opener.



What do you think of what I've said so far?

First, I have sympathies to all side of this argument. Obviously there is violence and exploitation implicit in our economic system. However, there would be violence and exploitation in any possible economic system. It is very hard to come up with absolutes in this type of discussion.

I think efforts to improve the system, or find a better one are admirable. However, I think those that just want to view it as evil and try to destroy it without any evidence that there are prospects for anything better to emerge in its place are misguided.

Clearly large portions of wealth in the world came from theft. Colonizers did steal wealth from colonies, slaveholders stole from slaves and third world elites through corruption and misrule steal from citizens of their countries. This has happened under every regime and economic system we have ever had and will continue under any that humans can design.

I do think activities like those of Amnesty Int'l in your link can do a lot to improve conditions at local and system levels.

My point, however, was that modern market capitalism does enable value creation beyond a mere harvesting of people and resources. I say this in rebuttal to those who frequently claim that the entire collection of value in the world is just what mankind has "taken" rather than created.

I think this approaches the heart of the money discussion we frequently have here. If one thinks that the only value is that which is taken from the earth or wrought through labor, then it is easy to believe that only mining and manufacturing matter and that services and financing are elements of a "pyramid scheme". This viewpoint sees debt as exclusively bad.

However, debt, services and financing can create huge amounts of value and improve life for people. Take someone provides a service, say in advertising, and borrows money to start their own business. I see this person as providing a useful service that supports other businesses. I also see the borrowing and investment in the business as taking a risk and using financial tools to create value. The advertising firm will help more businesses and may hire people to work there. Now if the company advertises for a software company that has also created a product with very little material input, lives can be improved and the economy strengthened, with no "exploitation".

I would agree that much of the advertising goes for things people don't "need" and that it boosts consumerism, with its problems. However, I like having things beyond my basic needs, and think there are good aspects to consumers. I also see the above scenario as a piece of a sustainable long term economic system in developed countries. The debt enables the business owner to do something they otherwise couldn't and if their risk pays off, they made a good decision.

So my point here is that value can be created and lives improved without a direct linkage to energy/resource use, or exploitation.

Now in developing countries the picture is somewhat different. I have lived in Thailand for close to ten years and started out working in rural development. I have worked in the NGO or development assistance field in Southeast Asia for over six years, so I have some direct experience.

We, in the West, see people working in factories under poor conditions and think that they are victims. People often advocate for a "living wage" or other attempts to bring their pay near Western standards. While some of these efforts are admirable, in many cases they are selfish attempts to preserve Western jobs.

The last thing a poor worker in Cambodia wants in a minimum wage anywhere near Western levels. If you made a global minimum wage of $20/per day, companies would shut down Cambodian factories, where productivity is low and move to, say Malaysia factories, where the wage is already $20 per day.

To me the problem here is not the abuses by Western business, but the poverty people suffer separately. We tend to imagine that a poor worker in a Nike factory has been lured by a desire for consumer goods to surrender a good rural life for one suffering in a factory.

But this really requires assuming that the individual involved is stupid. The reality is quite different. What is the individual is a single mother in a poor part of the country who can not afford to feed or educate her children. If the presence of the factory give her a choice, how can it be bad?

I certainly agree that abuses go on in many, many factories and that not all choices are good ones. However, someone who wants to shut the factory and take away the opportunity of this woman to choose whether to work there or not is naive at best. As i discussed above, the global minimum wage type discussion is really a version of this.

Workers are in the factory because their lives are bad and their opportunities limited. It is not the other way around.

This is all a very long way of saying that it is easy to just sit back and deride the way the world works, but there is no easy way to keep six billion people going. The way we do things has good aspects and bad, but it exists for a reason and is not all going to fall apart without a giant blow. And if it does, there is no assurance that what replaces it will be any better.

There are other cases in which the choice is not so clear. Diamonds certainly do seem to be created through slavery and exploitation. But there are other places where people are starving and dying, but not producing anything. Would they trade places with a diamond miner? I don't know.

What about North Korea? Should we buy products made there? It seems clear that the North Korean people are abused and exploited. The regime also takes most of the money and keeps people poor. But if we buy products, do worker at least do better? Would it be better to just send them food supplies? Again, I don't know.

This already too long. I had hoped to comment a bit on post peak adjustments, but will try to get to it later. I’ll be interested in any feedback you have. This is fairly rough off the top of my head. I wanted to get it out, rather than work on the details. I apologize for any sloppiness.

"So my point here is that value can be created and lives improved without a direct linkage to energy/resource use, or exploitation."

This doesn't make sense to me. Simply to live requires energy. All human activity, be it economic, arguing on TOD, improving lives, or lying in bed daydreaming, requires energy. When you eat, a necessary energy input for daily life, resources are being used. There is always a direct link to energy. Without it nothing would happen.

There is no escaping themodynamics--in other words, cold, hard, and uncompromising reality.

If I missed something from your post--sorry!



It is true that nothing can be done with no energy and that the law of thermodynamics is in escapable. However, this does not imply a direct one-to-one relationship between energy and value.

Some activities that we do require very little external energy, some a lot (think reading a book versus drag racing - or - eating vegetarian versus McDonalds).

There is no law that says that if humanity (or any individual) used half as much energy, they would be half as happy, or half as productive. There is no law that says that economic growth requires increased energy consumption (although some seem to claim that there is).

As I mentioned above, it seems to me that we waste enormous amounts of energy because it has been cheap and abundant. As this changes we will use less energy, more efficienctly and may achieve similar results.

HI Jack,

True enough. Now, how do we get from here to there? Being as how "we" are either starting from here, or will be affected by those who are even more immersed.

Hi Jack,

I appreciate (a lot) your responding...I would very much like to continue this discussion, and to expand it. I'm not sure exactly how to do this, since, for eg., here I am only getting a chance to come back two days later to see what you've written. (and not sure you'll see it, either.)

If you can (at some point) talk about both "post-peak adjustments", as you mention, and - perhaps most important "pre-peak" planning, I'm very interested. To me, this is the conversation we need to have, (including taking the advice of Jeffrey, Samsen Bakhtiari, and everyone - "okay time to act!")

I'd also like to hear about your firsthand experience, esp. as it relates to the subjects we discuss here. Perhaps others would also. (Are you still in Thailand?)

re: "While some of these efforts are admirable, in many cases they are selfish attempts to preserve Western jobs."

Kind of the kernel of at least one topic, i.e., is it selfish? What if "we" (US) exported neither jobs nor food? Would this be better or worse? Not wanting to pose a deliberately callous question (at all). Perhaps this question is most accurately framed in the past tense (since it's all already happened.)

I guess I'm wondering to what extent, say, locating a factory somewhere and/or having say, agricultural exports resulted in influencing local development in a negative v. positive direction. Fostering a situation where food aid is required, because the dependency (lack of local production) was created in the first place.

re: "Workers are in the factory because their lives are bad and their opportunities limited. It is not the other way around."

Actually, I can see it being either way round - a chicken-egg type of thing, depending on the particular example. In other words, had the same "outside" contact occurred in a different form, would this have been better? ie., the factories are not really arranged with the goal of making worker's lives better, are they? (See what I mean?)

In other words, I believe you. (Or, I should say, I can see how you would say this.) At the same time, it seems like it depends upon a look at the history of any particular example, (in the sense of "Why are these lives bad?")

I am also enjoying this conversation and don't disagree with any of the points you make. I don't think factories, workers, developed, countries, developing countries, you, me, etc. as either pure good or pure evil.

Many of these issues are subtle and sophisticated. It is great to be able to discuss them in an open and non-confrontational way. I don't think I am right and others wrong, so the adversarial point scoring type back-and-forths that often charactorize controversial discussions here are off putting.

I'd like to continue this and related discussions. Maybe we can just jump from one Drumbeat to the next. I'll send you my email soon, so you can alter me if you have a comment that I could reply to. I think having these discussions in the Drumbeat is good because others can join in.

Yes, I am in Thailand, where we are vigorously celebrating the New Year Water Festival.

Really outstanding post (I come to all of this from a financial/investing, not ideological, perspective, and so tend to react badly to much of the anti-western, anti-market talk that pervades certain peak oil circles).

I think the probabilistic, rather than deterministic, nature of trend projections can never be overemphasized.

Personally, I would be inclined to add a fourth scenario, between 1 and 2, (1.5):

1.5 Serious economic disruption leading to significant structural adjustments, but damage to human life comparable to severe recession at best, depression at worst, not global war.

I'd put the probabilities at:

1. 33%
1.5 33%
2. 28%
3. 5%

It could be amusing to firm up time parameters and category definition and get a pool going.

All the best,

Hello Hans,

I'm interested in looking at different points of view. My need for respecting the seriousness of what we're talking about - well, personally, I'd rather not have a pool.

What I'd like to know:

1) Could you possibly talk more about what leads you to your most heavily weighted choice? Why do you choose it? What factors go into making up this (your most probable) scenario? What actions do you see as ideal in order to make the impending events least painful and most humane?

2) Drawing on your background in finance, what do you see as the important questions that need to be asked and answered?
Do you have ideas about specifics?

3) What are the "structural adjustments" you talk about here? Can you possibly describe them to me?

I'd like to understand (all) this.

I didn't address your question about letting debt unwind, but did cover it to some degree in my earlier comment.

I think Memmel and I seem to agree that debt is not inherently bad. However, in some cases there is too much debt and in some cases risks may not be adequately compensated for by yields.

I see winding up and unwinding as natural flows in the debt market. We are probably at a high point in the cycle and will likely revert somewhat. I don't see that it makes sense to pull this out of the contxt of the adjustments in the overall economic cycle.

I am not convinced that debt, of itself, is a big problem outside of a few select cases: US governmnet debt (but only because ofur fiscal position is making it harder to service - the level of debt isn't out of line with international or historical standards) and US householf debt are two examples.

Memmel also cites municipal debt, which may or may not be true, and corporate debt. I stated above that I have seen no evidence to indicate that corporate debt is at "high" levels. Memmel asked me to read on the subject, which is what i do in my job every day. If I do see any evidence, i'll let you both know. But haven't yet.


The one thing the R+Ps don't have, and probably never will have, is the necessary psychological mind set. I believe this will be their undoing. They will neither plan ahead nor be able to downsize their expectations sufficiently to survive.

One example of how things can change was in Cleveland, OH during the Depression. A person could buy any number of mansions for back taxes. There were no takers because even at a neglible price people couldn't afford the current taxes.

I've mentioned what happened to my dad's father during the Depression before. He was well enough off to have a cook and a couple of maids. Losing everything, as he eventually did, destroyed him. He was never able to regain what he had and simply gave up and died at 57. I think that's more likely to be the case with the R+Ps than downsizing and making the best of it.


Hello Todd,

Good points. It will be interesting to see if the young and rich can adapt too, or if they will go like the older rich.

I have posted this before: will Tiger Woods plow golf courses? Can Britney Spears, Snoop Dogg, Justin Timberlake, Puff Daddy, Leonardo DiCaprio, Carrie Underwood, Maria Sharapova, Hillary Duff, Kobe Bryant, Steve Nash, Posh Spice Beckham, and Paris Hilton give up the good life to work/own a farm?

I think Dolly Parton could mentally adapt back to a rigorous postPeak life easier than the most of the stars of the younger generation. She has been there, done that.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

They don't need to adapt and downsize, just invest intelligently. Periods of transition like this can be very lucrative, and that's not lost on all of the advisors to these people.

I don't plan on working on a farm either.

“When I hear the word 'community,' I reach for my revolver.”

A subset of the wealthy and powerful will always thrive, regardless of external conditions. Look at Europe during the War... that was far worse than anything you're likely to see from Peak Oil, and still those who were intelligent, resourceful, connected and/or financially secure adapted and prospered.

The poor are rarely capable of presenting an organized threat to the rich, whatever the external conditions, for the same reason that they are poor to begin with.

"I'll hire one half of the working class to kill the other half."
Jay Gould

“When I hear the word 'community,' I reach for my revolver.”

"A subset of the wealthy and powerful will always thrive, regardless of external conditions."

I recall a certain pandemic in 1918 that didn't seem to discriminate much between social classes. Dynasties fell. But you may be right. However, just who that wealthy subset will be is not set in stone.

WWII occurred during a time when cheap energy sources were still available, and plenty of production growth remained waiting to happen. What happened during that time period likely is not comparable to what will happen in a future of long-term energy scarcity. Global peak oil is a singular event and it is unprecedented. I suggest reading some Bakhtiari, among other sources.



H'lo Dragonfly 41.

I don't think anyone claims the case for KSA decline is much more than circumstantial. If we had the field-by-field data, we'd know wouldn't we?

I have this funny feeling that the "announcement" of the KSA peak will come in the form of a flurry of international flight plans out of Saudi Arabia.

One useful conclusion that can be drawn from the recent Texas HL debate was that using the inflection in the data just prior to the peak provides an unrealistically high estimate of URR. The most accurate estimate of Texas URR comes from ignoring the inflection ("dogleg up") in the data.

Therefore, I think that Ace's estimate of 165 Gb for the Saudi URR is a very good estimate.

Assuming that the world production decline continues into May, we will have been below the 5/05 crude oil production peak (EIA) for two years, despite about a two-thirds increase in average Brent crude oil prices.

KSA's official position is that they still have 2mmbpd spare capacity, right? Very shortly they are going to have to put up or shut up. With demand going up the way it is a shock may not even be required.

10+mbpd is their max production quoted from Saudi Aramco.

Saudi Arabian officials have been quoted 10-11.5mbpd as their max production.

Go figure. Their oil minister does not even know what their max output is. Saudi Oil minister is giving slightly different numbers than Saudi Aramco. I am not sure why they say we can trust them on anything when they don't seem to give us definite answers.

Any chance you would be willing to look at the export land model with the above data ?

Also of course I'd love to see different per capita consumption and growth models say high, median and low estimates.

What is import is once you enter the danger zone the world's economy has to transition off oil and your bidding model indicates that prices can go much higher then presented and more important volatility will be significant.
I think the extrapolation to 2010-2011 is too optimistic since the critical point is when the top economies begin bidding against each other in the face of real shortages.
At that point their is no real upward bound on oil prices.
Demand destruction via economic problems probably will not be enough to restrain oil prices since its to slow of a process and demand is fairly inelastic in the advanced economies.

In my opinion using all available data this starts in earnest early 08-09 we are seeing the initial onset right now.

Past that point all projections break down since the world economy would then be adjusting to a scarce resource condition.

As a side note the US will be hit with a number of strong blows at the same time.
1.) Price spikes will cause a deeper recession in 2008-2009 just as the housing market is heading toward its lower levels from todays bubble sending it even lower. The economic impact of a falling housing market will continue.
The beginnings of suburban collapse as high fuel prices make the far flung suburbs undesirable at any price will add to the storm.

2.) Baby boomer retirement is occurring at this time leading to the loss of skilled works and drop in spending as they adjust to fixed incomes.

3.) Massive debt loads should become unbearable at this point this includes government cooperate and private debt.
The complex modern world money market is almost certainly unstable against persistent economic problems. The central bank should be able to contain this crisis but the result will be a massive tightening in credit and much higher risk assessment leading to a real increase in interest with our without central bank adjustments. Defaults in the bond markets from todays LBO's and esp governments will force interest rates to skyrocket and investors seek safety.
If the US government tries bailouts without raising taxes the state of the bond market will ensure that it won't be allowed to spend beyond its means. Fears of hyperinflation and the uncertain returns on fixed assets and the valuation
drops from economic problems will cause investors to practically freeze up simply because of the uncertainty in the markets money now searching for a safe haven will move in unpredictable ways. Most pension plans and 401k's will be wiped out or people will liquidate this will suck money out of the stock market collapsing stocks. This will further collapse the corporate bond markets. And one more time interest rates will go to the moon and the central banks can do nothing to prevent it.

4.) US auto manufactures will either be bankrupt or close to it by this point sending shock waves through the economy as local car dealers and the vast array of connected industries decline.

5.) Taxes will become a huge problems as property taxes decline and cost for roads and fuel skyrocket many state and local governments will face a choice of either raising taxes to the point economic growth not only stops but trends downward or filing bankruptcy. This massive wave of government bankruptcies will prevent the federal government from bailing out banks/companies since they must maintain needed services such as garbage collection etc. The Federal government will itself be in the same tax situation and attempts to print its way out could easily spark hyper inflation. They will have little choice but to raise taxes.
This might be the biggest problem since maintaining government services is critical and will put the US government in the position of being unable to respond to other issues. Tax increases will simply inflame the issue.

6.) Global Warming makes it almost certain that we will suffer at least once instance of crop failure over the next few years putting pressure on food and ethanol supplies and fueling inflation in food costs. In addition at least one major disaster should occur as a result of GW. And of course many places in California are overdue for strong earthquakes. Finally expect at least some damage to oil production in the Gulf from hurricanes.

7.) The Iraq war will probably be continuing and considering the instability of the ME we have to expect additional crisis in the region.

The real problem that will cause the US to stumble is bankrupt local governments and pension plans since these issues must be handled and they will prevent any other response.

But hey the stock market is doing great right ?

I'll bet you don't get invited to very many parties either.

I do well at Goth parties :)

I'm pretty good a spurring people too start looking at the situation. The key is to get people to evaluate the situation and talk about it for everyone that decides everything is rosy and discusses this issue with their friends their are two more that take a look and come to the opposite conclusion. The key is to get people to look at the issue and talk to others the facts will ensure that right conclusion is made. As far as I can tell peak oil is well known on the critical word of mouth circuit of course I'm running out of new recruits to test my hypothesis :)

I do know for a fact its included as a issue in bear market analysis and often brought up as not happening by the bulls. The key is its talked about. Obviously the most important thing is where the smart money moves the governments will follow and finally the people.

And hopefully we have time to change. The nice thing about moving to a renewable economy is it has zero downside outside of exposing the amount of malinvestment thats happened over the last 50 years but for me this is simply the ultimate market correction.

Hi m,

So, I'm wishing for you/(together w. Jack, Gail and others?) to write this up as an article.


1) re: "Obviously the most important thing is where the smart money moves the governments will follow and finally the people."

Who has the smart money? Where do you think it should move? Is "it" actually *able* to do so? In other words, "smart mnoey" is not beholden as it is?

Is there enough money held by "smart money" that is not held by Govs (or US gov)?

Is the "smart money" really capable of re-localizing ag, for example, or large-scale conversion to organic (non/reduced FF) ag?

In a sense, the smart money created what we've got - didn't it?

2) re: "The nice thing about moving to a renewable economy..."

How do you see this as actually working? Do you mean, an economy based on renewable energy, (renewable water, forests)?

Hi m,

Could you possibly, at some point, consolidate and write this up?

Also, how does your suggestion of "debt unwind" apply specifically to these seven points of your scenario?

Great work the one thing I'd like to see added is WT export land assumptions. I think you will find that the current report is too optimistic.

You should consider different per capita assumptions say from American level to what I think are good ME numbers of about twice American usage for the wealthier Arab states.


Here is one link for WT export land.


So considering the export land model KSA may have a tough time overcoming increased internal consumption. Esp if you consider a range of consumption rates since the official numbers appear low. This matter of course as you do %.
Next you have to imagine that they will aggressively try to wean their economy off oil exports which will increase domestic consumption.

Next you need to consider the case of a increase in rate of depletion for the older fields from 8 to 13% as they water out. Higher collapse rates are not uncommon and since Ghawar for example makes such a large contribution to the total changes in the individual decline rates of these large fields will have a impact on the total. Mexico for example.

And I agree it questionable if some of the production numbers will be met.

These three assumptions together makes it hard for me to see any increase in production over the next few years.

The most important thing is to include export land in these numbers. If you include all the above at that point I think you would have something close to the real exports going forward.

Just guessing it looks like exports will go 7mbpd->4mbpd pretty quickly. Thus the decline from KSA alone would be a big contributor to overall world decline not to mention the decline in the rest of the world.

Since the rate of decline is one of the biggest factors in how the world will respond to peak oil inclusion of the export land model is important.

I agree, though I think you might be overstating internal consumption a bit. That will certainly be disciplined by opportunity cost (use vs. export sale value), so I suspect we will see effort by Saudi, Russia, etc. to mitigate export losses from internal consumption as much as they can. I do think there is a bit of a tendency for some of us to too readily adopt worst case scenarios about things like that, not taking into account likely responses to price signals (while oil cannot be wished into being by higher prices, they will affect the uses to which it is put).
It would certainly be very interesting to see a series of pieces incorporating various internal consumption trends with different assumptions to further inform our understanding of likely total world exports over the next, say, 5 years. (Or rather, to see more such pieces, which I consider tremendously helpful.)
Of course, as an aside, I think we can say what we'd like about the need for conservation efforts among the importing countries now, but those will not happen to meaningful scale until (sustained) prices present the markets with no meaningful, less painful, alternative, particularly given the consensus expectation that the historically high prices currently being experienced are the product of artificial geopolitical complications rather than physical resource scarcity (or at least a scarcity not likely to be resolved sometime in the near future).
So, nothing real (vs. politically expedient, like ethanol), will be done.
"When I hear the word community, I reach for my revolver."

I don't see that KSA is stable enough to moderate internal consumption. Nigeria uses this approach and you can see the problems it causes. Russia is probably slightly more stable but I doubt it can handle the political fallout either.

The population will be seeing rising oil prices and the internal view will be its time for them to get a piece of the pie. If anything internal expenditures will increase to handle popular pressures. Understand this will be occurring at the same time both countries will need to significantly increase spending on oil production itself.

Venezuela and Mexico are a bit further along on this road and you see the result is increased internal consumption decreased exports and more important decreased investment in oil production.

These additional factors are all negative so I don't see that I'm too optimistic. I suspect the internal sentiment in these countries will be that everyone will soon be a millionaire just as the recent housing boom in the US created the exact same atmosphere. This is not something any government can easily control.

You have to understand that to most people in these exporting nations will feel that the golden age is just around the corner.

I find it interesting that no one wants to look at a plausible negative scenarios.

True or not what almost no one wants to admit is we are facing a real chance for significant problems the probability exists and its not low. The fact that gloom and doom scenarios can be argued in a reasonable fashion alone should be cause for alarm. My other post shows that none of the issues exist in a vacuum and they all tend to reinforce each other. Ignoring the cross effects and positive feedbacks possible is a mistake since these are the critical factors that cause situations to spiral out of control.

GW for example is a problem because of the positive feedback loops. Overall we are facing to many ways that problems can become unmanageable so I don't see the do nothing option as viable. We have to start making real changes now.

You have to understand that to most people in these exporting nations will feel that the golden age is just around the corner.

Even as Texas oil production was declining in the Seventies, the largest Rolls Royce dealer in the world was in Midland, Texas. Production was declining, but cash flows exploded because of about a 1,000% increase in oil prices from 1970 to 1980.

Even as production--and exports--decline, cash flows into many exporting countries will initially continue to increase, setting up a positive feedback loop at the worst possible time.

There is a difference between expenditure of money and expenditure of energy... for example, there's no question that the Iranians want nuclear power plants, at least in part, so that they can free up some the oil and natural gas they are currently using to generate power and sell it. If oil is selling at $100/barrel in a few years (current dollars, which I fully expect) and they're contemplating power generation alternatives in places like Saudi, Iran, Russia, etc., they're going to be looking at those that use less oil or gas (such as nuclear) before they look at those that use more.

As for "popular pressure," well, there's another thing that we get a bit overwrought about. People in most of the world have had nothing, or next to nothing, most of the time, for all of time, something slightly more than nothing but less than they thought they’d get will not lead to a world consuming cataclysm. Those few who do get out of line will be dealt with (it works the same everywhere, buy off the leaders, make the occasional example, Plata o Plomo, the bomb or the briefcase).

Neither will there be such a cataclysm in the West (at least, in the immediate future, rooted in resource scarcity rather than demographics, which is a different topic), the suburbs will neither disappear nor be consumed by rioting, things will just get more expensive, people will go further into debt, work longer hours, have less and complain more.

When we allow ourselves to get carried away in our attempts to awaken the public to possible consequences of the coming scarcity, we discredit the idea that there even is a coming scarcity, and people dismiss us as doomsday cultists.

Of course, that’s fine with me, it keeps equities relatively cheap. If I were, say, T. Boone Pickens, I’d be funneling cash to true crazies like Savinar as a way of tarring the truth with the kook brush while I’m positioning my clients’ money.
All the best,
“When I hear the word community, I reach for my revolver.”

You are not reading very carefully then. Suburbia will implode when in 5 years the US gets only half the exports it used to. Export Land Model. Or do you think that countries like Mexico will give us all the oil they produce to keep us happy while there population starves?

The speed at which the real Oil Crisis will hit is going to be a great surprise. We won't be able to adapt so it will be every man for himself.

Or maybe you think that we can handle going from 85 to 55 MMBPD, no big deal? If Baktiari is right and we go to 55MMBPD in 10 yrs that effectively means NO exports. Thinnk the US will survive on 3MMBPD in 10 yrs?

I might add the golden age for oil exporting nations will be the shortest in history since they have not created viable economies to date and need imports. I doubt it even lasts ten years. Before rising consumption and dropping imports take the cash flow to zero. I think this is one reason for the cat and mouse game between the US and Iran. The Iranian government knows its toast in a few years and want to play the N Korean nuclear angle to survive the US wants them to go down in flames. WestTexas might be able to come up with when exports and imports and growth result in a deficit once demand and prices cap out or more likely rampant inflation destroys the value of the currency reserves. Its well before 10 years maybe

If Baktiari is right and we go to 55MMBPD in 10 yrs that effectively means NO exports.

Most oil exporting countries have nothing to export other than oil. So they will have no choice but to curtail domestic demand so they can make money by exporting oil. I agree life will be hard in this country (& impossible in many parts of the world); but I don't think it is going to be as bad as you think. We will see....

Thinnk the US will survive on 3MMBPD in 10 yrs?

Desperate times call for desperate measures. The US will turn coal, food, biomass, tar sands & shale into liquid fuel. So we may have 10 mbpd in 2020. Hopefully by then we will have PHEV, electric cars & more public transportation. Look at the bright side: food will be expensive and there won't be an obesity epidemic in 2020 :-)


"When we allow ourselves to get carried away in our attempts to awaken the public to possible consequences of the coming scarcity, we discredit the idea that there even is a coming scarcity, and people dismiss us as doomsday cultists."

I would say more, but for once, can see no point. Anything I added would only serve to obsficate a brilliant point.

Roger Conner Jr.
Remember, we are only one cubic mile from freedom

''When I hear the word Kultur, I reach for my pistol''

From a Mr. H Goering.

You are better off with this quote:

''Society? - There is no such thing as Society.''

From a Mrs. M Thatcher.

Yes, though I like my version better.
Goering spoke pretty good for a fat man.

"Democracy is the theory that the common people know what they want, and deserve to get it, good and hard."

When ever I hear the word "Goering", I reach out for "culture".

I get slightly nervous when the "wisdom" of Fascists is rolled out on TOD. What are we supposed to learn from grossly overweight, intellectually challenged, drug-addled, desparate cynics, like fat Hermann?

Culture has lasted far longer than Hermann and his cheap chums and their bizarre and highly unsuccessful ideas.

The pen is, in reality, mightier than the sword.

Thank you for that, writerman... Long may you write!

I was hardly endorsing Goering, merely making a joking allusion. (There was a pop song a few years ago that did the same thing, if you recall.)

I should have thought that would have been obvious, especially to a writer.

Goering did have a point in this quote, though, which had nothing to do with real culture and everything to do with critics, or rather, people talking about culture.

Likewise, I wasn't dismissing community, per se, but (mis)use of the word 'community.'
All the best,

I don’t really understand the gist of the argument. Why do you need more evidence of Saudi’s production decline? It declined by about 8 percent in 2006. Everybody agrees on this point. All the agencies that count, and the Saudis themselves.

The 8.4 million barrel figure given by the Riyahd Bank is somewhat misleading. What numbers do they use? IEA, EIA? MEES? OPEC? All these numbers differ slightly. Is this 8.4 by the end of 2007, or an average of 8.4 in 2007? This is not so far away from the 8.5 number that I believe the IEA is down to. So the Bank’s forecast could be read as a prediction of future decline or as simply confirmation that Saudi Arabia will hold its production at the levels already brought about by OPEC quota cuts.

Why is Stuart betting that their production won’t go above a certain level? This seems rather odd given that his contention is that production is declining. If his point is that Saudi Arabia is in irreversible decline due to a geologically induced peak, then I think betting that its production will decline to 8.1 by the end of 2007 and 7.5 by the end of 2008 would make more sense.

Why do you need more evidence of Saudi’s production decline? It declined by about 8 percent in 2006. Everybody agrees on this point.

The disagreement is over whether that decline was voluntary (OPEC production cuts) or involuntary (peak oil Saudi Arabia).

Why is Stuart betting that their production won’t go above a certain level?

I think he chose that number because the Saudis say they can raise production to that level.

If his point is that Saudi Arabia is in irreversible decline due to a geologically induced peak, then I think betting that its production will decline to 8.1 by the end of 2007 and 7.5 by the end of 2008 would make more sense.

But the question would remain: is it voluntary or involuntary? If the U.S. goes into a recession, there may be a drop in demand to the point that the Saudis would cut back production (or have reasonable cover for claiming they were doing so).

If they actually do raise production, then there's no argument: they are not at peak now.

I think this analysis is overly optimistic. So peak is still 2 yrs away in 2009?? No way. Its here now.

Gas isa over 3.25/gal and people are being demand destroyed now, believe me, if gas was 50 cents cheaper then a lot more would be used. The real shock is yet to come,$4+/gal this summer after a few hurricanes shut down the gulf.

Not exactly...he said peak all liquids...everything that burns essentially. Peak Oil (Crude) is defintely in the past, and so is Peak Crude and Condensate by most analysis.

Peak All liquids is all that is left, and it may have passed as well, but as mentioned in Ace's post, it may possible to hit a new high number in 2009, if everything goes well (ie. Russia doesn't start its decline in 2008, Nigeria keeps pumping, Iraq doesn't melt down, and Iran/US don't start world war 3...oh and hurricane _insertnamehere_ doesn't destroy Houston)

No argument that demand destruction is already underway, and this summmer, fall and winter will be expen$ive in many ways with the first Oil shock likely.

Hi Korg,

The estimate of peak total liquids for mid 2009 assumes that ethanol and natural gas plant liquids will continue to increase in production, partly offsetting crude oil & lease condensate production drops.

The graph below shows my C&C forecast with a peak in May 2005.

Whether peak is now or in five years, what is more important is that supply is lagging demand now. Evidence for this is the doubling of corn prices over the last year. Corn is used to produce subsised ethanol. These subsidies are crazy because it favours feeding a fuel tank with ethanol over feeding people with food. When corn prices rise, agricultural land values rise indirectly causing all food prices to rise.

Why do you need more evidence of Saudi’s production decline? It declined by about 8 percent in 2006. Everybody agrees on this point.

Well I always feel compelled to draw attention to the fact that the year on year decline was around 2% and talking about 8% (jan to december 06) greatly over-exagerates the reality;-)

you seem compelled to bring our attention to a past period, which I guess is cy06 vs cy 05... Many are focusing on the y/y comparison of the present vs twelve months ago, which is at least 1Mb/d, twice their agreed opec cut, and 1/9.5 = 10.5% decline. ANd, I have heard references that output is now less than that, <8.4Mb/d. The latter value boosts the decline to 12%/y.

Returning to the opec cuts, SA was producing 30% of opec output and made 80% of opec cuts. I suppose the rest of opec thinks of them in heroic terms.

Hi Eaun,

My long term forecast to Dec 2020 predicts a Saudi decline rate of 3.4%/yr from Jan 2005 to Dec 2020. This assumes that all of Saudi projects are on time and produce at target rate, and no surplus production.

If possible, decline rates should be measured over longer periods of time.

While the Saudis might use recession-induced demand destruction as an excuse for lowered production that was actually due to geological forces, this would seem to require some pretty good timing with worldwide economic activity or it would be transparent to any half-decent analyst. The Saudis have a full deck of other excuses shuffled and ready to deal and, absent any convenient scapegoat recession occurring soon, here are four cards you might see played in the next 6-18 months:

(1) Al Qaeda is finally successful in targeting KSA oil infrastructure. It’s not like they haven’t tried recently (e.g. Abqaiq in 2006) and all the Saudis would need to do would be to relax security a bit or (perhaps even more likely) themselves create some ‘event’ that implicated terrorists. This could conceivably mask a geological cause for at least couple of years.

(2) The KSA announces major infrastructure replacement necessitated by normal wear and tear. They could cite BP’s recent experience on the North Slope as a precedent for taking such action even during a time of relatively high demand.

(3) The KSA announces voluntary production cuts as a protest against the “illegitimate foreign occupation” of Iraq by the West. They may be setting the stage for that even now.

(4) The continuing (but louder) explanation that "nobody wants our oil." Of course, if the stuff they’re pulling out of the ground right now is of the wrong grade for many refineries to process at the demanded rate, I suppose that could have some truth to it, couldn’t it?

These are just examples, but the MSM (with a nod from CERA) would probably accept them without hesitation.

- Peak Squid

(3) The KSA announces voluntary production cuts as a protest against the “illegitimate foreign occupation” of Iraq by the West. They may be setting the stage for that even now.

This is an interesting one and could be the way some princes want to take it. What I am caught wondering is if it is being orchestrated with the help of the US gov or not? Are Saudi political movements and statements being "blessed off" by Uncle Dick & Co.?

If they actually do raise production, then there's no argument: they are not at peak now.

Is that when we find out if the Iraqi/Saudi pipeline has been cleaned up and put into use? .... 1/2 joke...

Isn't Basrah light (API~34, sulfur,1.8% to 2.1%)nearly the same as Arabian light(API~32 to 34, sulfur, 1.6% to 2.1%)roughly speaking, do I have that right?

KSA did claim ownership of the pipeline... yeah I know, nothing but a fistfull of conjecture.

Time to put that speculation to bed--every major stream of oil has its own chemical signature--one the wuld be recogniaed at a lot of refieries around the world--ask any petro-chemist. Impossible to keep it a secret.

Domestic use? Though I'm not sure of the KSA motivation/benefit to do so.

I have a suspicious nature if I start thinking of oil men in the WH and their pals...

If his point is that Saudi Arabia is in irreversible decline due to a geologically induced peak, then I think betting that its production will decline to 8.1 by the end of 2007 and 7.5 by the end of 2008 would make more sense.

The bank was apparently talking about average annual production. The key point about the Saudi bank is that a Saudi institution is predicting an accelerating decline in production, on an average annual basis, from 2006 to 2007, versus 2005 to 2006.

The monthly production rate in 12/07 probably will be on the order of 8 mbpd or so.

Alternatively, they may simply be predicting that world demand (at current prices) will not require an increase in Saudi production this year...?

My gut feeling is that the projected world demand growth in 2007 is overstated. (it has been for the past couple of years, no?) i.e. that a plateau in 2007, at something like current prices, is not impossible.

My analysis gives further support to Stuart's prognosis that Saudi oil production is in decline

Ace, I'm a trifle confused by what you say. You seem to be forecasting 9 million bpd C+C in 2011 which would translate roughly to 10.8 million bpd C+C+NGL. Now I really have very little problem with that, but like GaryP would like to see a bit more flesh on how you get rid of the sharp "underlying decline rate" - as you know I see that as artificial, caused by withheld production.

This is a chart I showed in my Bare Saudi post, the red line is a scribble based on a geologists gut feel of how things may pan out and the plum line is Stuart's "optimistic scenario. I've agreed with Stuart that the debate should not reduce to one about who is right or wrong - but I think we are entitled to track forecast scenarios when these have been made (and we are of course entitled to change these forecasts in light of new data etc).

As I already said, I have very little problem with the scenario you lay out here - though I got some other questions to come later - and it would be premature for me to shave a few 100,000 bpd off my scrible at this point (note there is no time line on the red scrible cos it is just a scribble).

If I got your numbers wrong then let me know :-))


C= crude oil, C=condenste, NGL=natural gas liquids


I replied to Garyp with my assumptions further up this page

My hunch is that the 2011 forecast of 9 mb/d C&C may be optimistic but given the assumptions in the reply to Garyp, that's the forecast. A decline rate of 8%/yr might be too optimistic for Ghawar. Khurais producing 1.1 mb/d might also be too optimistic. About ten years ago, Aramco was making statements about Khurais being able to produce 0.8 mb/d.

Finally, the future decline of Saudi production implies that peak total liquids is forecast to occur in mid 2009. This means that coordinated conservation plans need to start now.

I happen to be in near total agreement with this statement but would argue that in always producing below their capacity the Saudis started conservation plans decades ago.

How exactly do you envisage Saudi Arabia conserving their reserves?

I'm also in pretty strong agreement with your green, amber and red zone breakdown - though we could argue over timing a terminology.

The green is pretty uncontroversial. The fact that red will happen one day is also uncontroversial, I'd perhaps place the beginning of red one to two years later on - but that is a minor detail.

Introducing this concept of an amber zone is very helpful. What I see in the amber zone is impotence of the swing producers to actually meet demand. I still beleive we will see an heroic effort by OPEC / KSA in the next few years to try and partially meet growing demand. But at some point they may recognise their efforts are futile - what then? I have my own thoughts about that which I will keep private for a while yet.

Ace - on re-reading this I realise you may have meant coordinated plans to conserve liquid fuel globally. But maybe you want to comment in any case about how the Saudis may react to relaising that producing flat out and destroying their reservoirs ain't doing a lot to help the world economy any more.

Hi Euan,

This concept of surplus capacity is very confusing to me. First is the capacity defined as current or future? If future, then how far into the future? Are the forecast production volumes from AFK(0.5mb/d) and Shaybah Exp Ph 1(0.25mb/d) part of Saudi's stated surplus capacity of about 2 mb/d?

I think that there are times when OPEC including Saudi Arabia have produced over their quotas and perhaps close to their maximum field production rates. There are other times when OPEC cuts back production to increase prices.

Due to the difficulty of estimating surplus capacity, I have simplistically assumed that it does not exist for Saudi Arabia.

The EIA and IEA can't agree on surplus capacity data or definitions as described below:

OPEC Sustainable Production Capacity from IEA & EIA – Confusing??

On page 15 of IEA March 2007 Oil Market Report is this table which shows OPEC’s spare capacity.

Fig 1 - IEA Spare Capacity - click to enlarge

Footnote 3 from the table above states that
”Capacity levels can be reached within 30 days and sustained for 90 days.”

On page 28, Table 3a, of the EIA Short Term Energy Outlook March 2007,

Fig 2 - EIA Spare Capacity - click to enlarge

There is a similar note for OPEC Surplus Capacity:

” “Capacity” refers to maximum sustainable production capacity, defined as the maximum amount of production that:
1) could be brought online within a period of 30 days; and
2) sustained for at least 90 days.”

This simplistic condition on OPEC maximum production capacity levels is disturbing and raises several questions.

How is the “30 days” calculated?

How is the “90 days” calculated?

What happens to production levels after the end of the “90 days”? Is the spare capacity gone?

Do the “30 days” and “90 days” apply to all OPEC countries? If yes, why is it the same for each OPEC country? Is it also the same for onshore and offshore production?

What is the origin of the “30 days” and “90 days”? I could not find a supporting definition on www.opec.org. Did the EIA and IEA just make up the “30 days” and “90 days”?

The EIA says that surplus production is to be sustained for at least 90 days. Is there a maximum period?

On the other hand, the IEA says that capacity levels can be sustained for 90 days. Does this mean production drops afterwards?

If the “90 days” is the maximum period for the maximum sustainable production capacity, then it’s not a long time period!

Does each OPEC country publish spare capacities on a monthly basis at www.opec.org?

Can someone please help to clarify the true meaning of OPEC Sustainable Production Capacity?

(It is also interesting to compare Feb 2007 OPEC-12 spare capacities: IEA states 4.02 Mb/d; EIA, 2.54 - 3.04 Mb/d. That's a big difference!)

All I can say is that 90 days was what I came up with as what I call bogus capacity. This is stopping well rotation in KSA emptying above ground storage and various redirections.
Basically it does not exist except as a short term play on how the oil is produced.

I think the IEA and EIA where simply told what the spare capacity what and for how long. If this 90 limit does not ring alarm bells then ...


Nice work.

I want to point out that the H/L in Figure 3 (shows as 23 in the legend) the jump to the right (what I call a "dogleg") is the same type of flattening on the H/L curve that appears for Texas and for the US (with or without Texas data included) and a number of other systems as well.

I pointed this out to Robert when he was challenging the utility of the H/L for predicting peak (say predicting as a percentage of EUR). I think it got lost in the comments. A similar pattern can be seen for Cantarell, Yibal and a number of other large fields or systems that have reached peak and then declined. I continue to gather data, run them through an H/L and look to see if and when a flattening occurred and where it was relative to the peak.

Now it can be shown that for any system with (constant, but not necessarily) growth in production the curve will asymptotically approach the annual growth rate value. "One shot growth spurts" where the annual production suddenly increases well above the annual growth rate will cause the curve to inflect with a positive slope. However, we also know that with "steady" growth after the initial oil is brought online, the numbers eventually become quite large to sustaining that "right-tracking dog leg."

Here is what it looks like to me for other fields that have already gone into decline from a position of strong growth... the number of points (years) where the curve can sustain the "dog leg" is limited. It looks like, from other field experience that 5-8 is about all that can be sustained before growth declines (turning the curve slope back negative or downward), flattens and then falls off.

The question and point I raised before was this might be the "signature" of a field or system of fields that are about to go into decline. There may be some minimum size where this does not apply. But at these large scales, this seems to be a characteristic that "shows up" just before peak.

If this is the signature of an approaching peak (and it looks fairly consistent for the limited data I've put together so far), I would look at Figure 3 and even Figure 2 and be very worried.


Fig 4 HL (Jud Fig 23) for all Saudi fields shows a jump up for the last three data points (assume one off "dog leg" for years 2003, 2004 and 2005). There may be two reasons for this.

This chart is from Stuart Staniford (click to enlarge):

The first reason is that the dogleg is exaggerated due to a low 2002 data point due to deliberate production cuts by Saudi Arabia as shown in the chart above. These production cuts may have happened at all fields.

The second reason is that during the 2002 production cuts, Shaybah was being upgraded with bigger and better maximum reservoir contact wells which could produce up to six times more than a conventional horizontal well. Shaybah then increased production (perhaps as high as 600,000 b/d) for the years 2003, 2004 and 2005 partly contributing to the "one off" dog leg. 2006 should show a lower data point and 2007 even lower to reconfirm a URR of about 165 Gb for Saudi Arabia.

This paper by Salam P. Salamy discusses MRC Wells and Shaybah

Starship - Interesting analysis. Any chance that you might be able to prepare a guest post? My sense is that you have identified a solid, accurate, and frightening indicator, one which should also be empirically verifiable through inspection of past data.


That thought has occurred to me.

I'm looking into the data right now to see if the pattern fits. It has so far with the largeer examples I've noted, and I'm surprised no one has really picked that out (though I know people are using the H/L to determine EUR). I could be an anomoly, but if enough fields or field systems do this, then it really is not an anomoly and that's what is potentially frightening.

Ace and Khebab, Thank you for all your hard work! I'd also like to thank all the oil drum regulars for the great work on KSA this week. I bet the CIA doesnt have as good a handle on the situation as you've generously given us.
Professor Goose, this near instant peer review process leaves me in awe. The kinks sure seem to be working out, TOD only gets better!

""I bet the CIA doesnt have as good a handle on the situation as you've generously given us""

I bet they do now.

The Saudi reserves of Ghawar were listed as 75 billion barrels on some Saudi, OPEC, or Aramco web page. I now understand that these are likely the ultimate recoverable reserves they estimate and not the remaining reserves recoverable given existing oil prices and technology available. Since 55 billion - 60 billion may have been produced already and some of the 15 billion barrels that might exist might required a long period of water cycling through a limited number of GOSP modules, then Ghawar production might go down like Cantarell.

Ace, we got Manchester United playing Roma tonight in the European Champions league - so this will be my last comment.

Heading Out posted this in his excellent article yesterday:


This shows Saudi Fields at various stages of decline. Ghawar at 48% seems about right (some may think this is optimistic), Haradh at 10% seems about right and Abqaiq at 73% depleted also seems about right. I don't know about the others but am in the process of finding out.

So there's one aspect about your post (Figures 2 and 6) that I am really confused about - so confused I wonder if I'm reading them right - so please excuse me if I got this totally wrong.

It seems to me that Hans Jud's compilations show all Saudi fields going into sharp decline in the period 2006 to 2010. This includes Shaybah, which according to the Saudis is only 5% depleted in 2004. Safaniya, with possible remaining reserves of 40 billion barrels, is only 26% depleted. Heavy oil I know - but I thought the Saudis + Total were building a new 400,000 bpd refinery to allow their heavy production to increase. So what are the assumptions that feed into all Saudi fields declining together irrespective of age and reported levels of depletion?

Hopefully someone will post the video on a news group so I may watch.


Jud's assumptions for Fig 6 (Jud Fig 30) is a decline rate of 8%/yr based on the following from page 5 of Jud's report:

Further hint of Ghawar’s finite potential is quoted by platts.com in April 2006: a 8% decline “without additional drilling and maintenance”. The latest confirmation is delivered by Mr. Obaid Nawaf during his presentation (page 16) “Saudi Arabia’s Strategic Energy Initiative: Safeguarding Against Supply Disruptions“ at CSIS November 9th 2006:

Without “maintain potential” drilling to make up for production, Saudi oilfields would have a natural decline rate of a hypothetical 8%. As Saudi Aramco has an extensive drilling program with a budget running in the billions of dollars, this decline is mitigated to a number close to 2%.

And there is also a hint that future decline rates could be far higher! Thanks to the newest technology, which is applied in Saudi Arabia. Obaid states further on page 16 of the CSIS report

These depletion rates are well below industry averages, due primarily to enhanced recovery technologies and successful “maintain potential” drilling operations.

A decline rate of 8%/yr might seem high but it also gives a good fit to the 165 Gb HL.

The other issue here is the use of enhanced recovery technologies - that is MRC wells, intelligent fields, smart wells etc. These technologies are used primarily to extract from thin oil columns. Decline rates can be held back to 2% but once gas and water breakthrough starts, the decline rates can be very high. This technology was not available when the USA peaked in production. However, this technology is being used in the North Sea. The North Sea is showing increased decline rates. This could start to happen in Saudi Arabia at any time - maybe even now.

BTW, what's your current estimate of Saudi URR (=2P reserves) at these prices? Is it closer to 165 Gb or 200 Gb? I still think it's about 165Gb although heavy oil might increase the URR but at unfavourable energy ratios (ie EROEI)

In the future, Saudi Arabia will have to produce from their heavy oil and tar sands as their light oil reserves decrease.

Here is an article stating that in early 2006

"in a critical trial of Saudi Arabia's heavy-oil potential, U.S. oil giant Chevron Corp. began a field trial of a technique designed to pump out heavy oil that was previously considered unrecoverable. In the pilot project, which it plans to expand to additional wells, Chevron is injecting steam to loosen up sludge-like heavy-oil reserves in Wafra, a field in the so-called neutral zone between Saudi Arabia and Kuwait. Oil from the neutral zone is shared equally by the two countries.

Chevron and the Saudis say initial results are promising and that the technique could greatly enhance recovery at some huge fields.

In Oman, Occidental Petroleum Corp. is preparing to spend $2 billion on a large-scale steam-injection project in the Mukhaizna field, which holds about a billion barrels of oil.

Although it hasn't specified it will use steam flooding, Kuwait is planning a pilot project to exploit its northern heavy-oil fields."

The last frontier of oil - Middle East tar sands?

Ace - thanks for your various replies here. I'll just focus on three themes:

Decline rates

The decline rate of 8% is if they do nothing by way of well maintenance, water shut offs, infill drilling etc on existing fields. The actual decline of existing fileds seems to be closer to 2%. So this IMO gives you the underlying decline rate for producing assets. You then need to add new field developments on top of that to get the actual decline for KSA.

So I was wondering if you would indulge me and re-run your forecast with a 2% decline on the existing production?

Horizontal drilling

These technologies are used primarily to extract from thin oil columns

I basically disagree with this statement and I think it is maybe here that "panic decline" scenarios need to be re-thought. In the North Sea, horizontal drilling is used in at least 4 different ways:

1. To produce thin oil columns (as you say) - the West Troll field is perhaps the best example here. I believe they recovered several hundred million barrels from a 20 ft oil rim. It is true that when this went into decline - it "crashed" - but on the other hand this was oil that was unproducible 20 odd years ago.

2. To produce poor quality reservoirs - The Clair Field is a good example.

3. Most economic developmnet for certain fields - the Otter and Gullfaks S fields

4. Long reach wells drilled to satellite fields

In Saudi Arabia the principal uses are:

1. To develop poor quality reservoirs - Haradh, Shaybah?

2. Most economic development strategy

3. Water control management (short radius wells in N Ghawar).

4. I imagine they are just about to embark upon Troll style thin oil column use in N Ghawar now.

Note also that modelling work shows using multilaterals in N Ghawar won't work - the flow rates are so high that turbulence in the well bore reduces flow rates - so they are going to settle for bi-laterals in Shedgum (IPTC 10395).

I know what you are saying about horizontals watering out quickly when it happens - but this will happen one well at a time over a period of decades.


I'm doing a top to bottom re-evaluation of my thoughts on Saudi Reserves. I guess you will have seen my stretch HL based on 1991 and 2003 - giving URR of around 230 Gb. You made good points somewhere about "sustainable production" so maybe using these two exceptional years is not the best approach.

Saudi have produced 116 Gb to end of 2005 - so your estimate of 165 Gbs puts them around 70% depleted.

I did a back of envelope calcualtion based on HO's numbers of two days ago and came up with 37% depelted based on Aramco's numbers. I'm still working the numbers.

Thanks again, Euan

It seems to me that the steep decline from about Nov 06 to Jan 08 in Ace's graph must include some sort of fudge factor to account for the supposed collapse of north Ghawar. i.e. if 'Ain Dar etc. are currently collapsing, then no amount of infill drilling will keep its decline rate to 2%.

I agree that Ace should state this sort of assumption, however. Probably it would be worth breaking out those fields and attempting to project their output individually, into the future, before trying to graph a total projection... In particular, what happens to true production capacity depending on whether the crash of Ain Dar happens in 2006, 2007, 2008, or 2009? That would be an interesting series of graphs.

Probably it would be worth breaking out those fields and attempting to project their output individually, into the future, before trying to graph a total projection

Jeeees Alistair - do you know how much time and $ expertise this takes?

if 'Ain Dar etc. are currently collapsing, then no amount of infill drilling will keep its decline rate to 2%

You are very much on the right track here. North 'Ain Dar is producing at around 500,000 bpd - this is about 5% of Saudi production - so if that just went out like a light one year you may have a bad year. So set against a background of 2% decline you have occasional years that are much worse - say 7%. I've no problem with that. Then in 10 years time S 'Ain Dar may go out, and in 15 years time Shedgum etc. Natural punctuated decline.

OK so I have provisional numbers for all the Ghawar sub-structures reserves - and estimate (very provisionally) that reserves in Shedgum to be 13 times larger than N 'Ain Dar.

This is a post in response to Euan Mearns and others.

Saudi Arabia Stretched HL URR

Fig 1 shows the price differential between Saudi Heavy and Medium crude as a percentage of Saudi Light crude. Saudi light is more expensive than medium, which is in turn more expensive than heavy.

Fig 1 – Crude Price Differences – click to enlarge

March 2003: Fig 2 below shows Saudi oil production increasing to 9.5 mb/d during the invasion of Iraq. At the same time, the relative price of Saudi heavy falls sharply to almost 85% of the Saudi light price. The conclusion is that Saudi’s production increase during the invasion was mostly heavy oil.

June 2003: Saudi oil production falls and the relative Saudi heavy price rises to over 95%. Conclusion is that most of the oil production fall was heavy oil.

The rule assumed is if the relative price of Saudi heavy falls then more Saudi heavy crude is being produced; if the relative price of Saudi heavy rises then less Saudi heavy crude is being produced. This rule will be tested.

Dec 2004: Qatif online – capacity 0.5 mb/d Saudi light & 0.3 mb/d Saudi medium. Saudi had lifted quotas in Jul 2004 and was producing well above these quotas. Oil prices were rising which means a good time to produce lots of oil. From Oct 2004 the relative price of Saudi heavy falls from 90% to 80% in Dec 2004. The rule above says that more Saudi heavy is being produced. My conclusion is that more Saudi heavy was being produced because the supplies of Saudi light/medium were constrained. Saudi wanted to keep production levels high during high oil prices and Qatif was about to come online. Saudi might have even overproduced some fields.

Feb 2005: Qatif is ramping up production of Saudi light/medium. The relative price of Saudi heavy returns to 90% indicating that less Saudi heavy is being produced. Qatif allows Saudi to continue producing at high rates to take advantage of high prices.

Dec 2005: The relative price of Saudi heavy falls to about 87%. At the same time total Saudi production, shown in Fig 2, falls without any quota changes. Did the Saudis overproduce their fields during the devastating hurricane season of 2005? Perhaps some of their wells were showing high decline rates in a time of good prices.

Apr 2006: Haradh comes online with 0.3 mb/d capacity of Saudi light crude. This helps to increase production rates back up to 9.3 mb/d in Jul 2006. The relative price of Saudi heavy drops slightly to about 92% in Sep 2006. Saudi production starts to decline further so OPEC quota cuts are announced to perhaps disguise these involuntary production decline.

Oct 2006: Relative price of Saudi heavy increases as result of genuine voluntary production cuts. The Saudi production cut is about 0.3 mb/d but almost entirely heavy oil.

Feb 2007: Further OPEC quota cuts are announced. The Saudi production cut is about 0.2 mb/d but again almost entirely heavy oil.

Fig 2 – Maximum Sustainable Capacity – click to enlarge

This figure shows both the high and low sustainable maximum capacity of production for Saudi Arabia. I do not believe either of them. The red lines show a more realistic value of sustained production rates for Saudi. Based partly on Fig 1 above, Saudi was producing as much as they could in Mar 2003 Iraq invasion and Dec 2004 when Qatif came online.

Haradh helped production but only has capacity of another 0.3 mb/d.

I have assumed that the max sustainable capacity for 2006 was 9.4 mb/d. I have also assumed a max sustainable capacity for 2007 is about 9.2 mb/d. This reduction represents a decline rate of just over 2%/yr.

The surplus capacity for 2007 is assumed to be currently about 0.5 mb/d. Given the increasing relative price of Saudi heavy, this surplus capacity is assumed to be primarily Saudi heavy crude.

Fig 3 – Saudi HL – click to enlarge

The last figure is borrowed from Robert Rapier’s story about HL and I modified it. Robert Rapier’s cumulative URR figures were also used.

It is assumed that the 2005 data point on Fig 3 already represents sustained maximum production rates.

The red 2004 data point was added assuming that Saudi had produced at maximum capacity for the entire year. Similarly, it was assumed that Saudi produced at the maximum rate for 2006 and for the forecast 2007 data point.

These four data points are comparable as they represent maximum production during the years of receiving the full benefits of the latest technology. For example, there were 24 smart well installations in 2005 versus 2 in 2004. There were 55 MRC wells completed in 2005, more than double the year before.

Next a regression line was drawn through the four data points from 2004 to 2007 to give a URR of 175 Gb. This might be reached for Saudi Arabia given the new technology. Higher oil prices will also increase the URR but the increased recovery rates will probably be associated with unattractive energy ratios. The future megaprojects of AFK, Khurais and Manifa might produce their promised rates on time. Saudi tar sands could increase the URR but production rates and energy ratios are low. Saudi might find additional oil fields.

However, the red regression line drawn through the data points from 1991 to 2003 show a URR of 165 Gb. These data points are representative of years when Saudi was producing under capacity and not receiving the full benefits of MRC wells and smart wells. Saudi might produce a URR of 175 Gb but I’m sticking with 165 Gb. Meanwhile, those conservation plans need to be started.

Assume that ghawar is, indeed, half full. The problem is that the half empty bit was the easiest to produce in large quantities. All the figures show a lot of oil in mid/south Ghawar... but here the oil bearing rock has reduced porosity and may have more fractures, and meanwhile the crude is heavier, so flow is much slower.

My biggest concern is that ghawar might be still producing 5.5Mb/d, meaning that their cuts have come from other fields with heavier oil, consistent with heavy oil cuts to asia, because the coming crash in AD/S will come on top of reduced production elsewhere.

SA, for whatever reason, is not developing any new fields and is therefore counting entirely on old fields long abandoned for new production... not looking good.

Next shoe is Russia...

There is no doubt that flat production combined with increased consumption among exporters means we importers are collectively doing with less... as the us/china continue grabbing a larger share, more and more of the world's poor will have to get off the bus so we can continue to fill our suv's.

It seems to me that all the incentives are in the opposite direction from Matthew Simmons' call for open reporting. I have no way of judging the nuances here, but in one sense it doesn't matter. Whether caused by true inability to produce more or by intentional holding back in view of impending reduced ability to do so, the result is the same. Oil is going to be hoarded, which is almost equivalent to its not being there.

Almost. If a big addict suspects you're hoarding, then you're in a quandary. This then produces more obfuscation, not to mention other things.

I have been reading the oildrum for about 6 months - I have a question. The USA gets most of its oil from Mexico and Canada. Why is it so important that we know SA has peak. If we don't buy oil from them why do we care?

Because oil is fungible. It's sold on the world market, and any shortage will send the prices up all over the world.

If oil is fungible then did the Hindenburg blow up because gas is dirigible?

Precisely. Price blips up and blimp goes down.

Because crude oil is sold on the world-wide open market. If SA is in decline, then the current customers that buy SA’s crude will need to turn to other sources to buy it from. Consequently, bidding up prices from the remaining countries that still have crude oil to export.

1. Because Mexico's giant field Cantarell has peaked and Mexico's oil exports (to USA) are expected to crash within 3-5 years.

2. KSA is the third biggest oil import country to US. It's really important to US. Also, if you believe Simmons definition, when KSA peaks, the world peaks. Then it is everybody's issue, not just USA's.

3. Situation in Venezuela (4th largest import country to USA) is looking more unstable so it is not possible to count on that oil to be there.

4. Situation in Nigeria isn't overly optimistic either. It is the 5th largest import country from which US imports.

5. Oil demand has become increasingly inelastic. Price does not destroy demand as it used to.

6. Spare capacity in the market has grown very thin (in supply-demand gap, refining capacity & reserve stocks). Even relatively modest import changes can cascade through fairly undamped.

Leanan and dbarberic's point is the essential one. But as point of clarification, the largest supplier of US oil is the US, and Saudi and Mexican imports are about equal.

so how much is the US importing from Canada and Mexico. Since we peaked in the 1970 then how is it that 40 some years later we are still maintaining. I know we depend on alot of small wells but still 40 years is a long time, of course depending on how much we import. Of course with the recent increase of a barrel of oil, the USA can now afford to drill for more oil.

The U.S. imports 2.2 million barrels per day from Canada and 1.6 million barrels per day from Mexico (2005 figures).

The U.S. still produces over 5 million barrels a day. This reflects a very gentle decline over a 46 year period from our peak of 9.6 billion barrels a day. The U.S. decline is gentle because we used older technology to originally develop our oil fields. This has allowed secondary recovery techniques to continue to pump out a fair amount of oil after the production peak. Areas in other parts of the world that peaked more recently used advanced recovery techniques, like horizontal wells and water flooding, even before they peaked. This means their decline after peaking has been sharp. It's like if you use a super-wide straw to slurp up a drink, the drink will disappear more quickly than if you use a very thin straw.

Oops, that should be 9.6 million barrels per day. Nobody ever produced billions a day.

I'd also point out that when the US peaked, the shortfall could be made up by the rest of the world, so pressure to maintain production at all costs was mitigated. When the world peaks, the shortfall will be made up by... hmmm. Guess there will be pressure to maintain production at all costs, which, perhaps we are seeing now in KSA. Then as that effort fails, as it inevitably must...

Of course with the recent increase of a barrel of oil, the USA can now afford to drill for more oil.

Where ? Who was it that said "all the easy oil is gone"...


As the economists like to say, oil is fungible. Meaning that it is a commodity, and that if someone else outbids you, that a shipment can be diverted.

Question for WEST TEXAS:

Baktiari states that by 2020 world production will be 55 MMBPD.

According to Exportland Model this will effectively rule out most exports.

By my estimate US will produce 3 MMBPD in 2020.

No exports available for us in 2020.

So from now till 2020 we will go ffrom 21MMBPD to 3MMBPD.

Is this far off? And if not, do you or anyone expect the US to be a nation by then? much less a world power...

All of these numbers are reasonable. This is why the post-peak world situation is vastly different from the post-peak Lower 48 model. This is also why I have been scouting out locations to relocate to which are close to local food production.

In exporting countries, I do think that we will see two phases once production starts declining.

Phase One: Oil export cash flow increases, even as production and exports fall, because of rapidly rising oil prices, which has a positive feedback loop effect on domestic consumption, e.g., Saudi Arabia and Venezuela.

Phase Two: Oil export cash flow declines, because the decline in production has reduced exports enough that rising oil prices can't offset the decline in exports.

Following is an excerpt from my August, 2006 article on Net Oil Exports. This seems to be a pretty popular article. If you do a Google Search for Net Oil Exports, it is consistently #1.


Published on 21 Aug 2006 by GraphOilogy / Energy Bulletin. Archived on 21 Aug 2006.
Net Oil Exports Revisited

by Jeffrey J. Brown

A Proposed Triage Plan

I believe that vast expanses of American Suburbia are going to become virtually abandoned in the years ahead. Alan Drake has noted that a good deal of suburbia was so poorly constructed that a lot of it is biodegradable. Alan has outlined how we can go back to what we used to have: electric trolley cars connected to electric light rail lines.

CBS Sunday Morning, on 8/20/06, had a segment on "tiny houses." They profiled a home designer and builder who specialized in building very small functional homes of about 100 square feet. You can find more information on his website.

What this builder has realized, and what millions of Americans are just beginning to also realize, is that anything over 100 square feet or so per person is not a necessity; it is optional consumption, a want, instead of a need.

The US is not Switzerland, but Alan Drake has described how Swiss per capita oil consumption in the Second World War was about 0.25% of current US per capita oil consumption. They did it primarily by electrifying their transportation system.

I propose a sort of triage operation: "tiny" homes and multifamily housing along electric mass transit lines. In my opinion, it is the only way that we can preserve some semblance of a civilized society. The suburbs are, by and large, a lost cause.

This is not Switerland. We are not going to move 200 million amaericans to little houses and trolley lines in 10 yrs. The energy won't be there to do it.

No, Bush probably has it right. Secure the entire M.E. reserves before anyone else can. History has always favored bold moves and this is one of them.

History has always favored bold moves and this is one of them.

This is why Matt Savinar is scouting out locations that are upwind of fallout zones from probable target areas.

Hitler was very bold.

There are bold nutcases, and old nutcases, but no old bold nutcases.

I was about to make a crack about Kunstler, but he's probably pretty timid in person...

Not really. What you see is what you get.

There are old pilots, and there are bold pilots, but there are no old bold pilots. (From a small plane pilot)

So Hitler won?

once you get to the point that it is a Bold move, there's only one thing to conclude-

Were winning that war- By a HUGE margin

Any chance you could take a stab at following the export land model all the way through phase II say for Mexico and Iran for example. Since this would be the point that the exporting economies start to collapse. I don't think its 10 years.

In my opinion this is the point that money is not a issue and things like nuclear weapons become negotiable for both sides.

I'm thinking of trying to get Khebab to make forecasts for each of the top 10, or at least top 5, net oil exporters, based on their respective HL plots. Consumption is the question mark. I assume that we would just extrapolate from the 2004, 2005 and 2006 EIA data.

The ultimate goal would be to get a predicted combined net oil export graph for the top 10, for the next 10 years. It won't be a pretty picture, and as I said before, events may be moving so fast that by this fall declining net oil exports won't be in dispute.

For those of us left in the Oil Patch, the real boom hasn't even started yet. If Matt Simmons is right about oil prices, 14 bpd of oil production in 2010 will generate one million dollars per year (in constant 2005 dollars) in gross cash flow to the royalty and working interest owners. Everything will be peachy for energy producers--at least until the rioters appear at the gates of the mansions of the energy producers. This is why I intend to be driving a lime green 1985 Volvo with Greenpeace stickers.

That would be very worthwhile.

I don't know about you hoss...
I got a shotgun, a rifle and a four wheel drive...

Brilliant. And a nazi tattoo too, I bet.

Since when was Hank Williams, Jr. a nazi?
If you're going to insult me, at least catch the reference first.

"It is even harder for the average ape to believe that he has descended from man. "

Hi Westexas, I think that would be a great idea -how about it khebab? IMO, it's when the stuff fails to be available on the mass market that the real bidding war / cost increases / demand destruction kick in.

This piece I found over at Energy Files looks into when this may be globally: conclusion? "Around 2014":


Sure and certain that the coming decade will be one of change.

Regards, Nick [ www.megatrends2020.com -nice URL eh!]

Regarding the first article, my only observation would be that they are not taking the Export Land model into account. From the point of view of importers, a gradual decline in world oil production will look more like a crash.

Speaking of relocating...how was Portland? Any good finds?

Regarding Portland, my friends in Oregon want you to know that they have a severe drought, skyrocketing crime, and periodic food shortages. It's not true, but that's what they want to you to think.

Actually, Oregon may need a lot more people to work the fields as mechanized agriculture becomes less economic.

The enormous advantage that Oregon has is the incredibly rich farmland that in many areas requires little or no irrigation.

The mass transit system in Portland is superb. In fact, Portland is probably way ahead of the pack in almost every category, in terms of preparing for Peak Oil. I came away more convinced than ever that Alan Drake should be president.

While Portland does have an excellent mass transit system, vast numbers of people are still dependent on cars; however, you can't overemphasize the importance of local food supplies. So, on balance, the Pacific Northwest is still on our short list. Of course, Matt Savinar has eliminated it from his list because of the number of probable nuclear targets.

Matt is using bogus targeting info.

Once upon a time I did stints with the US Army Nuclear Chemical Agency, and by extension, Defense Nuclear Agency.

I believe I know whereof I speak. There is only one fallout producing target in the Oregon/Washington northwest. Matt is wasting his time looking overseas unless the US devolves into a totally authoritarian state, a condition I highly doubt. Either the system holds together or it collapses, in my opinion, of course.

Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett

I posted similar comments when Matt posted the other day including links to blast and fallout maps. My guess is that he wants to get out of the US before he hears a knock and "We're from the govenment and here to help you."

Ah...he suffers the from "Ruppert" dementia.

What's that target? Hanford?

Hanford is not a hardened site. It does not need surface or sub-surface bursts to destroy it. In fact, it is most effectively destroyed via optimal air burst, which incidentally almost certainly leaves the containment facility intact.

Note that the map Matt referred to erred by assuming all 1MT warheads. It errs by assuming every target that can be hit will be hit. It errs by assuming the total number of deliverable intercontinental warheads is as high as in past years (no longer true).

The only hard target in Washington is the submarine base. All the rest are air burst targets that will get 300 KT or lower warheads. Fallout is basically not an issue for Washington and not an issue at all for Oregon, except insofar as the rest of the world will receive some small measure of fallout.

Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett

I think the loss of mechanization in farming is overrated.
You would have to run the numbers but I suspect that you can easily set aside enough fields to grow fuel for light weight mechanical devices. Similar to the small tillers used in personal gardening. And small tractors. Also of course we have a lot more metal to make horse drawn implements. Fuel cells or battery power is another strong possibility. Since by definition a post peak farmer would have land and money they should be able to afford more efficient mechanization to farm.

Third world countries often use very strange tractors made from car parts.

Harvest time would probably require a lot of labor though.
And probably planting but less so.

Things never repeat exactly and we have a lot more scrap steel now then before. In the slightly more distant future I could easily see organic powered robots as popular for farming. We could do it today its just not quite cost effective yet but post peak energy efficient robots should be practical. Tractors very robotized now. It more a software problem then anything.

No till approaches will probably reduce labor needs.

Since laborers have a low EROI because the expend a lot of energy doing things like practicing creating more labors
instead of pulling weeds I think robots will win.

Finally anyone who likes to be a farm laborer has never done it.

"Finally anyone who likes to be a farm laborer has never done it."
Stupid me...my kids are not so dumb however.;-)
Owning a nursery is not field labor but sometimes its pretty close. Greatest way to get a kid to study - you can always work at home. Mhuwahahaha...
Seriously, I love growing plants (sucessfully that is).
Organic powered robot - sounds like the wino's who used to pick berries in the summer. There was the dependability problem...

What I should do is charge people to come here and "exercise" ;-)


Your statements on the ability of modern ag to survive by reducing the implements , etc.

Todays farming is very much based on weather and windows of opportunity. To put into cultivation 3,000 acres in a very short time(my neighbor/friend does 3,000 and I help him a lot)
takes very large pieces of equipment. Say tractors of 200+ PTO Brake HP and full on demand 4 wheel drive with lots and lots of hydraulic hookups and a very large amount of electronic equipment.

Reducing this acreage down to using previous(primitive) implements means you will NOT be to be able to put out the same acreage. In fact very little. Instead of 3,000 figure maybe 300.

Strange tractors? Scrap metal? Farm labourers? Yes I sometimes am a 'farm labourer' when help is short I drive some of the semi's , field tractors,grain buggies and so forth.

The key issue is timing with the weather and getting a huge amount of acreage either planted, sprayed, fertilized,and combined in a very small window of opportunity.

We lose our energy and have to downsize? Many will likely starve,feed lots shut down, foods rise to outrageous prices.

The worst part is most farmers are way way heavy into debt. Some carry over a million or more on the books constantly.

Also you need a vast infrastructure to keep this rolling equipment maintained. At the shop we have been rebuilding a combine for 3 weeks now while waiting for the weather breaks. Parts are very expensive,good labor is hard to find and most wouldn't work for the wages paid. Try $7 per hour and see how you like the price of gas with that kind of pay.
Work all day and you are just able to fill your gas tank,after taxes,etc)

IMO falling backwards is not going to work very well at all.

The farmers are so far into the higher tech end of farming that cutting them back to older methods? Well there just isn't any equipment to speak of. The older stuff was when a farmer might be putting out 300 or 400 acres. A 10ft. wheel disk was about it, pulled by an International Harvester 806 with only 1 hydraulic control valve. A three bottom plow and so on was max.

My father had three farms and couldn't grow fast enough so he went into massive debt and finally cashed out with almost nothing. Died a poor man with debts. Farming is a severe taskmaster.

I don't see us falling back and all the population surviving no matter what scenario is painted. I see maybe 1/3 able to tough it out at best.

Its hard to understand the huge amounts of fertilizers, lime and other products applied in modern ag. As the prices of those escalate food is going to escalate as well.

If we have an economic crunch the farmers will be sitting on what the banks will consider very valuable assets. How that will play out with foreclosures and the rest is not clear. The rolling equipment and land is collateral for most loans. Its the rare farmer who is debt free IMO.

On the issue of scrap metal. Most is being scavenged currently. The reason is the high price of steel. Old implements are harder and harder to find. Many have rusted away. A few are yard decorations. And you could't breed mules fast enough to go back to using draft animals. One year without all those crops and we are toast, most of us.

A scenario. The tractor computer throws a diagnostic code and shuts down in the field in the midst of planting. You can't tell what sensor is failing. If you can't get the part or a tech to fix it you are dead in the water. Infrastructure! If your combine header breaks and you can't find a fast replacement? You don't get your crop in. Your dead meat. Everyone else is rushing like hell and rain is coming. The river is rising. The creeks may come out. You have little time to fart around. Your livelihood is hanging on that crucial part.

OK maybe I have overemphasized it a bit but I have seen all of the above happen. In fact its the rule rather than the exception. I work on those tractor electronics. Take the radar gun for instance. You must know the absolute precise ground speed in order to drop seed at the proper spacing. The gun replacement costs over $500 , if you can find one real fast. Otherwise your 32 row planter is dead in the field. And you cannot possibly stock every critical component on the farm. Combines themselves are highly engineered. I spent 1 week just trying to fix the rotor speed mechanism that was failing to cycle up or down. Cycling up or down allowed you to not crunch the corn shell and result in a marked down product at the grainery.

I wish to state that my views on ag are purely limited to the American ag and also to my region of the country. Basically the midwest and uppper midsouth.

Europe is a closed book to me.

Re "Europe is a closed book to me"

Well Europe is the same as US- but smaller farm units. Present average approx 20 Ha = 20 Acres. But still minute compared to US.
See farm size statistics for Europe page 9 here.
European farming is usually coupled with animal products. And remember population density! European Average >120/km2 holland >400/km2, Finland 15/km2,
The US is ~35/km2.
Also farming is different from fossil, as crops must be stored often for 1 year ahead and it must be dried in order not to rot.
Drying of crops- barley, wheat from 16% -20% moisture to stock dry-13-14% moisture could cost a lot of energy.
Time spent per Ha is vastly different in the US and Europe.
At a time I spent 2½h/ha for preparing the soil and sowing The same job costed ½ hour in the us and 25 minutes in Australia.
Kind regards and1

Correction : for "approx 20 Ha = 20 acre" read Approx 20 Ha ~43 Acres
regards and1

Thanks for your reply regards European farming and size of farms.

Moisture is also a big concern here with all grains. Many used to have onfarm drying units but most never do that anymore. If they store in their own bins they just run the blowers until it dries out enough or store it later in the harvest when its has naturally dried of its own. If your grain tests high moisture at the graineries then they dry it and you pay the cost(docked).

Myself I try to get any grain I keep at home down to about 12% or a bit less. It will then keep with no problems. I never try to store soybeans because I wouldn't eat them nor be able to process them. I leave corn on the cob but shuck it and then later shell it when dry. We used to keep corn that way in outside bins with no sides, when it was intended for feed mostly or one just threw it loosely into a corn crib.


"organic powered robots" ???

Oh no...just what I feared...Soylent Black is peeeoplllle!!!!!

- Peak Squid

I'm a little concerned about the proximity to the rampaging hordes from California, though...

Do you know "The Postman", by Kevin Kostner...

"This is also why I have been scouting out locations to relocate to which are close to local food production."

Is that what you were doing in Portland? What'd you make of it? (I've been considering relocation to that area as well.)

I'm a "Portlandonian"... Err, whatever you call us. Well, more Beavertonian. I live on the west side, over the hills, in the formerly farm-covered Tualatin Valley. A lot of farmland immediately close to the Portland Metro area has been usurped by generally lackluster suburban developments, industry (Nike, Intel) and ugly big-box stores. So there are problems.

Go a little south, however, and one finds wide areas of undeveloped farmland. Makes me feel a bit better about where I live when I see that wonderful green. Oregon put in place some pretty good, and fairly strict, land use laws regarding urban growth in the 1970s, and they’ve certainly helped (as well as spurred some griping). Corvallis, Albany, Lebanon, Junction City McMinnville, Monmouth—places in this general region—might be really good locations to settle for those interested in acquiring a bit of farm land.

Back to Portland, MAX & associated public transport is great. Love it. I live just two blocks from a local transit center. I can easily get many places by train, including museums, zoo, downtown. Add bus, and the options are even wider. Sweet.

Oh, and new residents should know how to pronounce "Oregon," "Willamette" and "Wallowa" correctly before moving here, or you might find yourself booted out--probably to California.

However, I don't recommend that anyone move here. You see, during glacial periods, the Willamette Valley is periodically inundated by titanic floods from glacial Lake Missoula. The ice-filled water reaches all the way down to Eugene, and can exceed 300 feet deep in the Portland area. The whole Willamette Valley turns into one gigantic lake. It's bad. A real inconvenience. So, yeah, just stay away. The place you're living at is much, much safer. ;o)



LOL, yes its ORYGUN not "ore a gone". Wil-lam-et not Will-a-met.
And if you don't want to stick out as an outsider do not carry an umbrella even if it's raining.
You should learn phrases such as "the mountain is out" which means it is a clear(ish) day.
"Hoppy" is a microbrew beer term, and Coors is "lawnmower" beer.
Riding a bike is called "cycling" and takes special gear.
Clam digging tides are on the news so newbee's can go out and chop baby clams into seagull food (Grrrr!).

It was great 35 yrs ago. Drought, pestilence, crime and disease are everywhere now. Mt. Saint Helens is about to blow again, and the 3 sisters are swelling and may erupt too! - nothing like grey earth to match the grey skies. I would stay away if I was you.

We are moving to LA as soon as possible...

Here in Oregon's Willamette Valley thousands of acres are devoted to grass seed. From my memory Willamette Valley farmers grow 80% (or is it 90%?) of the world's grass seed. The way things are going do you think the land will be devoted to wheat or other edible crops when peak oil localizes agriculture? The Arizona and So. California refugees that end up here may end up working on less mechanized grass seed farms. Why? Because the rich elite that make fortunes off the remaining oil and corn will still want to golf on nice greens! So if you come to Oregon you may end up as a serf on a grass seed farm and you may end up eating grass.

Linn County: "Grass Seed Capital of the World."

The sign's right on I-5, standing above all the grass...

"So, yeah, just stay away. The place you're living at is much, much safer. ;o)"

Yeah, intown Atlanta is sure to be a paradise 20 years from now...

I'll take "Disingenuous Deflectory Remarks Every Single 'Portlandonian' Has Said To Me When Inquiring About Their City" for $2000, Alex... ;)

My wife wants to attend Reed College. Can't say I blame her. Myself, I'm an urban organic farmer by trade. Either the market up there is already flooded and I should stay and develop it here, where there's room for growth (but a higher probability of my city devolving into tribal warfare), or we move to Oregon where my agricultural and craftsman skills might meet more competition (but I may be slightly less likely to die caught in a riot).

C'mon, there's gotta be room for two and a half more. We don't bite... much.

I think another organic farmer would be great to have around. :o)

Now, how long it takes to become an actual Oregonian after you move here depends on who you talk to:

1) Some say that if you endure one drab, gray, gloomy and wet winter and are still happy to be here, you've survived the initiation and are now Mossbacks... Err, Oregonians.

2) Some say you have to endure ten chilly, drippy, foggy and did I say rainy? winters to be true-to-life Oregonians.

3) Some say that if you weren't born here, then you don't stand a chance of being a true Oregonian. This native Seattleite sort of trumped this one: My daughter was born in Oregon, which makes her native. So, at least I have family here that's native. ;o) Of course, there's that whole "How many generations has your family been in Oregon?" thing...

By the way, it's really not that big of a deal! :o)

Now, if we could turn available spaces along the MAX lines into organic gardens, we'll get even more out of a good electric rail deal... ;o)



How to know if you are a "Oregonian"? I have some tests...

If after 3 weeks of sunny summer weather you really want it to rain for a couple of days.

If you understand these forcasts "rain followed by showers" or "showers turning to rain by tonight".

Great place to be a weather man -
Predict rain from October to April and be right most of the time. Predict showers the rest of the year.

There's also that tried-and-true forecasting method:

If you can see Mt. Hood, it's going to rain.
If you can't see Mt. Hood, it's already raining!



I thought I was following the arguments here closely, but somehow I missed these big picture numbers. I hate scary movies, but this is even worse. I don't think I will sleep much tonight.

"This is why I intend to be driving a lime green 1985 Volvo with Greenpeace stickers."

Now that is a bold move!

Okay this post in particlar for everyone who thinks civilizations cant function without oil, that is total B.S. First off every state its very very easy to switch 30-40% of the total ammount of electricity to wind power, this is already being done. A lot of states already have plans in motion to have 30-40% of their total electricity from windpower. Next you have solar power which, also is incredible power 50% of your household energy, although you can power your entire house, its very expensive. I personally think we americans can reduce our household energy needs down by 40%, leaving 50% powered by solar, and 5-10% powered by state wind powerplants. Now this option of solar power will only be avaliable in suburbs and out in rural areas. Now the nuclear option comes into play to power downtown cities, all malls can have solar planes on their roofs. Now you may think, solar panels cost alot of $$$, true, but weren't cars expensive and almost slow until mass production came into play. Even in regions were solar isnt a option, nuclear+wind will still be big energy players. Then you have hydroelectricty that can power a lot of houses. 1 powerplant, when put into the correct place can power 700 houses, and trust me theres alot of places to put them.

I was reading a magazine and found out that you could actually burn waste, and get something like oil? that would help us out alot. this option might not be enviromentally friendly but will help us out when prices rise. That option will peak very fast though. Also coastly regions can even have underground turbine power plants, that also give alot of energy. You can also get energy from waves, which spain or portugal have already created huge numbers of them, which soon, with in the next year or so (if not now) will power 150,000 houses (not alot but its a start).

Theres alot more things i havnt mention, but my over point is that our societies wont crash.

Even though my examples all make electricty, ever heard of the electric car?!?!

Im not denying peak oil, but its not the end of the world.

Whatever you say, sir. I'll be sure to compare your opinion to Professor Jay Forrester's opinion. Oh, by the way, you do have detailed cites for your opinion, right? Firm data, all that? No? QQ.

Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett

Using data from posts above - which are still conservative;

2007 - 2020: 13 years (2020 estimate that Net Exports go to ZERO - probably conservative)

21MMBPD - 3MMBPD: 18MMBPD loss or ~1.4MMBPD lost per YEAR. (difference in US oil available over that timeframe)

We halve our available oil in 7 years.

We can't even get building permits for most nuclear powerplants in 7 years. It is even taking years to get permits for wind power farms...truly a sad state of affairs.

No one will argue that it couldn't have been done...the point now is there is little time left - very little.

Best of Luck.

Luck will be needed.

The calculations and timing are further complicated in that the world will likely enter a Super Depression, the consumer of last resort will fail, the kindness of countries supporting the US Dollar will falter and the US Dollar becomes toilet paper. The US isn’t likely to exchange toilet paper for oil.

Hey...toilet paper for oil...that just might work.


Haven't you heard about Peak T.P.?

"Im not denying peak oil, but its not the end of the world."

Nope... what you're denying is the vast chasm between "can" and "will".

When your pilot light goes out because the natural gas line pressure could not be maintained and therefore your furnace won't work and your family is cold and sick, will you plug in your portable electric resistance heater--if you have one-- and how about your neighbors? That is how the electric grid crashes! Shortages of one form of fuel will cascade into shortages of all types of fuel.

I agree, I think the only possible sernario is that people bunch up and some houses go empty or that people tear out insulation and super insulate a small portion of a larger house that they keep warm. I bet burning abandon houses for fuel starts at some point. See the Burlin airlift special, they burnt street trees, trash anything they could get thier hands on.

But to get to this point we will need a severe depression, and a vastly different mind frame than we have now.

Hey Wolf-

Try picking up a new sport- Kitesurfing-

Let us know how it goes- and how much time your actually on the beach waiting for the wind-

sorry to burst your bubble.

The current world economy is based on liquid fuels. Finding, drilling, and pumping liquid fuels. We find the most economical sources of energy and exploit.

To put it into perspective 80% of world energy expenditures IS ON TRANSPORTATION, which is accomplished through refined oil-fueled heat engines, millions of them.

To maintain the current transportation fleet at current energy expenditures, approximately 4-5 times more energy in the form of power plants would be needed by the time of the squeeze. That is 5 times the current level of power plants, and none of them could be oil burning plants (likely coal as well)

Solar is not currently cost competetive, new advances in the fields of dye injected solar cells are promising, however degredation and stability of the dyes is currently a problem. Solar cells currently use something like 33% of available refined silicon, at current production rates. The rest goes to IC manufacture(and is of higher quality as well).

Wind is currently cost competetive, however it has a load factor ranging from 25-30%, meaning that to get 1MW, about 4 times that has to be installed along with a power smoothing system (pupmped storage, flywheels, batteries). Power generation above 20% of capacity is thought to have some technical problems (the papers i have read simply indicate 'problems' with no real indication of what they are) look to denmark/holland which are currently around 20% wind supplied to see if there are problems. (they will exceed 20% this year, or likely already have)

Nuclear(fission) is a good option, but large expenses and NIMBYisms make it difficult to install anywhere along with public misconceptions/lack-of-education about "radiation" of all sorts . Gen 4 reactors are very very promising, but still in the research stage.

Fusion is a long friggin time away. ITER in france should provide a testbed reactor, however it is not scheduled for completion until 2050? and it's operating funds may be eaten up in demand destruction.

Hydro cannot be placed just anywhere, ask the couple million chinese relocated for the gorges dam. Only significant water flows can generate a measureable amount of electricity.

otherwise cheers!

Too much preaching to the choir going on here, suggest we give Freddy Hutter a chance at rebuttal, and

"Where have you gone, Robert Rapier,
Our nation turns it's lonely eyes to you."

We need some serious peer review on this one.

GJ says,

""Where have you gone, Robert Rapier,
Our nation turns it's lonely eyes to you."

Yeah, I would like to hear Robert's take on this discussion, but given that one of his recent complaints was that TOD had been somewhat taken over by the doomer edge of the spectrum, it's hard for me to see that he would be drawn back by the recent couple of days of conjecture! :-)

In another passing bit of conjecture, there are posts up the thread that have the U.S. down to "3MMBPD in 10 years".
"Or maybe you think that we can handle going from 85 to 55 MMBPD, no big deal? If Baktiari is right and we go to 55MMBPD in 10 yrs that effectively means NO exports. Thinnk the US will survive on 3MMBPD in 10 yrs? (post by Korg)

Now, think about that, because that is a FANTASTIC drop. The reason given is that there will be "NO exports."

Does that mean no exports to us, or no exports to anyone? Because right now, KSA is rationing down the Asian countries first. So if we are to make it on "NO exports", we still have some home production of oil and natural gas. But think of what a shape Japan and South Korea would be in! For them, being able to find "NO exports" would effectively mean NO consumption!

Europe would be only slightly better off than Korea or Japan. With North Sea production dropping ever faster, NO exports ends the Euro miracle, and in fact, to survive they would have to at least convince their Russian suppliers to send SOME exports of natural gas, leaving aside oil for the moment, which, despite what look like efforts to go international, we are assuming due to the "export land" model, they would hoard.

All this leads to a fantastical notion, as billions of still remainiing reserves would be left in the ground. Even with KSA consumption rising, is there any projection that shows them able to consume all of their own crude oil and natural gas anytime this century? What would they buy other manufactured goods and luxury goods with? Does anyone remember that KSA still has debts and still has needs in the world? Kuwait, with it's small home population? And what of UAE and Qatar? Does anyone believe they can consume all of their home production of gas and oil in even two centuries, and likewise survive with no currency or goods from the world for that long?

Again we are dealing with "reduction to absurdum", in which if we see a drop in exports of 1 or 2 percent for any duration of time, it can be extropolated downward, compounded, to zero in a matter of months. The great disappearing oil and gas industry (and the same game is now being played with coal, uranium, steel, copper, tin, etc. etc.) so that it can be proved that the Earth and it's minerals barely exist at all, (was it all a mirage?)

It is interesting that folks who can so easily "diminishing returns" on the upslope can never see the same factor on the downslope. Let us say the stock market slides down by half (it's not impossible). Now, for it to slide down the next half is harder...as the absolute cheapness of the market will draw in money to keep it from happening. But let's say it does happen. Now, how hard would it be for it to slide down yet another half? (!) It's the old feedback loop thing, with each drop of one half, the next drop of one half gets twice as hard, until that last drop to zero (or even very near it) would become almost impossible.

But notice in the equation referenced at the front of this post that a conjectured drop from 85 to 55 million barrels per day is handled in one turn of the equation, and a U.S. down to 3mm/bpd (which means some, what?, 21 cut to 18, to 15, to 12, 9, 6, and then even after that level of drop, still to drop by half (from an already incrdibly low base of 6) to 3 million per day....and all this in 10 years?

This is what I mean when I talk about the miracle of the "shrinking reserves". Of course, this is why it has been so important to divorce discussion of production and "flow rate" from discussion of reserves, leading to the new argument, "peak was never about reserves, it's about flow rate"., which must come as a helll of a shock to M. King Hubbert in his grave, as he placed such importance on peak coming at half of total quantity, a number that relied heavily on URR or recoverable reserve estimates.

Having divorced all discussion from reserves, we begin to hurtle apart into wild speculations....after all, in theory, the world could have a trillion barrels of reserves, but for economic/geopolitical/geological and logistical reasons, none of it extractable! After all, some say the biggest diamond on Earth may be at the very center of it, due to the immense pressure on the carbon there, but no one is trying very hard to extract it!

However, we must assume, given the history of the petroleum industry that at least some of the oil and gas reserves still out there are extractable...but how much?....enough for now.....this is where I came into the discussion over a year ago.....:-)

Roger Conner Jr
Remember, we are only one cubic mile from freedom

In 1971 the US had 31 billion barrels of reserves.
In 2005 the US had 21.9 billion barrels of reserves (DOE).
The U.S. has been producing more than 5 million barrels of oil not including condensates most of the 34 years. This makes for more than 90 billion barrels of cumulative production in those years although some might have assumed in 1971 that most of the US reserves would be gone within 15 years.

It is assumed exploration will add more reserves, even if some newer worldwide discoveries announced as commercial were from layers as small as five feet of true thickness. The Saudis may have erred in claiming too much reserve growth without drilling. It is evident in their statements about their giant oil fields and the depletion rates that have been discussed that they are currently seeming to be unable to boost production to 12 mbod, and are much less likely to sustain production at 15 mbod for more than two decades. Of course if one says that they cannot boost production for more than two decades, it might also mean that they cannot boost production to 15 mbod for more than a decade.

In the North Sea there was a field that was watering out. It was sold and the owners were glad to get rid of it. A new company did some well recompletions and adjusted the pressure and for a time the field yielded substantially more oil and the company was very glad they acquired it. It was water cycled.

I am not sure if these TOD models take into account smaller KSA fields that have not yet been produced. Within the past 12 months in Oil and Gas International two new Saudi oil discoveries were announced, one by Aramco, the other by a Russian company drilling searching for gas after reexamining old seismic data. One was south of Ghawar, probably both were. As Saudi Arabia does not yet have 500,000 well completions like the U.S. It is likely that the Saudis have a chance of smoothing out their production declines in the long term. This is like the twighlight zone where images were gray in the very dim light. Without data on the smaller satellite fields and new discoveries it is difficult to know what will happen. Was there any credible reserves data about other KSA fields published?

The 20 largest fields account for 20% of all oil produced today. The top 1% of all fields (507) account for 60% of all oil produced today. This means that the other 49,500 fields account for 40% of the oil produced today. To replace the top 507 fields, almost all of which are in decline, you would need another 70,000 small fields. But worse, unlike the giant fields which last decades, the new fields last about 9 years tops so you have to find more and more and more of the small fields to break even.

Small fields are irrelevant to the overall picture of decline. Small fields cannot even slow decline because you would have to find about 124,000 of them every 9 years just to stay even. You need to find 37 of these small fields every single day from now til you stop using oil, just to stay even. And let's not even talk about growth...

Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett


THAT is a great way of putting it. That would make sense to many people who know we get oil, but not the details on the sizes and durations of the wells.

Great post.

Sixty Days, Next Year

I agree with you Roger up to a point. First I grow plants, my experience is with tractor oil, OK?
Lower 48 was developed with old tech and KSA with new. This is my complaint - that technology must play a factor in here some where. So if lower 48 has oil left does that transfer directly to KSA or not? The posts of the last week lead me to think that the situation in KSA is a both diferent and worse for the starting technolgy was diferent. Am I wrong?

Of course I don't believe that the US will be using only 3MMBPD in 2020, its just to big of a fall as you say.

But somebody's going to fall that much!

If we are at 55MMBPD then the oil won't be there, period.

So who gets left out? Or are you saying that because its too hard to comprehend and its too horrific to imagine that it won't happen. Nobody believed Hitler would start a war either....

So who gets left out? Or are you saying that because its too hard to comprehend and its too horrific to imagine that it won't happen. Nobody believed Hitler would start a war either....

I think your use of WWII is a good one.

It's not be cause we shudder at the thought of it or that it's "Too horrific to imagine". Blade Runner, Mad Max, or Rebecca of SunnyBrook Farms it's not for lack of imagination or fear of "Going There".

If you looked down at the world in the 1937-8ish timeframe, You could reasonably predict that "Something Bad Is going to Happen" but I bet you wouldn't have been able to predict the outcome of the next 5-10 years.... JUST as we are quite limited in predicting the results of the NEXT 5-10 years.

Plenty of Ideas and projections, But nobody knows who's right.


Great post. We seem to have the same basic approach to these topics.

I think the concept of diminishing returns can be well illustrated by a rubber band attached to a broad trendline (I do this mentally with the 200 day simple moving average for stock prices): the more extreme the variance from the larger trend, the less sustainable, in either direction. big spikes and big drops don't last, they revert always revert to trendline (if modifying it slightly).

"Faith may be defined briefly as an illogical belief in the occurrence of the improbable. "

"Now, think about that, because that is a FANTASTIC drop. The reason given is that there will be "NO exports."

"Does that mean no exports to us, or no exports to anyone? Because right now, KSA is rationing down the Asian countries first."

WT's Export-Land Model is simple. I think the simplicity serves the model's purpose well: To educate.

The ELM helps a person consider the big picture while faced with the many details of a complex situation. The ELM lets a person know the stark reality of a declining world oil production situation. Importing nations face potentially dramatic falloff in the availability of oil, and will face strong challenges in trying to meet demand. Exporting nations face a huge dilemma, too: How much domestic consumption can be realistically curbed to keep useful revenues flowing into the country. The solutions to these problems, and their success or failure, will vary depending on local (social/geopolitical) conditions.

To me, statements suggesting that exports could be effectively zero by 2020 provide an important message (even if I see the actual conclusion about import availability as improbable): There are huge problems ahead in the near-term for just about everybody concerned--importer and exporter alike.

Perhaps my biggest worry is that it is abundantly clear that the US, a powerful country so dependent on the precious juice, couldn't (wouldn't?) tolerate hoarding from producers for very long. Recent and current military actions speak for themselves.



Military actions. Yes. Our last card. We're betting it all on this. Either we secure the M.E. with force of arms or we are freaking doomed.
With the dolllar headed for the toilet who's gonna want 'em?
Better to get cozy with the Chinese and Europeans, at least their economy is not trashed.

Hopefully its not a case of if we can't have the oil no one can...

As I repeatedly said, I didn't see the point of obsessively debating the timing of the peak. Deffeyes says it could be as late as 2008, while Robert says it could be as early as 2009. And the difference is?

Besides that, Robert is fully on board with the ELP recommendations.

On Peakoil.com "Rockdoc" made this response to this latest analysis by Kehab.

I have to disagree with this discussion being "top notch". On the contrary beyond the original mathmatical analysis by Stuart the rest has been fraught with misinterpretation, misunderstanding and complete ignorance of the data and literature. As an example let's look at this latest post:

As it is becoming more likely that Saudi has no surplus capacity, the importance of the near term big projects of Shaybah and AFK (Khursaniyah) becomes critical.

Well how is it becoming more likely? Has there been a call on Saudi production they couldn’t answer….no there has not. This is an important point that I have made and so have others...mathmatical analysis aside (which by the way yields a non-unique solution) until such time as the Saudis are asked to deliver oil and they can't there is no evidence whatsoever that they "have no surplus capacity". Their current production is directly in line with current demand.

The desperation to deliver first oil earlier from AFK and Shaybah together with Riyadh Bank's downgraded oil forecast shows that Saudi Aramco is struggling to increase production rates.

This is a very uniformed comment…..the Saudis announced the timeline for Khursaniyah along with other projects two years ago when it became obvious to them that there was an increasing demand for crude oil which would sap their spare capacity of the day. They have not been panicking to deliver it earlier, indeed they are on schedule with their previous predictions. There is a very good presentation on the Aramco website which walks through Aramco’s historical ability to deliver projects on budget and on time, pretty impressive in comparison to their multinational peers.

The figure above is partly based on information also from Obaid’s CSIS presentation. The figure shows that there is justified scepticism over Aramco’s promise to suddenly produce huge amounts of oil from old small fields. Look at Manifa and Khurais – huge production rate jumps!!

Another uninformed comment. Khurais has essentially been shut-in for the last couple of decades. It was a challenging reservoir for the technology of the day when discovered but with the advent of newer technology such as MRC wells, SMART completions, expandable liners, remote water shutoff etc. the field suddenly becomes manageable. Based on the reserve assessment for Khurais and Manifa and the results of MRC wells (published in the SPE) elsewhere the predicted production rates at startup are by no means overly optimistic. Remember that the Saudis have subjected all of these fields to full field reservoir simulation prior to coming up with the development plan and production rate predictions….it is well thought out science. As to “old small fields”, they may be old in terms of discovery year but Khurais had original recoverable reserves (P+P) of 13.8 GBbbls of which there remains 13.5 GBbbls to be produced with an additional 2 GBbbls of P3 or technical reserves which might be recovered at a later date. Manifa had original recoverable reserves of 12.8 GBbbls of which there remains to be produced 12.3 GBbbls with an additional 6 GBbbls of technical reserves which might be recovered with additional expenditures (these reserve numbers from Wood Mackenzie). These are hardly “small” fields by anyones imagination and are actually "young" fields in terms of production.

I draw your attention to Figure 23 which shows a typical Laherre approach to predicting EURR. Interesting how the author chose to ignore the last three data points which clearly show a trend towards higher EURR than the author wants to predict. Note that for this analysis it doesn’t matter what the gravity of the crude is…the fact that they had spare capacity in the last three years indicates they had it all along as there has been virtually no new oil added from the 80’s through the 90’s.

In general I think the discussion at TOD was worthwhile when it dealt only with looking at overall production rates based on several sources of information. There are interesting patterns but I and others argue these patterns are also consistent with production being decreased to keep a supply/demand balance (especially heavies at expense of increasing lights)...exactly what the Saudis say they have been doing. Stuart might end up being correct in his foreshadowing but currently there is no clear evidence for that. Stuart's contribution was great I thought....the rest is of little value IMO.

Note that this was a guest post by "Ace."

From Rockdoc's comments:

Interesting how the author chose to ignore the last three data points which clearly show a trend towards higher EURR than the author wants to predict.

Using the last few data points, on the HL plot, before the Texas peak produced a wildly inaccurate estimate of URR. The most accurate estimate of Texas URR came from discounting the inflection from the steady linear trend, which is what Ace did.

I disagree that there has not been a call on Saudi production. When demand exceeds supply, what happens to price? Currently the Brent spot price is 80% higher than the average monthly price in the 20 months prior to 5/05. The Saudis have recently announced price increases of $1 to $4 per barrel, and they have been unilaterally cutting crude deliveries to levels below what buyers want.

Hans Ulrich; MUDDLOGGER; writerman.

Being somewhat pedantic by nature I must point out the
correct source of this quotation:-

HANNS JOHST 1890-1978

"Wenn ich Kultur hore...entsichere ich meinen Browning!"

(Whenever I hear the word "culture"...I release the safety-catch on my Browning [pistol])

This famous phrase is often misattributed to both Hermann
Goring and Heinrich Himmler.

Well, good. I'd rather not be quoting Goering anyway.

At least I know I have all of the Mencken quotes right...

Yes Westtexas, Rockdoc falsely assumes there has been no call on increased Opec production - a point I made to him on the other forum. Here's just the latest call on increased Opec production by the IEA.


The OPEC oil group faced calls for increased output to help dampen rising crude prices on Thursday, but leading members stressed that geopolitical rather than supply concerns were driving the market.

But Claude Mandil, the head of the International Energy Agency, an energy watchdog for rich countries, said that prices were too high and that world supply was "a bit too low."

"The oil supply is in our view a bit too low because we are in a period when stocks should be built and we are not sure that stocks are being built right now," he told AFP in an interview.

Today's U.S. gasoline inventory numbers were down again. Who would want to expand refinery capacity if they knew oil was peaking? Some new refinery expansion projects are going forward.

I have read numerous oil and gas annual reports and I think that while some major companies were replacing reserves of BOE production at greater than 100% per annum it seems like they were growing natural gas reserves faster than oil reserves. Some of the growth was by acquisition and not organic (drilling). There have been major derivitives and hedging losses by some of the players and this has restricted their ability to grow new projects in spite of higher hydrocarbon spot prices.

As prices go up you get price rationing and some people giving up life in the fast lane for public transportation.

I thought I'd add something on "voluntary reduction" The following paragraph is extracted from an article titled "Ghawar is dying"

What if the Ghawar IS dying? It would be easy enough to play with the numbers for a year or two--until the decline rate starts to speed up and the loss can't be hidden. After that? Plan B might call for a declared "voluntary reduction" in oil production to "stabilize the market at the optimum level." Yeah, right. How in the world would you ever know exactly how much oil is being pumped or shipped from a country half way around the world to other countries you've never seen? The answer is obvious: You wouldn't. You never will. C'est la vie.

From August 2001, http://www.newcolonist.com/ghawar.html

this message is for everyone at TOD,
Can we please stop talking about the problem, and start talking about the solution.
We know the problem, oil will peak and then prices go up! The prices will go so far up that only the elite class can buy oil.

But, common guys lets find a solution becuase i have been hearing this over and over about how oil will destory the world. So okay we figured that out 10 years ago lets move on.

Now, whats the solution becuase i posted a comment yesterday and all i got was negative responses. Unless your new to this subject, your wasting your time talking about how the society will collapse, BECUASE WE ALREADY KNOW THIS.

I also hear about how the first nuclear fusion reactor will be avaliable sometime between 2050-2070, so whats the big deal stressing about this issue? I look at peak oil in a macro view, you guys are all looking at this micro. We already can get pass peak oil, the market will fix itself even if it takes 70 years. So peak oil will effect my generation mainly, but not really my childrens. Also, i have heard coal can sustain America for 50-70 years after peak oil, at a 2 percent growth. So arn't we in the safe zone? the effects of peak oil will start some point from 2015-2035.

No one will care about peak oil a 100 years from now becuase by then their WILL BE A SOLUTION.

I personally think atleast 50% of you want something bad to happen.

Lets work on the solution now!

this message is for everyone at TOD,
Can we please stop talking about the problem, and start talking about the solution.
We know the problem, oil will peak and then prices go up! The prices will go so far up that only the elite class can buy oil.

But, common guys lets find a solution becuase i have been hearing this over and over about how oil will destory the world. So okay we figured that out 10 years ago lets move on.

Now, whats the solution becuase i posted a comment yesterday and all i got was negative responses. Unless your new to this subject, your wasting your time talking about how the society will collapse, BECUASE WE ALREADY KNOW THIS.

I also hear about how the first nuclear fusion reactor will be avaliable sometime between 2050-2070, so whats the big deal stressing about this issue? I look at peak oil in a macro view, you guys are all looking at this micro. We already can get pass peak oil, the market will fix itself even if it takes 70 years. So peak oil will effect my generation mainly, but not really my childrens. Also, i have heard coal can sustain America for 50-70 years after peak oil, at a 2 percent growth. So arn't we in the safe zone? the effects of peak oil will start some point from 2015-2035.

No one will care about peak oil a 100 years from now becuase by then their WILL BE A SOLUTION.

I personally think atleast 50% of you want something bad to happen.

Lets work on the solution now!

...So peak oil will effect my generation mainly, but not really my childrens. Also, i have heard coal can sustain America for 50-70 years after peak oil, at a 2 percent growth. So arn't we in the safe zone? the effects of peak oil will start some point from 2015-2035.

No one will care about peak oil a 100 years from now becuase by then their WILL BE A SOLUTION.

I personally think atleast 50% of you want something bad to happen.

Lets work on the solution now!

Com'on Guys, Where's the spirit? We can lick this thing If We All Pull Together ...

Sorry, couldn't resist.

Some People Make things happen,
Some Watch things happen,
Some Say "What Happened?"

Actually my take is that it is a individual, Family/clan, community type of thing now. Like the Hirsch Report said, if you start "At Peak" , Ah... Too Late.

The analogy is a Marathon Runner. If a Marathon Runner "Feels" thirsty, He's toast. Because, by that time the body is ALREADY dehydrated. He has to hydrate BEFORE he "Feels" thirsty.

Well, WE(collectively) are ALREADY thirsty.

To quote "The Band"

Save yourself, Or Save your brother,
It looks like it one or the other,
Oh, You don't Know The Shape We're In

Many feel like I do that your children will still be "Finding the Solution" when they are adults.

I don't know if anyone can see past the "Transition Period".
Until that shakes out, much Long Term planning will be much more close to dreaming.

Caveat, Alan's light rail/Mass Trans is still worth working on.

Pay down debt
Learn Trades/skills
Collect things that may be of service.
Be kind to everyone one you meet.


"Be kind to everyone one you meet."

wolffighters says,
"No one will care about peak oil a 100 years from now becuase by then their WILL BE A SOLUTION."

I don't think that is correct. There will be about 80 or 100 "solutions.

One of the single biggest mental blocks we have is that we keep looking for "a solution". In America, with our competitive, combative way of doing things, there is no thought of a second place. There is A WINNER. Everything else is a LOSER.

That won't work now. The "either/or" rather than multiple option way of thinking cripples us.

There are other "thought pattern" issues that hobble us too: "Maximumization" is one. This is the belief that there is one "maximum" return investment. All the others are losers and to be considered unsuitable.
But there are many more parameters than just "maximum" return. We must begin to think in terms of best all around, not just best return.

Others: centralization and concentration. Bush and his "hydrogen economy" make this error. Bush, having grown up in the oil industry, can see no other way forward that mass, centralized energy production, which is then transported out over highways, rail and barge in massive quantity, and used by a customer at the retail end....in other words, the garden variety resource extraction, refining for transport, and sale model, industrial centralization at it's best.

This of course destroys the whole advantage of hydrogen, which should be produced in small quantity in hundreds of thousands of locations, and used at or near where it is produced. Those who say that hydrogen can never be extracted from water or with renewable energy as efficiently as other options are of course ABSOLUTE in their correctness. But, if the advantage is to not have to transport it around, not have to build a huge infrastructure, not have to deal with carbon disposal....then it's inefficiency (lack of "maximum return") can be dealt with, and to great advantage. Again, all the conversions, all the externalized costs have to be looked at in an all around way.

The list of options is huge when thought of in those terms.

THE SOLUTION is "CONFLUENCE", appropriate scale, elegant and mixed design, the ART of design. The question is, does anyone really care?

Go to, or call your locak college, community college, or university, and ask them how many kilowatts of power their college produces by any alternative other than oil or natural gas, or purchased electricity. First, I would be stunned if they even know. Second, for 99 percent of the highest learning, most advanced institutions in America, I am willing to bet that they have NO alternative or renewable energy technology on site!

To young people in America, alternative energy is as mythical as the unicorn. They read about it, hear about it, but how many have actually been in any contact with it? How many have ever examined a PV panel, and know what makes them work....a windmill, and know how they operate, or even know that humankind does have the ability to produce hydrogen with sunlight (it is not a myth, it can be done)

wolffighters says,
"I personally think atleast 50% of you want something bad to happen."

I would be astounded if the percentage was that low.

Roger Conner Jr.
Remember, we are only one cubic mile from freedom

Aramco maintains cuts to Asian refiners:

April 12 (Bloomberg) -- Saudi Aramco, the world's largest state oil company, will maintain a cut in crude oil supply to Asian refiners for a seventh month in May.


The supply cuts are between 9 percent and 10 percent of contracted volumes, the officials said. Saudi Aramco is lowering exports to Asian refiners in April by an average 9 percent, and the cuts this month and in May are more than the 7 percent reduction in March shipments.