All that's wrong with 'common wisdom' in one article

This article from The Telegraph is a wonderful example of pundit cluelessness and or wanton incompetence, and I'm going to rip it to shreds in detail below.

Gordon Brown landed North Sea oil in choppy water

The Treasury is enjoying a windfall as oil soars but taxation policy may have knock-on effects

The rest of us may have been too busy partying like it was 1999, but on the eve of the millennium Britain was quietly, unwittingly, selling off the family silver on the cheap.

Gordon Brown's choice of that year to start selling off Britain's gold reserves with the precious metal's price close to an unprecedented low is well documented. What is less well known is that 1999 marked the peak for North Sea oil production and - by an unfortunate twist of fate - the very nadir of the oil price.

Gordon Brown, who has been lauded for years (and in particular around 1999) as a great Chancellor of the Exchequer is now fair game and everything he has ever done must now be seen in light of his current meltdown. With that in mind, it is not surprising to see articles now popping up to pin blame on him then for oil prices now. The biggest story of the day must somehow be his fault too.

But given that oil and energy is a topic that touches upon quite a few ideological traps, he is of course going to be blamed for all the wrong things, in order for the story to fit with the narrative.

The last sentence of the above paragraph is testimony to how far our pundits are from any kind of informed commentary on the subject. Is it really a "unfortunate twist of fate" that oil prices were at their lowest when the highest volumes of oil under our control were extracted, or just a logical  consequence of supply and demand rules that they are usually so keen to credit for other favorable economic outcomes?

After the oil shocks of the 70s, the US and the UK were lucky to be able to exploit new oil reserves situated on their territory - in Alaska or the North Sea. These finds, the last major production areas found on the planet to date, flooded the market in the 80s and 90s, duly bringing prices down, and prompting the Economist to write, in March 1999: "The price of oil has fallen by half in the past two years, to just over $10 a barrel. It may fall further."

Commodities were seen as a relic of the past, as the dotcom age was promising us unprecedented wealth based on knowledge rather than heavy stuff. Gold was on a 20 year downwards trajectory and all central banks were wondering what to do with their bulky and useless stocks of the metal. Holding it was, then, seeing as silly, and oil was seen as an sideshow - cheap, plentiful and boring.

But hey, let's rewrite history with the benefit of hindsight, and blame Brown for actions which were then lauded as modern and proper.

Britain was pumping around 2.8m barrels of oil every day, but the price averaged a mere $18 and dropped at one stage into single figures. Fast-forward to today, and while the oil price has rocketed up to a record $135 a barrel, the UK is producing only 1.5m barrels a day.

The Prime Minister cannot be blamed for the fact that Britain's oil production peaked at precisely the wrong time, nor can he really do anything meaningful to the oil price - despite his pledges yesterday. However, the rising price has underlined just how fast the North Sea is declining, and raised questions over whether Mr Brown's policies have served to accelerate its demise.

Well, the Prime Minister can actually be blamed for not doing anything about the UK's oil production when he arrived at n°11 back in 1997. It was not fashionable then, and it certainly was not what his predecessors had done, but oil&gas production could have been curtailed and limited in order to last longer. This is what the Dutch did with their gas reserves - limiting by law the production of their giant Groningen gas field so as to husband the resource for longer. It's not as if information on the likely decline of production was not available then, and as if the government did not have the means to direct an immediate stabilisation of production so as to ensure a longer tail.

And even if you accept that if was not a priority topic by 1999, the real issue was not what he did or did not do then, but what he has not done since, as it became obvious that production was declining. The country has lost 1.4mb/d of production capacity in 10 years, has become a major importer of the stuff (in competition with the rest of Europe, which has had somewhat more adapted supply policies for a long time, in the form of long term contracts), and still has no energy policy beyond "the markets will provide" or "blame the evil Russians."

And as to "doing nothing about oil prices" - how about focusing on the one side of the supply-demand balance that we can actually do something about: our demand? There's lots that governments can do, from the mundane (fuel efficiency resquirements, construction standards), to the all encompassing (fuel taxes, speed limits, public transport investment) to the brutal (rationing, forbidding the sale of cars with low fuel efficiency, closing off highways).

But no, the common wisdom does not focus on that, it focuses on this:

However, the Government is culpable for its management of the tax regime. Some years ago Mr Brown switched the system to a more modern scheme, charging oil companies a supplement to corporation tax for their North Sea profits, but allowing them to offset the investment they poured in.

It was a sensible change, designed to encourage companies to spend more on finding new fields. However, in 2005, the Treasury suddenly and unexpectedly raised this supplementary tax rate.

Ah. Tax increases. That's the real problem. Of course. It is, as we know, the root of all evil.

All businesses are reluctant to invest in a region if they fear its tax policies will change suddenly and without warning - none more so than oil companies, which make their investment decisions on a 20 to 30-year horizon.

Tax instability (which happens only whan taxes go up, not down, of course) is the cause of the production decline. No matter than the tax was increased only in 2005, ie 6 years after production started declining, and that it was increased by a few % at a time when oil prices had already climbed up from $15 to $50 - it Just. Has. To. Be. The. Reason. Oil. Production. Declined.
As we are reminded again:

Even so, the speed of the North Sea's decline has taken almost all experts by surprise. According to Kevin Norrish, commodities analyst at Barclays Capital, since the turn of the millennium production has consistently disappointed expectations.
"With no major new projects on the horizon to make up for the accelerating decline rates in the UK's mature fields, the prospect of significantly arresting the established decline in output looks poor," he said. Likewise, the amount of investment injected into the region has been consistently lower than many had forecast.

"Experts" were surprised. Presumably the very same experts that were "surprised" when Iraqis did not welcome US and UK soldiers with flowers, or when oil prices went above $50, and above $60, and above $80, and above $100, etc...
The same experts that are still listened to today, and quoted widely.
But it all makes sense for them:

This is hardly surprising. Over the past decades the North Sea has become one of the Government's biggest corporate tax cows, generating more than £230bn in revenue since 1968. The Treasury is expecting to make around £10bn this year from oil revenues, though experts at Grant Thornton think this could rise as high as £16bn due to higher oil prices.

However, this windfall has come at a price. If, as thought, it is responsible for depressing production in recent years, it has helped make the UK a net oil importer two years earlier than expected.

It's government fault that production is declining, and more precisely, it's Gordon Brown's fault for increasing taxes at the wrong moment. The man cannot keep his hands of our hard earned money ("our?" you ask innocently - yes, "our" - aren't you a shareholder of BP, Shell et al? What a pity)

Not only does this have serious implications for energy policy, it has pushed the current account deficit sharply higher and contributed to a weaker pound. It has meant that whereas a few years ago Britain was well positioned to benefit from a high oil price, the implications today are far more damaging for the economy.

We hit the jackpot! Brown's tax increases not only explain the oil crisis itself (killing incentives, despite today's prices, to invest in more North Sea production), but it also explains Britain's huge trade deficit (see, nothing to do with the financial sector's growth slowly killing the manufacturing sector, à la Anglo Disease) AND it suggests that there is a simple, successful energy policy round the corner (lower taxes on energy companies).

The Conservative and Labour governments since Thatcher have benefited immeasurably from the North Sea's constant stream of revenues in the past decades. Only now are the full implications of its decline sinking in.

Lady Thatcher, in her infinite wisdom, bestowed future governments with a golden goose, and now that damn evil, incompetent, (shall we dare say it - socialist) Brown has spoiled it all. Damn him.


While the last sentence touches one profound truth (British governments over the past 20 years have had it easy thanks to the North Sea bonanza), it also points that the real issues are not even on the radar yet. Oil production decline (in the case of the UK, but the logic is the same as regards global stagnation of production) is only caused by pesky governments interfering with private sector investment, and there is no problem that cannot be resolved by lower taxes or less regulation. Peak oil is not even on the radar screen, Demand-side policies are inexistent (beyond, occasionally, a token, throwaway mention) and, of course, irrelevant.

As usual, all that matters are supply-side policies. Maybe it's time to call it, as properly suggested long time ago by George Bush Sr for their economic cousins, voodoo energy policies - it's all the more appropriate as it appears to mostly include the hope that production will somehow, magically, increase - or that an alternative solution will just as magically emerge painlessly.

You quote

The Treasury is expecting to make around £10bn this year from oil revenues, though experts at Grant Thornton think this could rise as high as £16bn due to higher oil prices.

I quote from a UK Parliamentary answer: "Liability to pay fuel duty only applies to fuel refiners or producers. This is because the point at which the duty is paid is when the finished product leaves the refinery or production plant. Fuel duty is set at a fixed monetary value per litre rather than as a percentage of the retail price"
Where is the extra tax coming from? Is this VAT at the point of consumption? Is the Grant Thornton estimate likely to be accurate?

I'm pretty sure they're talking about taxation on production there.

I think so, upstream taxation: The UK Continental Shelf Tax Regime

  • Ring Fence Corporation Tax
    With some important modifications (e.g. relating to capital allowances and losses), this is the standard corporation tax applicable to all companies, with the addition of a "ring fence" and 100% first year allowances for almost all capital expenditure. The ring fence prevents taxable profits from oil and gas extraction in the UK and UKCS being reduced by losses from other activities or by excessive interest payments by treating ring fenced activities as a separate trade. The current rate of corporation tax is 30%.
  • Supplementary Charge
    This is an additional charge of 20% (10% prior to 1 January 2006) on a company's ring fence profits excluding finance costs. The supplementary charge was introduced from 17 April 2002.
  • Petroleum Revenue Tax (PRT)
    This is a special tax on oil and gas production from the UK and UKCS. It is a field based tax charged on profits arising from individual oil fields. The current rate of PRT is 50%. PRT was abolished for all fields given development consent on or after on 16 March 1993. PRT is deductible as an expense against corporation tax and the supplementary charge.

ExxonMobil and CERA (Daniel Yergin's organization) assert that if major oil companies had better access to prospective areas worldwide they could, with improved technology, boost conventional oil production for decades to come.

Texas and the North Sea give us a useful way to test this premise. These two regions were developed by private companies, using the best available technology, with virtually no restrictions on drilling. Results? Texas has declined at about -4%/year since peaking in 1972. The North Sea has declined at about -4.5%/year since peaking in 1999 (C+C in both cases).

And in general the pattern that we have seen in the years immediately following the respective peaks was: Higher Oil Prices + Increased Drilling = Lower Crude Oil Production.

Based on the logistic (HL) models, Saudi Arabia in 2005 was at about the same stage of depletion at which Texas peaked, and the world in 2005 as about the same stage of depletion at which the North Sea peaked.

Indeed. I've always found the argument "let us invest, you're too incompetent to do it" pushed by Western politicians and pundits (oil companies are less to blam for that particular line of reasoning) towards oil producing countries profoundly annoying and, let's say it, racist and/or contemptuous.

It's particularly striking when coming from European countries that produce a few tens of billions of cubic meters of gas per year and addressed to Gazprom, which produces 600bcm/y, but it similarly applies to criticism of Pemex, PDVsa or Saudi Aramco.

These companies could produce more if (i) they wanted to and (ii) it was physically possible. The common wisdom ignores (ii) completely, forgets about (i), and instead goes on a wild goose chase about 'competence.'

As regards (i), it should be enough on its own to make us focus on demand side policies: even if one thought that the resources were there, the simple fact that the countries holding the reserves may not find it necessary to produce them at our convenience (ie as fast as possible in the short term) should be enough to signify the need for us to be able to do with much less oil altogether. That we even refuse to consider it never ceases to amaze me.

And of course, as you point out, the problem is even worse than that.

Intuitively from a layman of moderate intelligence its almost the other way round. The more above ground restrictions you have the longer the "plateau" should be as the curve is stretched out. increasing depletion steepens the curve.

AFAICS either the way spatial and temporal dimensions operate in this universe are not understood or money can increase the OOIP for CERA to be correct.

hubberts model best fits unregulated exploitation?

at best they can argue the estimate of OOIP is wrong significantly?

am I being unfair?


I've lately been writing about the problems that the US is facing because of net oil export declines in two of our closest oil suppliers, Venezuela & Mexico. Venezuela is showing a long term net export decline. Mexico is on the fast track to zero net oil exports, probably within six years.

Europe of course has its own problems, with net export declines in Norway & Russia. Our middle case has both Norway and Russia approaching zero net oil exports around 2025.

Russia's Oil Output, Exports Extend Declines in May
2008-06-02 04:52 (New York)
By Torrey Clark

June 2 (Bloomberg) -- Russia, the world's second-largest oil
supplier, produced 0.8 percent less crude in May than in the same
month last year, bringing the country closer to the first annual
drop in oil output in a decade. Exports also fell.

Production slid to 9.74 million barrels a day (41.2 million
metric tons a month) from 9.82 million barrels a day a year
earlier, according to data released today by CDU TEK, the Energy
Ministry's dispatch center. Output rose 0.2 percent from April. . .

. . . Total exports fell to 5.52 million barrels a day, 4.6 percent
less than in May last year and 1.6 percent less than in April this


Do you find this scary?

I posted my first article on net oil exports in January, 2006, and my opinion has not really changed since then. IMO, the very lifeblood of the world economy is draining away in front of our very eyes, and the key point is that net export decline rates tend to accelerate with time.

To my mind, the scary thing is that it appears to be draining away in front of our collective eyes and very few people seem to be seeing it.

It will be even scarier when the same starts happenning to food exports. (Actually it has already started.)

Its the speed with which it will happen that is the scary thing. What it means is that we might just scrape through the next decade (although its going to be awful) but the 2020s are going to be an absolute nightmare...

Resource Nationalism is going to be like a hammer blow -At some point I can see Russia saying to the West "In the face of our own crisis we are ceasing (or dramatically curtailing) oil and Gas exports"- and its not very far away, this could happen way before the 2024 zero date estimate, possibly in as little as 10 years...


Jerome - I think there are close links between North Sea (and North Slope Alaska) oil production and the trend in oil prices. The UK blew its oil and gas riches as fast as it could. The rise of North Sea production is mirrored by OPEC restraint.

Charts from EU oil imports set to grow by 29% by 2012

EU dependency upon imported oil fell during the 1980s and 90s. But the trend changed with peak EU oil production in 2000 and from now on, the EU will become increasingly dependent upon oil imports

Falling oil prices through the 1980s and 90s mirror decreasing dependency of the EU on imported oil. The turning point in oil prices and their recent rise is also mirrored by rising depdendency of the EU on imported oil. The global oil market is obviously more complex than this, but falling North Sea production - which is set to continue - is one key factor that explains current high oil prices. Oil price data, annual averages, 2005 base, from BP 2006 statistical review.


Puffed up on Radio 4 this morning:

Coverage begins on Tuesday evening on Reporting Scotland, and includes a special hour-long documentary -

Truth, Lies, Scotland and Oil - at 2240 BST on WEDNESDAY on BBC One Scotland.

Apparently Professors Odell (30 billion left) and Kemp (300 fields yet to be developed) reckon there is plenty left and this presenter reckons that reserves are growing.
Should be interesting.

Though my wife says I have to stop shouting at the Telly – Its a sign of Grumpy Old Man Syndrome.


PeakUKCS Oil – false alarm, according to Auntie, we can stop worrying our pretty little heads and go back to sleep.

>>The North Sea has almost as much oil left as has already been extracted, a BBC Scotland investigation has been told.
Experts believe between 25 and 30 billion barrels could still be recovered over the next 40 years.
Calculating oil reserves is not an exact science and this fact has made it difficult over the years to weigh up the true wealth of oil beneath the North Sea. <<

Shame it doesn’t fit with the production profile.

Maybe I will have to stop believing my lying eyes.

And that other canary in the coal mine:

Nurses.... two years ago, I thought they would be one of the first obvious hits.

I don't know why you worry.
The Government working assumption is that oil will trade at around $60-70/barrel for the next 20 years or so.
If the lights appear to dim at all it is due to our failing eyesight, not electricity shortages.

yes, and tractor production will excede the five year plan.

PeakUKCS Oil – false alarm, according to Auntie, we can stop worrying our pretty little heads and go back to sleep.

Hayley Millar's email address is:

If memory serves, the HL plot I did suggests about 18 Gb of remaining recoverable reserves for the total North Sea (C+C).

But post-peak denial is a widespread phenomenon. I frequently quote the Texas State Geologist, who, in 2005, stated that while Texas may not be able to match its 1972 peak production rate, it could, with the use of improved technology (presumably aided by magic fairy dust) significantly increase its production.

It's a perfect storm of Peak oil, national debt, and a looming hyperinflation. The next Conventional Wisdom will be to preach against the ultimate horror of taxes increases, preventing the US and UK governments from dealing with their debts. In the US we will either have to raise taxes to pay interest on the debt, or default on T notes as they mature causing hyperinflation. The Republicans would rather let the currency crash (while they dabble in gold futures) and then buy out large swaths of America for pennies on the dollar, and people will be cold and hungry enough to jump at the deal.

According to memmel if those taxes are imposed then the biggest store of value left to tax is homes owned by the middle classes, so inheritance tax is likely to be brought forward or some such wheeze effectively wiping out the middle classes.

It's strange that we define middle class as we do today. According to the wiki article, the middle class was once the "intermediate social class between the nobility and the peasantry of Europe", and thus often part of "the wealthiest stratum of society"

A different definition might consider the 1% of the population that is rich but non-ruling (ie hedge fund managers, but not politicians) to be the middle class. And the 99% of us that actually need to work for a living are the lower class. It could be a logarithmic thing: 99% peasants, 0.99% middle class, 0.01% rulers. Or whatever the actual ratio is.

In this sense, I think the "middle class" will do just fine. Us "lower class" workers are the ones who need to worry, and maybe band together.

Thank you! I've never understood the idea that being in debt up to your eyeballs whilst working for wages somehow makes you middle class. The fact of the matter is that the upper strata of feudal peasantry had more economic independence than the so-called "middle class" today.

My plumber is closer to being middle class than I am - at least he owns his own tools and his own business. Me, I'm just a wage slave. A well-paid, highly privileged wage slave perhaps, but a wage slave nonetheless.

I've never understood the idea that being in debt up to your eyeballs whilst working for wages somehow makes you middle class.

Because "class" is not about whether people feel stressed about paying debts or getting a bigger tv than their neighbours, but about their material possessions.

In the 19th century you were "middle-classed" if you could afford servants, but still had to work for a living. Nowadays we rarely have full-time servants, we have contractors - instead of a cleaner we have dry-cleaning, instead of a household cook we have a favourite restaurant, instead of a nanny we have childcare centres, and so on. When you add up all the money spent on these services - some from people, some from machines - it's enough to pay the wages of a live-in servant.

Whether this prosperity is built on savings or debt doesn't matter day-to-day, you still have use of all these things. It only matters long-term and for your feeling of stability and security.

The fact of the matter is that the upper strata of feudal peasantry had more economic independence than the so-called "middle class" today.

The fact of the matter is that medieval peasants were subsistence farmers, and in bad years they starved.

I've often heard middle-classed people claim that a materially less rich life would be better. And here you're telling us that medieval peasants were better off. However, I note that the flow of migration from Upper Manhattan to Upper Volta is not even a trickle. If it's so oppressive, give it up.

We live extraordinarily materially rich lives by world and historical standards. Much of this is built on fossil fuels, and much more is built on the backs of the poor. If we're not going to get off their backs, we should at least have the grace to not complain about being up there.

Yes. A rough calculation is that if you have $400000 US in investable assets you are in the top 1% worldwide-globally speaking, you are definitely not middle class, even though many in this category feel they are poor.

Surely if a country's debts are denominated in its own currency then inflation will get rid of them very easily. There is a lot of talk about demand destruction, and that has certainly started to happen. But capital destruction is happening even faster. In the magic world of money and finance we see dollar bills and securities evaporating. But there's a real world out there, and I urge everyone to try to think about that and not about money. The real world things that are losing real value include: houses a long way from public transport; petrol/diesel vehicles; all the infrastructure that supports those cars from refineries to roads; farms far from customers or boats/trains; anything to do with air travel; anything to do with non-local tourism; large chunks of human expertise; etc etc. We've got to go down to the bottom and work our way up, creating new capital: efficient buildings and transport; solar thermal power; more nuclear (get over it); more use of natural gas (temporary step); etc.

My personal opinion is that capitalism is going to handle this badly because it will put too much of the limited amount of available resource into squeezing the last drop of value out of old resources. For example the infrastructure for petrol cars is so huge that there is a big chicken and egg problem to get to something different. In 2004 the Australian government tried to get the infrastructure for Compressed Natural Gas vehicles deployed. They gave up: you can't get the infrastructure before the vehicles or the vehicles before the infrastructure. Governments need to make a decision, electrical now or CNG first, then just force it to happen, providing the resources where necessary. I know governments often make bad decisions, but markets often can't get over speed bumps without a push.

Surely if a country's debts are denominated in its own currency then inflation will get rid of them very easily.

No. You misunderstand where money comes from and why we all have so much debt.

When a loan is taken out, brand new money is created at the point of the loan. As well as the money, an equal amount of new debt is created at the same time. The difference between the money and debt is that debt carries interest payments, money does not. There will always and forever be more debt than money, at least until the monetary system is replaced.

You might want to read up generally on "Fractional Reserve Banking". It explains large amounts about our societies, industries and political systems.

It would seem that any new discoveries in the north see should be husbanded as carefully as possible and hoarded if you will, for as long as possible for the good of the UK. Brown has provided the model for the absolutely worst way to do it as has our current moron in chief here in the states.

You mean he should say something like:

I keepeth no secret from thee that when there were some new findings, I told them thus: "No, leave it in the ground. For by the grace of God, our children shall have need of it."

Some generation must be the last to use a resource and there is no reason why that could not be us. We are using what prior generations left to us.

2.8M BPD x $18 = $50.4M
1.4M BPD x $126 = $176.4M

What exactly is the problem? The government should be swimming in more money than it ever has. Gordon Browns biggest mistake was to not nationalise the North Sea in 1999. He could have had it for a bargain basemetn price. Maybe swapped the gold for it!

The government gets 100% of the sale proceeds, none for the oil producing companies?

So, by your logic the US gov. should be swimming in oil revenues also since US produces around 2 million barrels per day from arctic and Gulf of Mex. However, most of that sale price (not all or much at $127 price as a lot is sold under contract) goes to the oil companies that are the exploring, developing, producing, and transporting oil.

I don't see such a windfall if royalties are on a net per barrel price (a percentage of sale price less total cost of production). States in the US are likely doing better with oil revenues than the Feds.

Peak oil is not even on the radar screen

I'm not sure that public statements prove what is on the radar screen.

To my knowledge Cheney has never acknowledged peak oil, but I'm fairly confident that the Iraq war was a peak oil play, positioning the U.S. over the last big supply.

It is possible to imagine various reasons politicians might prefer to pretend that the idea doesn't exist, even as they are fully aware of it.

Fair enough.

It's not on the public radar screen, ie it is not debated publicly by "serious" people. It is being debated here and on other places (but we're bloggers, thus not "serious"), and it is likely that some people in spheres of power also understand the issue.

But I'm not sure that Iraq is a peak oil play - I cannot see any scenario where it helps, even temporarily, Cheney and his ilk, more effectively than other options that could have been pursued.

But I'm not sure that Iraq is a peak oil play - I cannot see any scenario where it helps, even temporarily, Cheney and his ilk, more effectively than other options that could have been pursued.

If America manage to maintain significant presence and influence in the long term (big if), the Iraq war could look like a smart play. By 2020 Iraq could be pumping 5-7mbpd, given investment and a relatively benign political situation. This could in turn make Iraq the largest oil producer in the world by then. Having such a stake in such a resource some 10 years post peak is worth fighting for today?

The other thing about Iraq is that Cheney and his ilk probably figured on it going far better than it actually did! If they had forecast reality they may well not have bothered.

Let's look at the map of the region this way -

The U.S. and the House of Saud are conjoined in ways which may not be exactly understood, but are clearly apparent. Though with some of the reasons much more transparent, Kuwait can also be considered in the same position. And notice how well America's Kuwaiti protectorate worked out - and we were clever enough to avoid any democracy rhetoric that could have offended the emir.

Add in Oman, UAE, etc. - the U.S., and the West more generally, has basically owned one side of the Persian Gulf since the dawn of major oil production in the region.

Then we have those wacky mullahs in Iran, thumbing their noses at everybody for the last couple of decades - when for the 25 years before that, Iran also belonged to the U.S. And for the two decades before that, the British.

And then there was Iraq, a reliable member of the world wide communist conspiracy (just a bit of Dr. Strangelove humor) starting in the later 1950s, and a well regarded purchaser of Soviet military equipment. And a place which just happened to have not been very well integrated into the British Empire, even after an invasion in 1941.

If you just happened to be an American Secretary of Defense, who just happened to have a certain interest in oil (maybe even enough of an interest to be later employed by an oil services company), looking at that regional map in 1989, it would be hard to imagine the level of disinterest required to ignore how it could be rearranged for the benefit of all - or at least of those that matter when the spoils are being divvied up.

The only reason we care so much about that region is oil - pilgrimmages to Mecca and Medina might be a stable source of revenue, but not for infidels.

Odd as this might sound, looking at America over the last couple of decades, just accept that the nation is being run by a bunch of incompetent idiots for what those idiots consider to be their own best interests. As proof of this in action, just look at General Motors and how it has managed its business in that time frame. Then look at Ford, to see it isn't exactly a trait of a single company.

It is difficult for an European to understand how the U.S. has become as distanced from reality as any opulent European court of the 1700s or 1800s, courts whose actions would lead to their overthrow, dissolution, or destruction.

To put it another way - those running America for the last couple of decades have become decadent enough that quite honestly, talking about those in power caring about the future is silly. They just wanted to grab as much as they could, the opportunity presented itself (after a bit of preparation by many of the people currently in charge of such decisions now), and we will pay for it the way that peasants paid for those courts - by being impoverished for no reason that makes sense to us.

We don't need to guess what Cheney what say if he was asked to consider any judgment on his decisions on our part - it would be a pithy two word response, just like in the Senate.

Expat: Decadent, yes. Incompetent, no. Check out the number of billionaires by country-the USA is world class in this regard. You used GM as an example-Waggoner has managed to get his compensation up to 15.7 million for wrecking it-he is taking incompetence all the way to the bank (and he is only doing it on a rather small scale). Calling the American elite stupid is fun but it is a fantasy.

Counting billionaires and personal wealth is one KPI but doesn't disprove stupidity. One can make "stupid" but extremely profitable decisions.

According to you. The elite are accomplishing their goals superbly-they might not be your goals, but that is irrelevant. What is amusing is that the bulk of the public doesn't even want to accept that the elite are succeeding at their goals.

I put "stupid" in quotation marks to illustrate how my goals might not be their goals, my idea of stupid might not be their idea etc. Do we even know what their goals are? How do we know how well they are doing?

I stand by calling those currently making decisions in Iraq incompetent, by any measure one wishes to use - whether it be increasing oil production, threatening OPEC by possessing Iraq as swing capacity, using Iraq to continue shock and awe in other regions, by not bankrupting ourselves in a fairly pointless war which is demonstrating America's limits, not its strengths. I won't continue, but creating a situation where the most likely regional winner is Iran if war is waged, and where the results of starting a war are literally incalculable, shows how stupid these people truly are.

As for Waggoner - 15.7 million is nothing. People like the Quandts (BMW) or the Toyodas (Toyota) probably spend that much in accountant fees over a couple of months, managing the world wide family fortune.

They have become stupid, believing what they tell themselves. Another interesting example - though the Waltons are very rich, Wal-mart failed in Germany. On the other hand, the Albrecht brothers (Aldi's owners) continue to expand profitably - the two brothers and family currently being worth around 50 billion dollars. An article from 2004, before Wal-mart left the German market, after losing an estimated 1 billion dollars -
'Aldi is Europe's stealth Wal-Mart. Like the Arkansas-based giant, Aldi boasts awesome margins, huge market clout, and seemingly unstoppable growth -- including an estimated sales increase of 8% a year since 1998. It relentlessly focuses on efficiency, matching or even beating Wal-Mart Stores Inc. (WMT ) in its ability to strip out costs. Yet privately owned Aldi is also very old-school German, financing expansion with cash to avoid debt, shunning publicity, and moving quietly into new markets before the competition catches on. That has allowed the onetime local grocer in Essen to become one of the world's biggest retailers, with $37 billion in sales, a fraction of Wal-Mart's $245 billion but enough to give Aldi a 3.5% market share in Europe, vs. 6.8% for market leader Carrefour, according to Brussels-based market watcher M+M Planet Retail. Even mighty Wal-Mart has struggled against Aldi in Germany. Wal-Mart has other problems there, such as a lack of sites for its jumbo-size stores. But a big obstacle is that Aldi and other discounters already had a lock on budget food shoppers. "Aldi was doing the same thing as Wal-Mart before Wal-Mart got here," says Frank Pietersen, a retail analyst for KPMG in Cologne.'

America's elites have grown fat over time. The fact that Bush is president should be enough proof of how stupid they have become - even though the rich received all the pay-offs expected, it doesn't really change a number of facts, including how America has spent almost a generation as grasshoppers (or locusts, depending on your persepctive). Winter is coming, and the ants in all the places the grasshopper is proud to be ignorant of have been busy.

Expat: I think you are letting your emotions get in the way of logic. The elite didn't pay one nickel for the Iraq invasion (that in itself is amazing) so to call it a big loss/mistake on their part is ridiculous. Re GM, I don't think too many would agree that 15 mill a year to screw up is peanuts-my point (again) is that the elite are succeeding superbly and IMO a lot of people are afraid to even recognize what is actually occurring.

Hmmm. I think one can see numerous scenarios that might seem probable to an oil company executive and member of the US national security political cadre.

Owning Iraq oil helps in the medium term to long term. In fact you'd not want to repair the Iraq oil infrastructure very quickly, because the oil is more useful in out years. And you'd want an oil revenues law in place so that US and other companies could play a role in the production and export. And you'd want permanent bases to enable a long term presence into the years when supply shortages really bite...5, 10, 20 or 30 years from now.

Whether that view is right or wrong is less the issue than whether Cheney could have believed it. Why not? He believes that the exercise of imperial power through the U.S. military is the primary tool through which the US relates to the world. And he believes that the energy industry is the most important industry in the U.S.

Why not use the best tool to support the most important industry? I do believe that is how he and many around him think.

Tricky Dick II has been well aware of the issue for years. If not, there's no rational reason for the US to be in Iraq. But we don't have to use our reason, we can look at his words.

In 1999 he said to his company Haliburton,

From the standpoint of the oil industry obviously - and I'll talk a little later on about gas - for over a hundred years we as an industry have had to deal with the pesky problem that once you find oil and pump it out of the ground you've got to turn around and find more or go out of business.

Producing oil is obviously a self-depleting activity. Every year you've got to find and develop reserves equal to your output just to stand still, just to stay even. This is as true for companies as well in the broader economic sense it is for the world.

A new merged company like Exxon-Mobil will have to secure over a billion and a half barrels of new oil equivalent reserves every year just to replace existing production. It's like making one hundred per cent interest; discovering another major field of some five hundred million barrels equivalent every four months or finding two Hibernias a year.

For the world as a whole, oil companies are expected to keep finding and developing enough oil to offset our seventy one million plus barrel a day of oil depletion, but also to meet new demand.

By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional fifty million barrels a day.

So where is the oil going to come from? Governments and the national oil companies are obviously in control of about ninety per cent of the assets. Oil remains fundamentally a government business.

While many regions of the world offer greet oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greeter access there, progress continues to be slow.

[my paragraph breaks inserted for ease of reading]

Here we see that he was well aware of the issues, and here we see laid out - long before Kunstler or anyone else wanted to smash some random Arab country in revenge for an act they had nothing to do with, or was worried about their sharing with terrorists weapons they didn't have - the reasons for the invasion of Iraq.

He further said,

The end of the oil era is not here yet, but changes are afoot and the industry must be ready to adapt to the new century and to the transformations that lie ahead.

Thanks for those quotes. They reinforce my sense that the 2000 meetings between Cheney and oil company executives were a "peak oil conference" in which the US oil industry and the government sat down and devised a (largely military) response to the approach of peak oil.

Everything that followed was just a cover to justify putting our army on top of our oil, inconveniently located beneath their sand.

I think we would have gone into Iraq even without 9/11, but 9/11 was a godsend, a gift too good to believe, and just 9 months or so after the executives and Cheney defined the strategy. Imagine the difficulty of cooking up a Causa Bella without 9/11.

I don't think they actually cooked up the attack. I just think they lucked out to an incredible degree. It isn't hard to understand those who say that kind of luck doesn't just happen... it is made. But sometimes luck happens, even to oil company executives.

I really don't want to discredit myself by advancing conspiracy theories. I DO NOT believe in this one... and yet there are tantalizing elements to the 9/11 attacks that just make you wonder.

What if Saudi worry about Iran and a desire for US military presence on acceptable terms, led the Saudis to provide a reason for a U.S. move into the middle east. Afterall the 9/11 conspirators were (mostly? all?) Saudi.

What if Cheney and the oil executives were stuck... convinced they needed to be in Iraq to lock down supplies for the coming peak oil crisis, but had no excuse to go in?

We all know the stories of how Saudi's were gathered and flown out of the country in the days after 9/11. We all know of the closeness between the Bush family and the Saudi royal family. We've seen them holding hands (I know, I know... it's a cultural thing... but it is an expression of warmth).

We all understand the problem of a national security apparatus looking for a mission. Armies rot when they are not fighting. Weapons manufacturers can't sell weapons without wars.

It all SEEMS to fit. Who among those with power did NOT have an interest in war.

1 The oil industry received a medium term supply of oil... for the time when peak oil and prices begin to spike.

2 The national security apparatus gains new importance (always does in war time.)

3 The weapons industries (and contract defense services) gain vast new spending.

4 The Saudis gain a US presence between Iran and themselves.

5 Cheney (noble public servant that he sees himself as being) both delays the negative effects of peak oil, and creates a situation that is very profitable for the energy industries by providing a new supply.

And the whole thing works if we can just figure out a reason to go into Iraq.

And then, incredible luck, an act of war... although initiated by people from one of the parties that stood to benefit from the war.... the 911 attacks.

I do believe it was just blind dumb luck.... not "on purpose", not even "accidentally on purpose"... but simply a bunch of crazies who escaped notice. Yet the number of forces who had an interest in just such an attack has to raise questions in anyone's mind.

On balance, I'm NOT a conspiracy advocate. But if you consider the constellation of forces it is easy to understand those who are.

The context of limited supply in the medium term (the early peak oil years) surrounds all of these issues.


In Britain when someone mentions a plausable "conspiracy theory" it's usually dismissed in polite company and, more importantly, in the media, by refering to the more palatable "cock-up theory". In the "cock-up theory" no one is really held responsible and there is no conspiracy, just a series of random "mistakes" leading to unforeseen consequences, to err is to be human, after all.

I seem to remember that Al Gore was given a task to keep him occupied when he was vice president, and that was to examine the American airline industry of all things. One of the recommendations in his report was that the US should take a serious look at... security, which he felt was a weak spot, compared with European airports, which had lived with the threat of terrorism for decades. The report was virtually ignored, especially by the US airlines that lobbied against it on the grounds of cost and convinience for passengers...

It's debatable whether the 9/11 hi-jackings and attacks would have been possible if US airport security had been increased to European levels; but that is all water under the bridge.

However, there is a lot of evidence that the 9/11 attacks didn't just come out of the blue with absolutely no warning at all. It appears that there was in fact a lot of credible information circulating that "something big" was going to happen and that these warnings reached the Whitehouse. Words like "planes as missiles" "attacks on cities" "Hi-jacks" "spectacular" "Osama bin Ladin" "training pilots" and on, and on, and on. The question is, why didn't anyone take the warnings seriously in the Whitehouse? Was it just hurricane Katrina like incompetence, or something else? Perhaps they were simply too busy thinking about ways to attack Iraq, or concentrating on their plans to lower taxes for the super-rich to take defending the country seriously?

I believe on balance that it was incompetence... and incredible good luck for them, because they were just looking for a reason to go into Iraq and couldn't think of one.

We know that Bush reduced attention to terrorism (Clark/s book for example) to focus on strategic issues. I suspect they did that because they viewed terrorism as small stuff and they wanted to deal only with the big strategic stuff.

And then I think they were startled when their deemphasis on the small stuff worked spectacularly to their advantage on the big stuff.

I understand the logic of the conspiracy position... but frankly I don't think even Cheney et al are quite clever enough to plan 9/11. Nope, they lucked out, big time... partly because of their own lack of focus on terrorism, partly because they just lucked out.

Not focusing on counter terrorism doesn't prove that they knew it was coming or invited it to come.

Most likely it is a real case of dumb luck... they were so spectacularly wrong about the terrorist threat that they were empowered to realize their strategic ambitions.


By analogy with your analysis of this article, I'm guessing you're not a fan of the line of argument that says the apparent peaking of Russian oil production is due to over-greedy tax regimes?

To a superficial observer, it sure looks like the Russian oil industry has, over the past decade, maximised production from existing assets to make a quick buck. It would be understandable in this context of takeover, merger and huge fortunes, that longer-term investments would be neglected.

Now that the Russian government has re-asserted control of the strategic assets, it can do whatever it wants with both tax regimes and investment decisions.

So, in your opinion :
a) they are promoting/will promote investment that will see Russian production climb in coming years
b) they have decided to stabilize production rather than increase it, to manage the tail profitably
c) Russian production has in fact peaked, due to reasons beyond anybody's control?

My 2¢ worth. The absolute Russian oil peak was in the Eighties, and the rebound in Russian production, following the post-Soviet collapse, was mostly just making up for what was not produced in the early Nineties, and Russia has now resumed its natural decline--in the same way that Texas and the North Sea are declining.

I will put in my few cents and comment on the line "We can do better if they only would let us in".

I have worked in Russia and I can assure you that today they can do just as good of a job exploring as any western company. Why? Because they took in outside experts and modernized their technology to get up to speed on the latest methods to do this.

The same story is true of most large producing countries. Their people have gone through all the industry course and in the beginning worked with foreign experts. When they thought they could do it alone out went the experts. If a tough project came along they would hire consultants. If they liked the expert, he/she stayed and worked with the locals. This is the way it works.

Hence, Majors don't have any magic wan that allows them to do so much better. This is an industry full of inbreeding and hired guns. Nothing stays forever in the hands of anyone long. Eventually the rest find out how to do it also.

I've submitted the Major Oil Company Alternative History Theory, to-wit:

Unknown to most people, a secret communist cabal, centered in Midland, Texas, seized control of Texas in the early Seventies. The party hacks that were put in charge of production caused a long term decline.

In the North Sea, a group of radical Vegan terrorists seized control of the offshore platforms, causing the post-1999 production decline.

... to the brutal (rationing, forbidding the sale of cars with low fuel efficiency, closing off highways).

Jerome-- Why do you consider these measures brutal? Rationing can keep the price of oil down so it is really only tough on producers. CAFE standards, which forbid the sale of low gas milage cars, have been opposed by oil producers and auto manufacturers but not by consumers. Places where car traffic has been eliminated tend to be downtown areas rather than highways but doing this makes a more pleasant experience. Restricting parts of highways to high occupancy vehicles reduces building costs and traffic congestion. At this point it seems clear that further investment in oil supplies is futile and we would do much better to switch to other things. So low oil prices which don't encourage wasting money on pointless oil exploration would be the best approach and this can really only be achieved through rationing. This might be brutal for producers, but for consumers it greatly reduces the cost of a transition since one does not have to pay both high oil prices (which won't lead to an increase in supply in any case) and make the needed up front investments at the same time.


Absolutely agree, I have been lobbying for an immediate ban on sales of new cars that are in the top CO2 emitting band with increased annual tax for the next band down. A long term stated plan that the following year the then top band would be banned and next highest band taxed heavily, rinse and repeat.

I can see there is some merit in applying a very high rate of tax to the top band but am of the opinion that banning sends out a much clearer message since it would affect even the richest.

The corporate average fuel economy (CAFE) standard forbids the sale of large numbers of low fuel economy vehicles but it does not ban them altogether. I think the penalty is a fine that can be spread across the price of all vehicles.

Perhaps an added gas guzzler tax would help though I'd hate to see a vehicle that is used with high occupancy penalized for just being big. A 15 mpg vehicle that is carrying 7 passengers is doing a better job than a 50 mpg vehicle that is carrying one.


Jerome, is there any chance you get one of the UK's informative publications (i.e., the Telegraph) to publish an article decrying the unreasonable environmental regulations (regarding drilling, refining, etc.) that us Godless Communists lobbied for, to forward our agenda of reverting to an agrarian, socialist, heathen, homosexual society?

Trust me, that one always plays well here in the States, as you know.

Pot, meet kettle? Jerome has always put out his fair share of manipulation and disinfo. At least he is highlighting how dishonest the controllers of this economy really are... All the lies... The stampeding of entire populations, like buffalo, right off a cliff...

It is willful, deliberate destruction of entire societies...

But... but, they would NEVER pull something like 9/11. Or the 7/7 bombings. Oh heavens no, your government loves you! It had to be the boogeymen in caves. It is that flawed logic from people like Jerome that has empowered these criminals for so many years.

They would poison you for a nickel, and give your mamma cancer for a dime, but they would never blow up a building (or three) in order to make a few trillion dollars. HEAVENS NO!!!

This is a world where entire populations are being mind-controlled and harvested by psychopathic criminal elites. They are figuring out new ways to suck off of humanity every day. Poisoning the water with fluoride, poisoning the food supply with GMOs. Giving everyone cancer and/or alzheimers. All done by corrupt governments and multinational corporations that are accountable to no one. America is being used as an incubation chamber for one hell of a disgusting creature that is gestating right now. It is the love child of fascism and ignorance, mixed with a pinch of naivete from people like Jerome.

Since this is supposed to be about common wisdom, I figured I'd offer something that used to be common wisdom: Do not underestimate the depth of the evil in this world. Do not confuse cold blooded killers with bumbling incompetent buffoons. They love it when you think they are buffoons.

Iconoclast: Nonsense. Rich and powerful persons who wear suits and ties could never conceive of such an act. Why, most of them have high profile charities they are involved with (as they tell us constantly). Your kind of blasphemy is not welcome (it might scare off some of the sheeple).

The disastrous privatization of both British Rail and the London Underground can fairly be laid at Mr. Brown's door. It has left Britain's rail transport network in an embarrassing shambles, leaving Britain more vulnerable to oil shocks than most of its European peers.

Brown had nothing to do with the privatization of British Rail. This was the responsibility of the Conservatives under John Major. The then Labour party opposition vigourously opposed it. Once in government they have done as little as possible to put things right. Railtrack was taken back under government control as Network Rail, but none of the ridiculously complex and expensive systems of franchises, rolling stock leasing companies etc. have been touched. The result is a system which costs over four times as much in real terms in subsidies as did British Rail - which in retrospect was discovered to have been a pretty good steward of the limited money available to it.

Read Christian Wolmar's devastating analysis of the whole sorry mess, "On the Wrong Line - how ideology and incompetence wrecked Britain's railways" It is a very good read

The Conservatives under John Major started the privatization of British Rail, but by most accounts, new labor not only didn't fulfill their promise to renationalize the system, but they finished the job of privatization by selling off the remaining unprivatized bits after taking power in 1997. The London Underground privatization is entirely his work.

Thanks for the recommendation of Christian Wolmar's book; I noticed he has another book on the 2002-3 privatization of London Underground: "Down The Tube: The Battle for London's Underground" (; would you recommend it?

Metronet, one of the two private companies formed to take over sections of tube, went bankrupt last year, and defaulted on its promised delivery of capacity and reliability improvements which London desperately needs.

I am not aware of any further privatisation of British Rail under the current government. It was pretty comprehensively dismantled by the Conservatives in quick time before the 1997 election. It is true that one operating franchise for south east trains was brought back into public control after it collapsed, and then re-franchised to the private sector as soon as possible after that. I agree that this government is entirely to blame for not having done enough to improve the financial position of the railways, even thiough the track and other infrastructure was brought back under public control as Network Rail, and maintenance brought back in house.

The idea that the private sector is automatically better and by definition more efficient than the public sector no matter how cumbersome the structure of the system appears to be very deeply ingrained in government and civil service in this country, and Gordon Brown appears to be at least as enthusiastic a privatiser as his predecessors.

Incidentally, it is not generally known that under British Rail the long haul passenger inter city business was for many years in profit. Now, in spite of the boom in passenger numbers, it receives several hundred million pounds a year in subsidy.

I do not know very much about the sell off of the operations of London Underground by the current government, except that they do at least appear to have learnt the lesson of the need for vertical integration which is a huge problem with the railways, although I think it is a very bad idea. The whole privatisation thing, and public private partnerships so enthusiastically pursued by this government, appears to be driven by the desire to remove spending from capital budgets, an accounting wheeze invented by the Conservatives.

I have not read Down the Tube, but I would expect it to be good as Christian Wolmar is our best investigative transport journalist, and a good writer. The articles on his website are always good for analysis of UK transport matters.

Having said the above, I then read the following article:,08.shtml

This includes the following quotation from the rail minister, Tom Harris: "My view is that if Labour had come into power in 97 and the railways had still been nationalised, then I think we would have privatised them." Of course the anti-railway civil servants of the Department of Transport would have been the same people, but this is an amazing statement from the supposedly left-wing Labour Party.

When Labour were in opposition they absolutely refused to confirm they would cancel the privatisation. If they had simply said they would do this then the privatisation would not have taken place. By refusing to say this in effect they gave it the green light.

"The price of oil has fallen by half in the past two years, to just over $10 a barrel. It may fall further."

"Look at all this free food," thinks the turkey.

cfm in Gray, ME