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Russia: There Is Life After Peak Oil
Posted by Ugo Bardi on August 21, 2008 - 11:17am in The Oil Drum: Europe
| Suburbs of Moscow, July 2008. You don't have to be able to read Cyrillic to understand the red sign (photo by the author). |
Russia has changed beyond recognition from the dull times of the years after the fall of the Soviet Union, when I heard it described by an American acquaintance as "the most foreign country I know". At that time, Moscow was a grey city covered in dirty snow. It had no shop windows, few lights, no restaurants outside those of the hotels. Walking along the streets, you would see people dressed in black, looking like they had nothing to do. There were plenty of beggars and of drunken men staggering along.
Things have been gradually changing. This July, I have been back to Moscow for a week and I found a city full of flowers and with shops, restaurants, malls, and everything that you expect to see in European cities. The traffic is heavy; the old Ladas are still there, but there are plenty of new cars, including SUVs. Beggars have disappeared, a few drunkards can still be seen, but the city is full of young people evidently in good health, well dressed, and looking happy. The cities around Moscow that I saw during my trip don't look so shiny, but it is clear that the wealth that has concentrated in Moscow is gradually spilling out to the rest of Russia. According to Wikipedia, Russia is now the 7th country in the world in terms of GDP adjusted for parity purchasing power. In 2006 the average monthly Russian salary was equivalent to $640 and by now it is surely much more than that. It would be still hard to define Russia a rich country, but the trends are unmistakable.
The standard explanation for the present wealth of Russia is that it has embraced capitalism, leaving behind the obsolete and inefficient ways of Soviet communism. It may be, but the real explanation may have to do with oil. On this point, a common legend says that the West engineered the fall of the Soviet Union in the mid-1980s, when Saudi Arabia could be convinced to inundate the market with cheap oil and cause the oil price to crash. That badly hit the profits that the Soviets were making by exporting their oil to the West.
As for many legends, also this one has a basis of truth. After the first world oil crisis that had peaked in the late 1970s, Saudi Arabia and the European countries facing the North Sea world had invested enormous sums in developing new fields. In the mid 1980s. these fields had started producing and nothing could prevent oil prices to fall down as the result. The price crash wasn't engineering on purpose against the Soviet Union, but the effect was the same. The Soviet Union, at that time, was engaged in a costly war in Afghanistan and also needed to import grain from the West; and pay for it in dollars. Short of cash and on the brink of starvation, the Soviet Union simply couldn't survive. It went bankrupt and disappeared.
But the fall of the world oil prices was not the only problem that the Soviets were facing. Also their internal oil production was in troubles. As we can see in the following graph, a first oil production peak for the Soviet Union took place in 1987 (figure from ASPO, www.peakoil.net).
Again, the standard explanation here is that oil production declined because of the fall of the Soviet Union. However, we may also argue that the opposite is true; that it was the peak that brought down the Soviet Union. This view has been convincingly argued by Douglas Reynolds and Marek Kolodziej. For instance, see this statement by Reynolds at the energy bulletin:
The Soviet Union experienced peak oil first hand—a 43% decline in domestic oil production between 1987 and 1996. This crisis caused Soviet society to fall into devastating economic impoverishment. Can this be proven? Yes. Here is the quick story: The oil decline in the Soviet Union preceded the GDP decline. A statistical test, Granger causality, shows this. Oil decline did not follow the GDP decline, it was ahead of it, and therefore it caused it.
For more details on this interpretation, see the two papers by Douglas Reynolds and Marek Kolodziej listed at the end of this post. In short, the Soviet Union was a victim of its internal peak oil, whose effects were amplified by other factors, such as the Afghan war, the drop in international oil prices, and the need for Soviet countries of importing food from abroad.
If this explanation is correct, and I believe it is, Russia has pulled off a major feat in recovering from peak oil. A feat comparable to that of turning back the German invasion during the second world war, or that of Napoleon in 19th century. Indeed, everyone knows that invading Russia, especially in winter, is never a good idea. Peak oil, however, was a different kind of enemy, one that could not be beaten using armies and enlisting "General Winter" to help. How did the Russians manage to find life after peak oil?
There are various explanations for the rebounding of the Russian oil production. Some have to do with factors such as the poor management of wells in Soviet times or the higher willingness of Russian entrepreneurs to take risks in a free market situation. Personally, I favour the interpretation that the recovery was possible because the Russian society was able to cut deeply in the bloated government expenses of Soviet times; mainly the army and the hypertrophic bureaucracy. The resources saved from these sectors could be invested in more exploration and in upgrading existing wells. With more effort, more equipment, and more drilling, oil could again flow out in increasing amounts.
If this is the case, victory against peak oil needed tremendous sacrifices from the Russian people, just as it was the case for the victories against Napoleon's and Hitler's armies. Indeed, the misery of the post peak times is well told by Dimitri Orlov in his book "Reinventing Collapse" and in his blog cluborlov . We learn from Orlov of the nearly complete collapse of most of the sectors of the Russian society. Government employees, most of the population, suddenly found their saving worthless, their salaries reduced to nearly zero, or to actually zero. For years, survival was possible mainly because of the food produced in small, private vegetable gardens, a heritage of the mismanaged food distribution system of Soviet times.
My personal experience in Russia in those years is in complete agreement with Orlov's report. I came to know very well the situation of my colleagues working in universities and research institutes. During my visit, I was told that the number of researchers in Russia has been approximately halved since the times of the Soviet Union, from about 200,000 to 100,000, you can have some idea of what kind of "creative destruction" the Russian society went through. Except that it wasn't so creative. Entire research institutes were abandoned and later transformed into office buildings or shopping malls. Researchers had to be creative in order to survive. Those who could, moved to Western Europe or to the US; others turned janitors or bodyguards. Others clung to their jobs trying to do the best they could with the limited - or non existing - resources available. This experience, incidentally, has made me perfectly aware of what is in store for me as a scientific researcher in a not too far future. The difference is that I won't have a West to move to.
Now, with market prices going up again, Russian oil has become immensely more valuable than it used to be at the time of the fall of the Soviet Union. The revenues in foreign currency could be used to rebuild the Russian economic infrastructure. The salaries of scientific researchers are back and even the Russian army has regained its former status of world power, as the recent events in Georgia show.
But, no matter how much effort is placed in revitalizing old wells, the amount of oil available remains physically limited. Russia's oil production may have peaked a second time in 2008, as reported in the Financial Times.
Even with the second peak arriving, Russia may not be facing a second collapse. The first peak combined all the possible problems: decline of world prices, expensive wars ongoing, and the need of importing food from the West. Now, these conditions are reversed or much less important. For instance, Russia, a top grain importer at the times of the Soviet Union, seems to be now self sufficient in terms of cereal production . So, if Russia can avoid a drastic fall in oil production, for the coming years it can have sufficient oil for its internal needs and still obtain a good revenue from exports in a market that is likely to become more and more desperate for oil supplies. Short term perspectives look bright for Russia.
And in the long run? The second oil peak is likely to be the final one. This time, another economic contraction such as the one of the 1990s wouldn't be enough to revitalize the old wells once again. Russia has also to worry about climate change: while it might mean that Russians can save on fur coats and hats, global warming may spell disaster for those Russian cities built mostly on permafrost. But Russia in the coming years has a window of opportunity to invest in an energy infrastructure that is not based on fossil fuels, a window that is probably closing or already closed for most Western countries.
The Russians have a still functioning nuclear industry. Russia has mineral uranium resources and a good number of nuclear warheads that could be reprocessed for nuclear fuel. It also has the only functioning fast neutron reactor in the world, at Beloyarsk, and has claimed to have solved the problem of building a "closed fuel cycle" reactor . That would be a major advance and would solve the problem of uranium shortage that may affect the present generation of reactors in the near future. I have no direct knowledge of the Russian nuclear situation but, from what I can say of other fields, Russia still has plenty of top class scientists and engineers, despite the non-creative destruction of the 1990s. Considering also the financial resources available, I would think that the Russian plans of boosting nuclear energy are serious.
As for renewables, Moscow is not the right place for solar panels but the Russian territory is immense and there must be plenty of places suitable for solar and wind energy. Probably there are also good possibilities for geothermal energy and Russia is so vast that it would also be the ideal place for high altitude wind power . Some good research work is being done in some areas of renewable energy, such as photovoltaics (this is the reason I went to Russia this July). It is too bad that it seems that renewable technologies don't seem to be a priority for the present government. But that can surely be improved, Russia should never be underestimated (nor invaded in winter, of course).
Several years ago, at what seemed to be one of the darkest moments of the Russian collapse, I was walking in one of the avenues of Moscow. I noticed a series of large signs hanging from lampposts, showing traditional Russian buildings and landscapes. One of my Russian colleagues translated the text of the signs for me as saying, "Nobody will help Russia, so Russia will have to help herself". Government propaganda? Sure, but that is what the Russian did. Never underestimate a country that has survived peak oil.
Two references
Two references on the Russian collapse and recovery. Both are available at www.sciencedirect.com (subscription required)
Former Soviet Union oil production and GDP decline: Granger causality and the multi-cycle Hubbert curve. Energy Economics, Volume 30, Issue 2, March 2008, Pages 271-289 Douglas B. Reynolds, Marek Kolodziej
Institutions and the supply of oil: A case study of Russia
Energy Policy, Volume 35, Issue 2, February 2007, Pages 939-949
Douglas B. Reynolds, Marek Kolodziej
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Thanks for this Ugo, fascinating stuff. I remain to be fully convinced by Reynolds' and Kolodziej's position that the Russian oil decline was just down to scarcity though.
Has any large region fallen 43% in 9 years just down to scarcity? Well, yes – North Sea and Mexico show similar collapses. Even so these off-shore collapses have zero chance of picking up again like Russian production has. Injection of Western technology as suggested can't have changed the game that much! There wasn't much investment in the mid-nineties and the pick up in production was extremely rapid.
They argue oil decline pre-dated GDP decline but coal post-dated meaning internal economic chaos (which would affect all industries) couldn't be to blame. But it's not as simple as that. The Russian coal industry was to satisfy internal demand, much of the oil industry was there to satisfy exports, in competition with other exporters. Gas production didn't decline with oil, another argument in favour of oil scarcity? Again the gas was for internal consumption and unlike coal, more a 'socal' fuel than a war machine fuel. There's more going on than oil scarcity.
Peaks in production can be caused by many things, scarcity being just one. I don't think we can discount the global oil export market's influence on Russian production and whilst oil decline may have pre-dated GDP decline, we need more to prove a causal relationship. The two declines could have been caused independently by a third event and oil production just responded quicker than the GDP data.
Hi Chris,
This is Marek Kolodziej.
I usually don't comment on TOD articles due to the lack of time (I'm studying for my PhD qualifying exams right now), but I would like to make a couple of clarifications. First, Doug Reynolds and I never said in our papers that the Soviet economic decline was chiefly due to the oil production slump - at the very end of the USSR's existence, the military was appropriating something like 85% of the country's budget (I don't remember the actual statistic, please refer to Thane Gustafson's "Crisis Amid Plenty," available e.g. via Amazon). The country had to dissolve due to its military expenditures sooner or later, as well as to other inefficiencies like the inability to produce an adequate amount of food. It is noteworthy that e.g. the food imports had to be paid for with hard cash, and the ruble was not convertible, so the USSR needed to earn pounds/dollars/DM via resource exports - so the Soviet peak in oil production should have and did hasten the Soviet demise. What we did say in our papers was simply that there was "Granger causality" between oil output and GDP - that is, the dynamics of GDP (i.e. first differences of GDP data, e.g. GDP(t)-GDP(t-1)) were better explained statistically by adding the lagged dynamics of oil output (i.e. Q(t-1)-Q(t-2), Q(t-2)-Q(t-3)) to the regression. Since the causality worked only from oil to GDP and not vice versa (the lagged oil production was helping explain the GDP series but the lagged GDP data didn't help explain the oil production data), we concluded that the oil production decline did CONTRIBUTE to the GDP decline - measuring the precise degree of contribution would require a much more detailed specification than just this simple Granger causality test. Unfortunately, Soviet economic data were meaningless - for instance, the farm machinery output was often measured in TONS of machines, not in value added - how do we compare tons of tractors with tons of lasers (the latter being a high value added good), for instance? So, all in all, peak oil did precede and hence HELP cause the GDP decline, but it was by no means a decisive factor. However, given the trouble with converting rubles into foreign currencies, the decline in the amount of exportable resources did hasten the collapse, given that the USSR was forced to import food from the West due to its inefficient agriculture, among other things.
Hope this helps.
Chris,
One more thing - I disagree that coal and gas were exclusively for domestic consumption. Germany, Poland and many other countries were heavily reliant on Soviet natural gas even under communism. Eastern Europe generally traded their industrial products for gas, and at below-market prices - however, a significant percentage of gas was exported to the West. Similarly, the USSR, Poland and other countries that were communist pre-1989 were exporting coal outside of the CMEA (communist) trading bloc - I know quite a bit about that, because I grew up in Poland and have spent the first 19 years of my life there. Apart from the fixed cost nature of the gas infrastructure that we discuss in the paper, it needs to be noted that the European gas market was disconnected from the rest of the world due to the still nascent LNG market - hence, a contributing factor to the oil decline was the collapse of its price in 1986, which did not happen in the case of the exportable Soviet gas due to the relative constancy of European gas demand.
Marek
The question is, no doubt, complex. My personal interpretation is that the slowdown and the peaking in oil production was a direct cause of the fall of the Soviet Union simply because it reduced the amount of foreign currency that was available to the government to purchase food and indispensable items from the West. That was helped by other inefficiencies of the Soviet government that generated plenty of negative feedbacks. Anyway, all that is of course debatable.
A good point that Chris makes is how to explain the precipitous drop in production after the peak. That is, indeed, much steeper than what you can see in the case of the US. I think it is another result of the negative feedbacks that occurred in the US but not in the SU (nice symmetric names!). Just one of these negative feedbacks could have been the "brain drain" that led a large number of Russian engineers and scientist to migrate to the West.
Ugo,
I think that since the US had a convertible currency (and in fact the world's "reserve" currency), importing the way out of the problem was feasible. Since nobody wanted rubles, Russia first had to earn dollars/pounds/DM by exporting the oil to then exchange the foreign currency for the needed items. Poland had similar problems - it needed to export coal to the West to earn convertible currencies with which it could for instance buy the needed electronics to equip its ships (built in the Gdansk and Szczecin shipyards) that it would then export. Poland was lacking adequate foreign currency reserves, so the government created two chains of stores (Pewex and Baltona) that would sell foreign goods with huge price markups, and those goods were available only in dollars. At a time that you could buy Levi's jeans for $20 in the US, they would cost $50 at those stores. The extra $30 would help the government rebuild their currency reserves. Any tourist visiting Poland was obliged by law to exchange $15 for Polish zlotys for each day of stay. There were countless other schemes that communist countries were coming up with to enable the imports of critical goods at a time when their own currencies weren't convertible - and of course they weren't due to those governments' own policies - if you don't allow the conversion from rubles or zlotys to dollars, then you can't expect the dollars to flow in if the foreigners can't expect their money to be available on demand in their own currency. So, trade and the aforementioned schemes were the only outlets for currency earnings.
That, as you point out, made a big difference. The other thing is that Russia's systemic transformation caused huge disruptions due to the need for the prices to adjust, the no longer needed heavy industry to close, etc. The 1991 collapse meant that the entire Soviet economy had to close shop and reopen in a totally different guise. Nobody needed more nuclear warheads, battleships and tanks - in a new market economy, people were expecting to be able to get, say, chocolate, meat or shoes, which were rationed under communism. I remember that when I was little (before 1989), my parents would get a ration coupon for 1 (one!) chocolate bar per month for me - anyone over the age of 16 wasn't able to get even one chocolate bar per month. Clearly, when the Soviet central planning collapsed and people were free to produce consumer goods rather than weapons, they chose to do the former - but when you had rusting equipment that could only manufacture AK-47's, then obviously you had to first melt it down and transform it into something else. The complete retooling of the economy took a long time.
Still, the Polish economy only suffered about 15 months of recession, while the Soviet economy was in the doldrums for over 5 years. The difference was that while the Polish law and institutions adjusted along with the "shock therapy" of the economy, Russia was mired in lawlessness and corruption for much longer. There, the economic "shock therapy" was applied without the institutions in place - and the mafia and the oligarchs gladly took advantage of that.
Note: by "trade" I of course meant natural resource exports - trade in consumer goods (which was extremely small) only happened within the CMEA (Council for Mutual Economic Assistance) bloc. Also, I obviously meant "former Soviet" economy when I referred to the slow post-collapse recovery of the FSU.
Yes, Marek, I think that this is exactly the point. The US could survive their national peak in 1970 because they had a convertible currency; they could pay oil in dollars and so they could simply gradually shift the supply from Texas from Saudi Arabia (just an example, oil comes to the US from many producing countries). Russia coulnd't do that. They would have had to pay the Saudi Arabian oil in dollars; but where would they get dollars? Up to then, they had gotten dollars from the sales of their own oil! Then, plenty of other problems with an economy that was so deeply focussed on heavy equipment; military and otherwise.
One last point - by "meaningless" Soviet economic data I mean that while GDP was a figure that could still be somehow recovered despite the price distortions (e.g. check out the work of the Penn World Table folks at UPenn who have spent their entire careers calculating PPP adjusted figures for about 120 of the world's countries), most disaggregate data were not available to augment the statistical analysis. So, the model may well be subject to omitted variable bias. Even so, the result agrees with our assumption that stems from the timing of the 1987 peak and the 1991 collapse of the USSR - also, the time series data were extensive enough that the conclusion of the Granger causality test indicates the direction of the causality both way before and after the dissolution of the USSR. As always, one wishes there were more data available.
I wish the US would go bankrupt like the old Soviet Union did, because the Blue states could then become independent of the Red states that keep voting in idiots like Bush/Cheney & now McCain/Romney.
That would actually be a dream come true. The end of imperialistic invasions of foreign countries, no more trying to police the world with arrogant banter, an end to all those dumb arguments about guns, right to choose, wearing or not wearing a flag pin, slippery slope, stem cells, fuzzy math, etc.
Just let each State become its own country and choose independently their own path. We really should take example from the Soviets and do everything we can to emulate its downfall. 9.5 trillion in debt is a good start. Let's give everyone 10,000 dollars and double the debt! Let's start a huge war with Iran and start the draft...
A good article and a good comment!
The article is a good comparison with Michael Gorbachev's petulance in the New York Times this morning:
http://www.nytimes.com/2008/08/20/opinion/20gorbachev.html?_r=1&ref=opin...
This is REALLY why the Soviet Union collapsed, mediocre politicians, living their own dream and to hell with reality. There was no other reason why the Soviets could not feed themselves but ideology. There was no reason for the Soviets to allow their infrastructure to deteriorate past the point of no return.
http://www.englishrussia.com/?p=315
I think the US and tbe Europeans lost a great opportunity in the early 90's to bring Russia into a European concord. A big reason this did not happen was because of the influence of defense industries that were threatened with a loss of European demand on one hand and an oversupply of ex-Soviet equipment on the other. Selling gear to new NATO countries has always been a priority ...
If only China could be wedged into NATO, somehow.
As for the comment, the best and easiest way for the US to solve its energy problems short term is to invade and conquer Venezuela. We would divide the country in two; keeping the oil part for ourselves and giving the rest over to Greenpeace for a nature preserve which would solve both the climate change and 'Chavez problems'.
Operation 'Go Green'!
Of course, we could better pull this off with conscription and an 'under the table deal' (Non- aggression pact?) with Putin regarding spheres of influence. Our sphere in Iraq is only so-so of a payoff for us. The Saudis and Iranians have not been intimidated as we hoped they would become ... but we can turn over the Middle East franchise to the Russians and focus on this hemisphere.
It would take little to overrun Canada and Mexico. We've invaded Mexico twice not counting Texas. The Canadians are NICE, they would be easier for us than the Georgians were to Putin. The great prize is Brazil, we could smash everything but the oil fields and the salsa. Heck, Brazil doesn't have much of a military. We ought to be able to knock that place over in six months.
'Operation Salsa'
I think dividing up the world into red and blue is a great idea. One for you and one for me! We Americans can all be 'Red' (How ironic!) and those who don't like it can leave it!
Salsa? Brasil?
Sorry. Salsa is a spanish word (not Brasilian/portuguese) for sauce, i.e., hot sauce.
Salsa dancing and music are caribbean, predominately Cuban.
That page is A-grade rubbish. That "main highway" to Yakutsk is many thousands of miles from the industrial world in remote Siberia. There has never been a proper road all the way because much of the terrain defies road construction - too marshy etc. All you can see from those photos is that someone had the bright idea to clear a trackway through the forest (which would serve for travel by tanks and large civil engineering vehicles). But then various ignorant people took a chance on driving their bog-standard, or more to the point, non-bog-standard cars along that treacherous route, with predictable consequences. Nothing to do with the general standard of RF roads (not that they're that much better, to be sure).
Invading us Canadians would be about the worst idea americans could come up with.
They've tried to do it on 3 seperate occasions before. Twice we stopped them, and once we beat them back so far we burned down the whitehouse (which was actually pink at the time and white was the only colour that would effectively cover up the char from the fire)
note the correct spelling of the word 'colour', eh!
I think something was left out of my US public school education. Please share a few details about these attempted invasions and the charred Pink House...
Greg,
"I think something was left out of my US public school education. " I'll bet, this is from wikipedia:
http://en.wikipedia.org/wiki/Burning_of_Washington
The attack was in retaliation for the U.S. invasion of York, Upper Canada (now Toronto, Ontario, Canada), at the Battle of York in 1813, in which U.S. forces looted and burned the city, including the Parliament Buildings of Upper Canada.
So two centuries later and not much change:-(
Thanks Tony. So much for the myth that America has never been invaded...
I thought it was common knowledge that America was invaded by hordes of cowboys, get-rich-quickists, and religious nuts, from England etc., and things haven't entirely changed since.
Yes, Canada has been invaded several times, and the attempts were all beat back...by the British, not Canadians. At the time, Canada was a region of the British Empire and people largely with British and French peoples, rather than a nation as it is now.
Still, invading Canada would most certainly be a mistake...maybe just Quebec.
Please, take Quebec.
Maybe we should just force Canada to take Texas instead :-).
"by the British, not Canadians." -- ?? At that time, there was no distinction whatever. It only became possible to be a Canadian after 1867. And you might still find Canada a prickley mouthful (just kidding).
Usa would not invade canada because it already own it. See NAFTA.
Usa never let an anti-american govt elected in canada or mexico. It never let these countries make an army that could be called an army. Heck pakistan has a stronger army than canada and mexico combined both conventionally and unconventionally (nukes) inspite of
(a) being a new country (got freedom from british in 1947)
(b) going through three wars with india in between 1947 and 1971
(c) losing half of its population and quarter of its area to india in 1971
(d) in constant threats of war from india, russia, afghanistan, iran etc
Heck, if it was Pakistan we would have blown off our natural resources with our own hands rather than becoming a slave to an aggressor because of it.
The canadians need to get awake from their "glorious" part (if its a glory to be a slave in british empire). Heck it was much easier for iraqis to fight americans in 1800s but modern warfare is a much different story.
We will be all right-we have all the smart Pakistanis living in Toronto-they can help us out.
(e) A per capita GDP that is 20% what Mexico has and 7% that of Canada.
Coincidence, I'm sure. It's not like foolish military spending ever crippled the economy of any other nations or anything.
I suggest you literally see NAFTA, as it's obvious you don't understand what it actually says. This has been covered before.
"slave in British Empire" ? AFAIK the Canadians were not slaves, British rule gave it the decency and freedom that it wouldn't have had if other empires ruled it.
The best fate to befall backward areas was to be taken overby the British (not perfect but much better than the alternatives).
The British changed their policy toward the remaining colonies after the Revolution. If the British had treated the Canadians after the Revolution the way they treated them before the Revolution, Canada would be part of America.
Instead they treated the Canadians the way they should have treated the Americans in the first place. The British can and have learned from experience. Contrast that with the American ability to learn from our mistakes...
maybe the "best fate" for the white people. Natives and imported slaves did not fare so well. The best fate for the "backward areas" would have been for the Europeans never to have shown up. But they did, and now the European invaders are in turn being invaded. Interesting world.
No, although the best fate was never to be invaded every part of africa and asia was invaded by another. So realistically the best choice was to be taken over by Britain ( which outlawed slavery 60 years before the US and 160 years before KSA).
As far as Europe now being invaded I regard that as somewhat racist (although true). Most of the "invaders" are ex empire (North Africa to France, Caribbean to UK etc) and make for a better society. My fear is the tolerant multicultural society will be destroyed in a helter skelter after TSHTF. Interesting world indeed.
Hey bigpatty!
Do you know how to spell "Canada" without using any vowels?
- C eh, N eh, D eh?
There is a certain sad logic to that rant. And maybe Gorbachev is being "petulant", although the article has been translated from Russian, and it's tone may be misleading.
However, assuming that steve is trying to be logical and not just a smart-ass, one can say that the lessons of history, for what they are worth, demonstrate conclusively that a bipolar (Red/Blue) world is unworkable. The inherent instability leads inevitably to the tragedy of the Gingham Dog and the Calico Cat
Time will tell whether Russian politicians have learned anything from the last century, but if they persist in following the U.S. path of hyper-capitalism (i.e. profit to current shareholders above all consideration of the economy, people or environment that the particular enterprise is embedded in) then we are all toast.
Anti-missile missiles in Poland enrich U.S. based "defense" enterprises. It is hard to see who else benefits-- even if they work, which is highly questionable. And if Russian "defense" contractors counter, as is likely, then the cold war starts all over again.
Poor world!
"then the cold war starts all over again" I thought everyone already knew that that's obviously the whole and only motivation for such a dumb provocation.
I hope you realize that the reason you are getting arrowed down on your comment is because you don't know the difference between Samba and Salsa. Hint, there ain't no Salsa in Brazil. Second hint there isn't an army in the world that would heed it's commanders if they told their soldiers to attack a Samba school. Trust me, a Samba school can lay down any modern army. Native Brazilian here...
http://www.youtube.com/watch?v=x4V38d_NCRk
Good luck invading Brazil, LOL!
3 - 0
You forgot to ship the girls to China.
LOL
They were busy defending our borders :-)
:-)
Sorry, 'operation desert salad' has already been taken and 'operation kick 'em in the nuts' ... well, the Pentagon doesn't like foul language ...
:)
"It would take little to overrun Canada and Mexico. We've invaded Mexico twice not counting Texas. The Canadians are NICE, they would be easier for us than the Georgians were to Putin."
Setting aside the fact that the USA does not have to invade Canada (we export the majority of our oil to them already, and the oilsands can't be developed any faster than they already are), there would be the same situation as in Iraq. Mission accomplished in a few weeks, then years of booby-trapped pipelines and highways, terrorists in Quebec making South Ossetia look like a walk in the park, ships unable to use the St. Lawrence Seaway to reach the Great Lakes because of the blown canal locks and costant sniper fire from thousands of kilometres of shoreline, etcetera. Since the majority of Canucks are white folk who look and talk just like Minnesotans or Dakotans, American counter-intelligence would have a hell of a time trying to sort the sheep from the goats. Also, like the Russians, we would just wait for winter to counterattack.
The majority of Canucks are white folk who look and talk just like Minnesotans or Dakotans
eh ?
Alan
Unfortunately, all that would result is that the nasty warlords of the red states would constantly be attempting to attack and conquer blue states. Imagine the warlord of Kentucky or Ohio deciding to take the Pennsylvania coal fields by conquest.
Not too unlike the Georgian attempts to keep South Ossetia and Abkhasia in line. Warlords never need good reasons. Or Stalin under the old USSR trying to keep everone in line.
Think China during the Warring States period.
Just could happen in a dark, doomer descent scenario.
Bush, the neocons, the hardcore Red Staters have a basic primitive tribal warlord view of the world. Nasty chimpanzees in suit and tie. Don't think they are civilized.
"Just let each State become its own country"
I wonder how many countries the US will split into?? Imagine say 15 countries with a nuclear capability:-(
Which of these would be considered rogue states? Perhaps the missile defences should be within the US? I have wondered for some time if the first nuclear war would be between Americans.
You would in that case bow down before the deadly arsenal yielded by that bastion of imperialism...Washington State?
The Bangor sub base has more nukes in stockpile than the non-FSU arsenal combined. Don't Mess With Cascadia!
Don't move there, either, unless your idea of idyllic surroundings includes being a Primary target.
Go Cascadia!
Could we get the Puget Regiment of the Cascadia Army out to Spokane to suppress the Far-Right Wingnuts please? Spoklahoma here we come. Or is it Spokanistan?
Here is a fact most folks who have lived all over the usa Know...we are in about 5 different counties RIGHT NOW.
There is one helluva lot of difference between Georgia and Washington state,or Michigan and South Carolina....call it 'regionalism' ,it exists Big time.
You assume, of course, that Bush and Cheney were elected. They were not elected in 2000, where the election outcome was effectively decided by Jeb Bush, Dubya's brother, and the US Supreme Court; nor were they elected in 2004, where the election was decided in Ohio, with numerous allegations of vote-stealing, amongst other matters (see http://en.wikipedia.org/wiki/2004_United_States_election_voting_controve...).
Moreover, you assume that Red vs Blue is a dichotomy, that Red and Blue, like Republican and Democrat, are opposites. They aren't. Both receive major monetary support from the same groups of corporate interests. The differences in policy are minuscule, as a close examination of the actual policy decisions and votes of both Obama and McCain will reveal. Obama is heavily supported by the coal and nuclear industries, while McCain is an oil and gas man. Both of them are against single-payer health care, both are for continuing the status quo with third-party insurance... and so on. The sole difference between the two is that Obama is young and half-black and McCain is old and white.
According to Greg Palast, the US didn´t vote the Republicans into office. The elections were stolen via voter purges in several states. I don´t think having Democrats in office would have changed the oil picture very much. As far as states acting as independent entities, I think there would be a lot of chaos. Northern Californian´s may want to split from Southern California. There are other examples as well. Mining states could band together and with the electric companies set new rates by themselves for energy export to other states. The pollution would be immense. But it might be a good way to downsize the military industial complex.
It would seem to me that developing a better relationship with Russia would be in the interests of the US, which is why it all the more perplexing that we would be egging them on in Georgia.
By we, you mean Bush, Cheney, and McCain?
You confuse the interests of the US with the short term interests of individual politicians. One train of thought is that reviving the cold war allows John McCain to make bellicose speeches about defending American interests from Russian attack. Note that the Georgian lobbyist in the US took a leave of absence this spring from that job to work on John McCain's campaign. Also Karl Rove was "vacationing" in the area recently. Note also that most of the media focus on the Russian aggression and not on the fact that Georgia started this with their attack. Not to go down this path too far as it is off topic but just backing up my point.
Everyone, esp. US citizens, should re-read the prior post until they understand it, then start re-viewing world events in that light.
We (my idea, Khebab's hard work) constructed a simple logistic (HL) model for Russia. We used the production data through 1984 to predict post-1984 production. Their post-1984 cumulative production, through 2004, was 95% of what the model predicted it would be. In other words, they were underproduced as of 2004. In January, 2006, using this methodology, I predicted that Russia would resume their production decline within one to two years, and their production is presently declining.
A similar exercise for the US Lower 48 (using production data through 1970 to construct the model) was 99% accurate in predicting post-1970 Lower 48 cumulative production.
And two examples of regions--developed by private companies, using the best available technology, with virtually no restrictions on drilling-- that have peaked:
Westexas,
what do you mean by "underproduced". Did they produce below full capacity?
What I always found impressive is that the Russian production curve looks like a camel-shaped set of two interfering perfect Hubbert curves. A Hubbert-shaped production curve normally results from a permanent production at full capacity - unlike the rugged shapes resulting from political turmoil like in the gulf states.
So I am rather amazed how Russia managed to maintain a rather steady (although declining) production despite the sometimes chaotic situation after the breakdown of the SU - or if this did add to the decline but is not distinctly visible in the production curve.
I think that the rebound was largely making up for oil that was not produced following the collapse of the Soviet Union. The red line in the following graph was generated using the linear data though 1984:
http://graphoilogy.blogspot.com/2007/06/in-defense-of-hubbert-linearizat...
And here is our (Khebab/Brown) middle case for Russian net oil exports (total liquids, initial 10 year decline rate shown):
http://graphoilogy.blogspot.com/2008/01/quantitative-assessment-of-futur...
Hi Westexas:
Has there been a comprehensive geological survery of East Siberia to determine "what is out there?" I have googled and found little information on proven or probable reserves there. The amount of oil in the 200 miles(offshore) of the artic Russia can claim is also a mystery, inspite of the recent USGS Artic survery. However both regions face serious logistical/infrastructure hurdles as thoroughly explored in various threads on TOD. Here is an article where you can see just how difficult it is:
http://www.asianewsnet.net/news.php?id=846&sec=2&t=805
a 3.7 billion barrel offshore(kamchatka) field developement license was not extended due to failure of the parties to start exploratory drilling on time. The reason "inability to find a drill ship."
Dan
I agree that oil production from frontier basins is the wild card for Russia. However, offsetting this is the fact that based on our mathematical modeling their mature basins are at an advanced stage of depletion. My guess is that the frontier basins in Russia are to Russia as Alaska was to the US. Alaska helped, but it was no panacea.
Also, it never hurts to remember Hubbert's original work, in 1956. He found that a one-third increase in estimated URR for the Lower 48, from 150 Gb to 200 Gb, or 50 Gb (the equivalent of four Prudhoe Bays) only postponed the projected peak by five years.
What most people are in effect asking is, isn't there some way that we can maintain an infinite rate of increase in our consumption of a finite fossil fuel resource base? I suspect that the answer to this question is no.
(1) Adam Smith + infinite fossil energy = ecological collapse of Earth
(2) Adam Smith + finite fossil energy = collapse of human population
Since (1) wipes out most humans anyway, I am hoping for (2).
yep, looks like we need to go down to about 800 million. i hear they are getting up a load for the excess now. Are you interested? Beat the rush. i will join a later group. Seriously i hope this thing happens quick. "Life" would be a wonderful, dynamic, and divine thing without humans. If the crash is delayed, much of life will be destroyed as we humans burn every tree, bush and blade of grass in our quest to survive.
It's worth noting that that data is most likely for the Soviet Union as a whole, rather than for Russia alone. See here for EIA C+C production data.
In 1992 (the first year disaggregated data is given), Russia produced 89% of the former-USSR's oil. Accordingly, non-Russian production was likely to have been substantial four years earlier (1988) when Soviet production hit its peak. Since 1987-1988 was the only time Soviet production was over 12Mb/d - and since your chart shows production over 12Mb/d during that period - it's difficult to believe that the chart shows only Russian production in 1988. For that to be true, production in Azerbaijan, Kazakhstan, etc. would have had to rise from nearly-zero in 1988 to almost 1Mb/d in 1992, even though their production was falling in 1992, and remained below that level until 1996.
It's virtually certain that your pre-1992 data is for the whole USSR, not Russia. Unless you have a reference to data showing that meteoric rise in oil production from other Soviet states?
Given that, and given that former-USSR production has been 20% higher than Russia-alone's production since 1992, it would seem that the curve is not such a good fit. Since the start of 2006 when you mentioned Russia had "caught up" in production, Russia has produced 12Gb; add in the 8Gb from the rest of the former USSR since 1992, and the former USSR is about 20Gb past the "caught up" level, or about 10% of the calculated URR.
That doesn't materially change the overall problem of constrained oil supplies, of course. It just suggests that Hubbert Linearization may not be an entirely reliable method for regions such as the USSR which have had unusual production history.
Here is Khebab's list of the data sources he used:
In any case, in my January, 2006 post, where I introduced the ELM, I noted that the top three net oil exporters at the time--Saudi Arabia, Russia and Norway, accounting for about 40% of world net oil exports--were (based on HL) much more depleted than the overall world was. If you throw in some rising consumption, it seemed to me that we were on the verge of a permanent decline in net oil exports. As of January, 2006, we only had partial data for 2005. Here are the EIA net export numbers for the top three (mbpd), with year over year rate of change:
2004: 18.1 (+5.1/year)
2005: 18.7 (+3.3%/year)
2006: 17.9 (-4.3%/year)
2007: 17.2 (-4.0%/year)
Of course, Saudi Arabia, in 2008, is showing a year over year increase in net exports, while Russia is showing a decline, but I estimate that Saudi Arabia's net exports in 2008 will be on the order of 8.4 mbpd, versus their 2005 rate of 9.1 mbpd. We shall see what happens in 2009.
You've just proved my point.
That image shows that the picture you used above is the EIA C+C for the entire USSR, and not for Russia alone. Anyone can compare those two curves and see this for themselves.
Russia-only production was significantly (~1Mb/d) lower than whole-USSR production from the moment it first appears as its own data curve (~1985), which is exactly what I was saying based on the EIA data.
Based on the differences between the "all data sets" picture and the "composite" picture, non-Russian production seems to have suddenly added about 0.8Mb/d in the 2-3 years before the start of the "BP Russia" dataset. For exactly the same reasons I inferred (correctly) that a rapid increase of that sort had not happened in the years immediately prior to 1992, it's highly unlikely that such a rapid increase would have occurred in those years. Accordingly, it seems very likely that your composite picture is under-counting non-Russian production in 1984 - it seems to be counted as about 0.2Mb/d, increasing to 1.0Mb/d in ~1986, which is improbable.
Given that, it's extremely likely that the HL for Russia is much closer to a HL for the FSU, and hence has strongly under-predicted.
Utterly irrelevant to the current discussion. The question is whether the data used for the Russia HL is accurate, and hence whether HL is reliable.
It's a good point that net exports are important, but that doesn't mean they're the answer to every question.
I read somewhere an article by someone that the big contribution of the oligarchs towards increasing Russian oil production was their ability to import steel pipes that could go below 3000 metres. During the communist era, the oil industry had to make do with low quality steel pipes and so were not able to go deep.
I tried for a while to find a reference to this article but was unable to find it. If anyone else remembers it, perhaps they will be luckier than me.
A lot of comments on TOD and elsewhere seem to be written by people who believe that force will solve problems or who have some other sort of personal problem. This message is intended as an antidote to that line of thought.
This summer, I took a little time off and went to Russia with my family. I was not there on business. We had a great time and we only mixed with Russian people - mostly my wife's family and friends. We had no dealings with expatriates or other foreigners.
I would like to confirm that Russia has changed very much for the better over the years. Perhaps not better for foreigners who want to rip off the locals but certainly better for the great majority of the indigenous population. I visited Russia very infrequently in the 1970's, the 1980's and the 1990's and so have something to base my opinion on.
I have put some general photos on one of my site so that others may see what it was like during this month of July from my, very limited, perspective.
Click the photo for more.
Alfred, nice pics but as you say, very limited perspective. you there show tourist /urban centres. Meanwhile, out of range of your (and others') cameras, loads of whole villages are rotting and depopulating! Commercialisation and de-localisation have obviously been increasing as has previously been doing in the UK. But what is the overall picture?
Anyway, it's good to see someone who is free from the delusion that their visiting 0.00x percent of the streets and people of a country qualifies them to speak with definitive expertise about the whole!
This may be the same analysis but Ugo's graph looks a lot like the one here:
http://mobjectivist.blogspot.com/2005/10/uk-north-sea-simulation.html
which models North Sea Oil (using the original shock model). In that case, WebHubbleTelescope (westexas?) attributed the double peak to an enhanced extraction rate following a shock (the Piper Alpha fire).
I'd be shocked (ok, sorry 'bout that) if Ugo's double peak didn't have a very similar explanation (in fact, I'm pretty sure that's what he's saying). If so, note what happens to the rate of decline following an interval of enhanced extraction.
(as always, the area under the curve has to be fixed).
I'd like to here commit the offence of questioning whether the earth is spherical (hint, heh).
Surely the area under the curve - if that is the ultimately recovereD amount - depends on how much money and effort people are willing to invest in that recovering. For instance if the human race was such that it couldn't be bothered with any oil that cost more than $80 or needing deepwater drilling or going off to the arctic, then that area under the curve would now be complete.
There are certainly a raft of complexities that I am wholly unable to help you with -- but here's something kind of cool and kind of relevant that occurred to me once I was told the answer by WebHubbleTelescope and Khebab and and all the others:
Suppose that the amount of oil is NOT finite. I've seen reserve growth curves fit by a sideways parabola. I think that this is what is called parabolic growth, but it's really: reserves ~ t^(0.5). (Reserves grow as square root of time). Note that the upper limit of this is infinite. (So if you believe this, there's an infinite supply of oil). Note that if the demand is fixed, then the production/consumption is linear in time: production ~ t. (And if demand increases, whether through increased population or more iPods or whatever, the production ~ t^a, where a > 1). The difference between reserves and production is whats left. So if you plot R - P ~ (t^0.5 - t) you have a function that increases initially (as the square root dominates) and then peaks, turns around and goes to zero. So even with an infinite supply of oil, we still run out if we don't find it all fast enough to keep up with consumption.
Russia may not be facing a second collapse.
You wisely qualify this with:
Short term perspectives look bright for Russia.
The second may be true, but I doubt that Russia will escape longer term calamity because I doubt that anyone will escape it.
I doubt that nuclear, wind or any combination of alternative fuels can make up for oil and NG, especially oil, perfect as it is for transportation. The world economy is more than anything else dependent on transport.
I doubt that nuclear can be sustained without the worldwide industrial infrastructure. Therefore I doubt that industrial autarky is possible, even though Russia is richer than most countries in many of the resources fundamental to industrialism. Even on a human basis, 140 million is too small for technological and industrial autarky.
Needless to say, I can prove none of the above.
The world economy sure is. Fortunately you can synthesize gasoline, diesel, and other liquid hydrocarbons from coal, and when that runs low, any carbon and hydrogen source.
And nuclear power (or solar or wind for that matter) can produce more than enough hydrogen to provide 100 million barrels per day of oil equivelant the world will be thirsting for.
In the short run however, that shortfall will be made up by indirect coal liquefaction, then coal hydrogenation.
I disagree, because the US managed to start the program with no international support during the middle of a world war with far less advanced technology at the time. However its an experiement we'll never have to perform, seeing worldwide industrial infrastructure isn't going away.
A misleading rejoinder because the USA required its national industrial infrastructure to create nuclear power. If it was at the level of an agrarian society the US would not have managed to manufacture a nuclear bomb.And what makes you say that the international industrial infrastructure will continue in existence without its fossil fuel base, and without petrochemicals?
Because all the products of the fossil fuel base can be synthesized by nuclear powered hydrogen generation.
It could, but why would we want to do that?
Synthesizing hydrocarbons using electrolyzed hydrogen will be maybe 25% efficient, and then at best 16% efficient when burned in a car; contrast that 4% efficiency to the ~80% efficiency of an electric car.
Virtually all personal ground transport can be handled via EVs/PHEVs/electric rail, and it seems likely that a 20:1 fuel price differential will push many people towards those technologies rather than ICEs fueled by synthesized hydrocarbons.
I certainly dont think there isn't going to be a significant rise in electric powered transportation, but I also suspect this will only slow the growth of demand of liquid hydrocarbon fuels; There are many areas where electric powered transportation just cant compete against liquid hydrocarbon fuels.
The US could reduce its oil usage by 5 mbpd just by reducing vehicle weight. The question is, would the US rather collapse, or start driving more economical vehicles like the $2500 Tata car or the $1000 Hardknock Bobber? That's all it comes down to. The future of the entire world rests on how long it takes Americans to swallow their pride. Since Americans clearly dont want to be educated or informed, then they must accept the 3rd world status that comes with apathy and ignorance. If they can swallow their pride before starting world war 3, then good things might happen. But I would not hold much hope for avoiding WW3 given the fact that the majority of the most influential americans still deny the fact that the government has gone completely rogue. They just cant accept that the people who really control this government are willing to do anything, including staging terror attacks, to continue the mass looting until America is just a dry husk.
The $640 Obviously refers to a monthly salary not an annual one. And yes it has to be more than that now. probably closer to $1000 per month. Neighbouring Poland has an average salary of about 3500PLN per month which translates to about $1700US.
Correct. I added the world "monthly" to the text. Thanks for noting this point. And, I am sure that you are right. The average Russian salary now must be in the range of $1000 per month.
Very interesting article!
If Russia is facing another peak in oil production, it seems like this would push them in the direction of what they can do to better their energy position--in particular, make certain they, and not the US, can get the exports of oil and gas from the FSU countries. These imports will allow them to hold on longer and exert more influence over the rest of the energy-starved world. I almost wonder why they waited this long to start trying to take a more dominant position.
The late L. F. Buz Ivanhoe on Russia (Former USSR) 1998. I was told that Dr. Walter Youngquist provided editorial assistance.
http://hubbert.mines.edu 98-3
http://hubbert.mines.edu/news/Ivanhoe_98-3.pdf
Thank you Ugo for this article!
I am in the position to see the enormous amount of stuff that goes into Russia on a daily basis. On the Finnish-Russian border there are often 20 -60 km of containers waiting to go to Russia, full of flatscreen TVs and other luxuries.
Lots of used SUVs, limos, trucks and exotic sportcars are imported mainly from USA (Subprime crisis, anyone.. )and Germany and of course new cars from all the major car makers.
I think that “President” Putin has made a great job developing Russia to a state that it is now, from their point of view.
My main concerns with the Russian economy is their bankingsystem (as in the whole world), corruption and their ethnic problems. The Russians want to get the American lifestyle fast, extremely large houses, monster SUVs etc, exactly like the USA before the subprimecrisis, I think…
Russia is a huge country and the above mentioned trend is valid in the larger cities, but the countryside is probably a bit different…
A lot of the 'used' SUVs limos, trucks still have original legal owners who would very much like to be still using them!
On the contrary, those former owners -- fully insured for loss because the bank still owned their SUVs -- were fortunate to get blue-book replacement value for their dinosaur vehicles.
A few years ago I had a neighbor who had his SUV stolen. Later he did get the thing back - I joked that considering the gas prices, he was probably more upset about getting it back than he was about having it stolen in the first place (this was when gas prices were just starting the climb).
Yepp, Poland bought the famous F-16's which had problems to fly to Poland and are having operational problems while in use here in Poland. This was big news a few weeks ago. Explanation, software modifications.
Now Poland is all set to buy in the future more Patriot missiles which are to be used to protect Polish cities. Guess the villagers will not have to worry as they will be under the defense umbrella. :-(
What is more interesting is that those same villagers (at least the ones I met) are not happy that the politician in Warsaw are doing all this.
Business is business :-)
Russia's advantage is that there is a relatively small (and quickly shrinking) population in a huge area. So they have for example huge amounts of forest biomass, which they can (and probably will) burn or turn to biofuels. But I fear this won't be enough to avoid the downturn:
...nor other sustainable technologies. Russia's disadvantage is, that not only due to socialism but also due to their abundance in natural resources they didn't care much about energy efficiency. In socialist times energy efficiency in the east block countries was at a catastrophic level compared to western europe. Meanwhile it has improved considerably (parly due to factory closures) but is still much worse than in the western EU.
Well, this actually reminds me to the situation in the US - with the difference that the "improving phase" still has to start. If it doesnt quickly the story of the SU system may repeat in the US:
Yes, drillo, on this point I tend to agree with Orlov. The US is not prepared for a shrinking in the energy supply, to say nothing about a possible economic collapse. In many ways, Russia is not very energy efficient in comparison to Western Europe, but in comparison to the US, gosh.....
Another interesting post; thanks Ugo.
This years Russian grain harvest is likely well up on last year. Also Ukraine expects biggest harvest for 10 years. We might expect some relief in internationally traded grain market that could alleviate trouble caused (75%?) mainly by US biofuels over last 2 years.
Dimitri Orlov could be a touch simplistic about 'feeding Russia' before and during SU collapse. I was involved with Polish seed potato industry (absolutely huge) before collapse. It certainly collapsed, as it did in Baltic States. Modern farming & its logistics structures seem very susceptible to organizational and resource disruption (via markets or other mechanisms).
Heartland Farms chief agronomist, Victor Nageyev, said: "Russia has this black soil - it's another resource just like oil and gas. The land, plus new technologies, should make Russia a world leader again in grain production and exports. Just like it was at the beginning of last century."
http://news.sky.com/skynews/Home/World-News/Sky-World-Food-Day-How-Russi...
In this regard it is interesting to note that global warming (at least in case average temperature rise remains under 3 degrees Celsius)is likely to result in improved yields of wheat and corn in Russia.
Ah, but what happens to precipitation? There's the rub. Certainly, it is not established that the southern Canadian Prairies (the prime grain growing regions) will see an increase in precipitation sufficient to balance out the increase in evapotranspiration from the temperature increase. In fact, the opposite could occur. I'm guessing that southern Russia is in a similar situation.
See: An impending water crisis in Canada’s western prairie provinces
D. W. Schindler*† and W. F. Donahue‡ in Proceedings of the National Academy of Sciences 2006
www.pnas.org/cgi/doi/10.1073/pnas.0601568103
Russia reiterates today that its oil production will stagnate by 2011:
“MOSCOW, Aug 21 (Reuters) - Russian oil output growth is unlikely to exceed 2.2 percent next year and will slow to under 1 percent by 2011, the government said on Thursday, confirming earlier forecasts of a slowdown in production growth.
Falling oil production in Russia, the world's second-largest crude exporter after Saudi Arabia, has become a major concern for the government, which relies heavily on export revenues.”
Link:
http://www.guardian.co.uk/business/feedarticle/7741791
However considering they expected an increase this year and they got a decrease, I am not even sure they can show slow growth over the next 2 years, and meanwhile their exports continue to plummet.
Regards,
Nawar
The 'peak' in the production graph only gives half the story -what would be really useful to see is a graph of time vs (NET Exports x Oil price): this would probably show a dramatic mid 1980s falloff that effectively starved the USSR of capital...
In addition stretching into the future we would probably see the stage1/2 of JB/Ks ELM kicking in b4 a final plunge to zero towards the end of the next decade. So for a short time the 2010s may seem like 'The Russian Decade' (especially if post PO/2012 The US is in a severe re/depression)
Regards, Nick.
especially if post PO/2012 The US is in a severe re/depression
Repression? Absolutely, we will have that.
The prison industry will continue its healthy growth under Pres. McCain, until the inmates, still getting 3 hots and a cot, start to be envied by those on the outside.
It wasnt any amount of investment that caused OPEC nations to inflate their reserves by over 20% (which you failed to even mention). No way. That was a political decision through and through. By inflating their reserves they were able to raise their quota and flood the market and drive down prices. Because the price of oil was so low, the Soviet Union could no longer continue to increase production. This resulted in the politically induced premature peak you see on that chart above. Collapse followed in short order.
Because the first "peak" was premature and a result of manipulation and political issues rather than geological constraints, it is no surprise that Russia has been able to increase production so dramatically in the last decade. In fact, there is no other way to explain how they were able to do this. If they had hit their true geological peak in 1987-1988, they would not be producing anywhere near the 10mbpd they are producing now.
I would estimate that if the USSR was allowed to continue until Russia reached its natural geological peak, then that peak would have occured sometime around 1995. (Russia, not the USSR.)
This is a very interesting comment!
This may the missing link to explain the camel-shape of Russia's production curve. How about this mechanism:
Until the early 80s Russia produced at full capacity, resulting in a smooth production rise (the slowing near 1980 might be first indications of increasing geological constraints). When oil prices dropped in the early 1980s and many new projects became uneconomic russia rapidly reduced or even stopped new projects, resulting in the rapid decline, which again formed a smooth curve. Near 2000 (almost anticipating the rising oil price?) new production picked up again, resulting in the second smooth curve.
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Interesting article - thanks Ugo.
For those interested in Russian production Dave Cohen gave a fairly comprehensive review on TOD a couple of years ago.
With roughly 20 years of hydrocarbon exports, an unmentioned asset Russia has WRT the need to change energy paradigms is TIME. What remains to be seen is whether Russia's statespeople have the WISDOM to use that time, or if they'll waste it like US leadership did. And even after 20 years of exports, Russia will still have very large amounts of oil and gas to use for its change over to a totally electrified energy paradigm, which again is something NO Western country has available. Some have said a new Cold War has started and assume that includes a new arms-race. I think such analysis is very faulty, as it's quite clear the US is in the process of bankrupting itself, which means Russia need only wait for/help along the US implosion. What will become the new "arms-race" is the competition to construct the new all-electric planet and star driven energy paradigm. Again, the Russians have the advantage of TIME, whereas hydrocarbon importing countries clearly can no longer DELAY their efforts to adapt to the Energy Paradigm Change.
One thing Russia has going for it heading into the second decline is that its population is also declining which will mean less demand for resources in the long run.
For some odd reason people see the declining population in Russia and Europe as a bad thing, but it is one of the best things going in the face of resource decline.
It is not really declining populations that are seen as the problem, it is the very fast rate of decline in some areas, with birth rates which halve population cohorts over a generation.
The fact is that our economy is set up for growth, and managing economies which are continually shrinking will be tricky, before you start worrying about reduced resources.
There is a discussion on the issues here:
http://demographymatters.blogspot.com/
demography.matters.blog
Here is what Russian finance minister siad just two dyas ago, in Russian:
http://newsru.com/russia/17aug2008/kudrin.html
Translating most relevant paragraphs:
2008 was a year in which oil and gas profits have peaked. There will be a period after that, in which we need to be more savvy in how we grow our spending.
By his estimates, profits will fall from 8.8% of GDP to 3.2% of GDP by 2023. Oil and gas sector will grow at rates lower then overall GDP. This trend will not change, even if oil price will stay within 150-200$/barrel.
He said, critical factor is a change in oil and gas reserves. "Many old fields will be taken out of production, and new fields coming on line, even most expediently, will be able to only replace and may be grow production a little bit".
Your point of declining profits as % of GDP poses a question: What/How will Russia use its energy profits to strengthen itself financially? I suggest Russia demand rubles for its hydrocarbons. This would further build its foreign exchange reserve and diversify it at the same time. I also expect some synergy between Russia, China and the GCC, with Iran likely too. Asian heavy energy importers like India, Japan, Korea, etc., also expect to utilize Russian hydrocarbons; so it's not just Europe that relys upon Russia. But regarding the point I make above, eventually the exports will cease and the importers are likely to be in poor shape unless they use the time to lay the foundation for the new energy paradigm. Russia has a chance to turn around a lot of historical emnity heaped on it by the West by becoming a strong leader on the path to the all electric energy paradigm that MUST follow the depletion of fossil fuels. The Saudis had a chance this past summer to admit to the fact of Peak Oil to explain their behavior but chose not to. Russia ought to announce the reason for its decline in oil extraction is Peak Oil, speak of Peak Gas's reality, and attempt to reason with its clients for reasonably priced contracts.
I think the article and comments seem to gloss over one of the most important issues related to Russian oil industry collapse and recovery. IMO the free market and Western technology were the main factors behind their rapid recovery. Problem is, Russia has been slipping away from a free market in the petroleum industry for several years now. Only an idiot would invest money there since everything is now being nationalized by Putin & Co. And, big surprise, their oil production is now leveling off again. Politically it doesn't appear things will change either, which is bad news for their future production. People never seem to realize that protection of property rights is the foundation of a sound economy.
Free market is, indeed, a point. According to Reynolds, the higher willingness of investors of taking risks in a free market has been one of the factors in boosting production a second time in Russia. That I briefly mentioned in the article.
About, Western technology, also it may have been a point, but I am not sure. In my experience in other fields, Russian technology was not less advanced than the Western one, Just, they didn't have the financial resources to develop their technologies into practical profit-making processes. Was the Russian oil industry really so behind the Western one that importing Western technology made a difference? I don't know. Maybe somebody more expert than me can comment?
glenn2:Sadly American gov is attacking individual property rights on all fronts also.They have severely
weakened the "Magna Carta" by eliminating the need
to argue "eminent domain" for public good.Now a Walmart can cause (thru property condemnation) a person to lose their rights to ownership of land.I wont attempt to show where rights to privacy or rights to liberty and legal representation or cause for arrest and detainment has been tossed out the window.Now any person in America can be detained indefinately for any cause or no cause at all and never be charged with a crime.Habeas corpus is gone in America as is the Posse Comitatus Act.Please know I am a concerned American living in America and all I
have stated is absolutey factual.I dont feel it necessary to give links from dot.gov sources as its
common knowledge.
Outside of thread topic-Fannie mae and Freddie mac are
quasi gov orgs who make private profits but make
public losses which has caused the fiat money crisis
and dollar instability that has further fluctuated the
price of fossil fuels and muddied the waters quite a
bit.
I strangely understand it all,but lack the ability to
communicate it effectively.
Glenn,
Why does Russia need NOCs when they can contract Schlumberger or even domestic oil service companies. The introduction of 3D seismic imaging has been a boon to some fields, but Russian technology was more advanced than Western Technology in some areas. BP paid between 5-6 billion for a stake of TNK they have earned 5 billion in the first half of 2008 alone. In 2006 they earned 6 billion. They probably have cumulative profits of 18-22 billion over 5 years, lot cheaper to contract Schlumberger don't you think?
Dan
I have two objections concerning Granger causality:
1. According to Wikipedia "Granger causality does not imply true causality. If both X and Y are driven by a common third process, but with a different lag, there would be Granger causality." Wikipedia doesn't cite any references but I think this is just plain logic.
2. As Dave Rutledge shows on page 39 of his powerpoint slides there was also a significant slump in coal production after 1988. It is higly improbable that there was a geological peak of coal and oil at the same time. Rather the SU's political and economical problems did influence the output of oil and coal mining.
In total there was probably a more complex mutual feedback of oil <-> economy.
Regarding this comment:
"Because all the products of the fossil fuel base can be synthesized by nuclear powered hydrogen generation."
I was not aware that this was the case, assuming this comment is true.
We could produce our petrochemicals and agricultural chemicals from hydrogen?
If so, then hydrogen has a bigger future than I would have thought.
I still firmly believe it has very little future as a fuel, and I believe most students of the energy issue have come to the same conclusion. All the recent books I have read on future energy sources have pointed out that hydrogen has severe flaws as an energy source.
1). The end-to-end efficiency of producing, transporting, and consuming hydrogen as a fuel is extremely low.
2). It is a lousy energy carrier, because it must be transported and stored at very high pressures.
But if hydrogen can produce the chemicals we now get from fossil fuels, perhaps it has more niches than I gave it credit for.