Drumbeat: April 4, 2009

Refineries will have to cut production, says Merrill

Refineries will have to substantially under utilise their capacity in 2009 as demand for petrol, diesel and other refined product subsides, Bank of America subsidiary Merrill Lynch has said in its new report.

Interestingly, the countries that will suffer due to this are not the oil producing states.

Merrill Lynch said the refineries in countries like India, China, the United States and Vietnam in 2009, many of them government run, will bear the brunt of low profits on refined crude.

GOP alternative budget includes energy steps

US House Republicans included an "all of the above" energy strategy in their alternative federal budget, according to the Natural Resources Committee's ranking minority member.

The approach represents a dramatic contrast to the new oil and gas and other taxes and fees in the Obama administration's fiscal 2010 budget request, Doc Hastings (R-Wash.) maintained.

Australia: Big Oil under attack in parliamentary push to cut petrol costs

TWO renegade senators are drafting laws that will guarantee cheaper petrol prices and allow smaller chains to compete with the big oil companies.

Queensland senator Barnaby Joyce and South Australian Independent Nick Xenophon will introduce a Bill next month that outlaws geographic price discrimination - whereby big oil companies undersell petrol to drive out independents.

Caribbean Ship Rates Fall 43% in Week on Low Demand

(Bloomberg) -- The cost to transport crude oil from the Caribbean on Aframax tankers fell 43 percent this week as the supply of ships available for charter exceeded demand.

Saudi foreign assets dip by SR59bn

Saudi Arabia's foreign assets plunged by around SR59 billion (Dh58.4bn) in the first two months of this year to reverse a rapid growth during the oil boom of the last seven years, official figures showed yesterday.

Although the world's oil powerhouse recorded its highest budget surplus in 2008, the foreign assets of its central bank plunged to nearly SR16,50.58bn at the end of February from SR1,709.99bn at the end of December, showed the figures by the Saudi Arabian Monetary Agency (Sama), which controls those assets.

Is White the New Green?

Three California energy experts make a convincing — and sincere — case that painting roofs white in the hot parts of the planet could offset the greenhouse gas woes caused by the world's cars.

Americans Support Wide Array of Proposed Energy Policies, but Not Yet Ready to Make Tradeoffs

NEW YORK – Despite partisan debate, the American people find common ground on their support for a number of measures to address the nation’s energy problems. At least 10 major energy proposals that would provide incentives for energy efficiency, reduce gasoline usage and support alternative energy have widespread support. But the public may not yet be prepared for the tradeoffs and challenges needed to make these proposals a reality, according to a new survey, “The Energy Learning CurveTM,” released today by Public Agenda, the nonpartisan opinion research and citizen engagement organization.

The study, based on an in-depth national survey of 1,001 Americans, is being released in conjunction with “Planet Forward,” an innovative web-to-television-to-web initiative produced by the Public Affairs Project of The George Washington University, designed to advance the discussion on energy and climate change with both citizens and leaders submitting their ideas. Additional findings from the survey will be released on the Planet Forward television premiere, scheduled for 8 p.m. on April 15 on PBS (check local listings for exact show times in your area).

U.S. Backing Of Auto Warranties May Hinder Push For EPA To Back E15

The Obama administration's pledge to back warranties for new General Motors and Chrysler vehicles if the companies go bankrupt may hinder a pending petition asking EPA to raise the level of ethanol in gasoline from 10 percent (E10) to E15 because it could increase potential liabilities stemming from engine damage due to the new fuel blend, opponents of the E15 effort say.

Behind the Climate Skepticism Curtain: The Koch Family and the Cato Institute

The name of huge oil conglomerate Koch Industries didn’t appear anywhere on the ad the Cato Institute placed in the The Washington Post and other major papers Monday and over the weekend. But the ad — which questioned existing science on climate change — has Koch’s imprint all over it.

Kjell Aleklett: Not enough oil for the G20 package

The world’s wealthiest nations, the G20 group, have decided to light a fire but have forgotten a very important detail – to check whether there is sufficient fuel to enable the fire to burn. Historically we have never had global economic growth without a simultaneous increase in the use of energy. This means, primarily, an increase in the use of fossil fuels. For a few nations – China, USA, Russia, India, Australia and South Africa – coal is a very important fuel. However, the most important fuel for the world economy is oil. All nations of the world use oil.

George Monbiot: G20 forgets the environment

Climate breakdown, peak oil and resource depletion all dwarf the financial crisis in financial and humanitarian terms.

Climate change the biggest loser of G20 summit, warn environmental groups

The $1.1 trillion stimulus package agreed by G20 leaders yesterday risks locking the world into a high-carbon economy in which greenhouse gas emissions continue to rise, environmental groups have warned.

Closing the Straits of Hormuz and the Effects on Oil Prices

For many years, we in the West have worried about Iran closing the Straits of Hormuz to oil tanker traffic. An abrupt closure would instantly spike oil prices well into three-digits, and immediately change the energy equation of the world. Indeed, many geostrategic scholars believe that closing the Straits of Hormuz would be tantamount to an act of war.

But what if it was the US that closed the Straits of Hormuz? What would the world think if the US directly precipitated the end of ship traffic in the Straits, or at least severe restrictions on transit and passage?

Barnett Shale Impact Forecast to Be 40% Lower in 2009

The economic impact of the Barnett Shale on the Tarrant-area economy is expected to drop about 40 percent in 2009 compared with 2008 but will still be big, according to a new study.

An oil town up close

As the price of oil falls, small town producers have been forced to cut back their operations. The effects go far beyond the well head.

Pemex Awards Contracts Worth Almost $5.4B Thus Far in 2009

Pemex expects average output this year of 2.75 million barrels per day of crude and 6.45 billion cubic feet per day of natural gas; crude production fell 9.2 percent in 2008 compared to the previous year, coming in at just under 2.8 million barrels per day.

Pemex is making a big effort to develop Chicontepec to offset declining production at aging projects such as the offshore Cantarell Field, once Mexico's crown jewel.

Will Mexico Start Sending Natural Gas North?

In the North American energy business, the words “gas exports” do not usually appear in the same sentence as “from Mexico.” But get ready, because Mexico has recently increased its production and LNG imports, slashed pipeline imports to a trickle, and looks poised to start shipping gas north this year.

Qatar braces for $1.6bn deficit in 2009-10 budget

Qatar is bracing for a QR5.8 billion ($1.6 billion) deficit in its budget for 2009-2010, the country's first since 2001, owing to a slump in oil prices, said a report.

The budget is based on an oil price of $40 per barrel, the Qatar News Agency (QNA) said giving details of the new budgetary estimates for the fiscal year 2009/2010.

Colombian Oil Revenue Predicted to Drop by Half

Colombia's revenue from exports of crude and derivatives in 2009 will be roughly half last year's total of $12 billion, the Colombian Oil Association, or ACP, forecast Thursday.

Can Petrobras Prop Up Deepwater Drilling Industry?

Life’s not too rosy for the oil and gas drilling industry these days. The plummeting price of oil and gas as well as the credit crunch has idled onshore and shallow water drilling rigs as oil explorers and producers postpone projects, or cancel them altogether.

In the U.S. alone, the number of rigs actively exploring for oil and natural gas is down nearly 50 percent since the end of August to 1,043. Although, I should mention the rig count did rise by four this week, the first time this year the weekly count, conducted by Baker-Hughes, has increased.

There is a bright spot among all the doom and gloom: the deepwater and ultra-deepwater drilling industry.

Brazil Minister Says Oil Industry Still Profitable

Brazil's energy and mines minister said here that the scale of his country's current oil production and its expected future output are large enough to make the industry profitable even at current prices.

230,000 electric cars by 2020, says Ryan

MORE THAN 200,000 Irish motorists will be driving electric cars in just over a decade, according to the Minister for Communications, Energy and Natural Resources.

Eamon Ryan said it was his department’s aim to have 10 per cent of the vehicles on the roads – or 230,000 – running on electricity by 2020.

Greening Korea

Unlike its neighbor Japan, South Korea is rarely associated with environmentalism. But without fanfare, some of Korea's leading corporations are embracing renewable energy technologies.

Detroit's Critics Just Don't Get It

The Detroit that Washington loves to hate, the one that policy wonks and politicians think they can run better than industry professionals, stopped existing at least 15 years ago. It faded because executives at GM, Ford and Chrysler reached a consensus not fully embraced by Congress or the American consumer. To wit: Oil will not last forever.

Detroit's executives aren't stupid. Nor are they arrogant fools who care more for their own paychecks than they do for the their industry's or their country's future. They know that the car of the future will have to be powered by something other than gasoline or diesel -- or else there is no future.

Oil Going To $200 On Obama's Watch

The saga of North American oil is well underway. The current financial crisis, triggered in part by the global oil crisis, is only serving to mask the decline of oil supply in this region. That the supply of oil would move in reverse to the advance in price over a 6 year period—a sustained period—is a brutal fact that can no longer be denied. Remember, much of this oil is extracted with the benefit of the latest technology and profit-maximizing, “rational” actors. While this is less true in Mexico, I maintain that PEMEX, the state run oil company, while not in the league of Saudi Aramco is no Venezuelan PDVSA. PEMEX avails itself of the latest technology, and Mexico is well explored. While it’s also true that offshore California, offshore Florida, and parts of Alaska are undeveloped, even a Marshall Plan to develop those resources would not result in oil coming on stream until several years from now.

Accordingly, I am calling for substantial new price highs in oil no later than the Presidential Election of November 2012. I expect oil to go above 200.00 dollars per barrel, and to consolidate thereafter between the old price high of 150.00 and 200.00. The seeds for this price spike have been sewn all decade, and are furiously at work right now. We are currently at risk of reaching the old price high of 147 by as early as Spring of 2010. If monetary conditions interfere, this could be sooner. If a global depression develops, obviously, this could be later. A simple progression would take oil towards 75 later this year, then 150 in late 2010, 200 in late 2011, and then the spike above 200 in early 2012.

Newest job numbers portend weak energy demand

COLUMBUS, Ohio – Oil prices dipped Friday after the government reported that the nation's unemployment rate rose to the highest rate since late 1983 as employers eliminated 663,000 jobs.

Benchmark crude for May delivery fell 13 cents to settle at $52.51 barrel on the New York Mercantile Exchange.

With the U.S. and other nations hemorrhaging jobs, demand for gasoline and other fuels has plummeted. The unemployed are not commuting, factories are not producing as many consumer goods, and heat or electricity at millions of homes has been shut off.

Saudi sees rise in oil demand after crisis

The global economic distress and ensuing drop in crude demand have depressed the market share of Saudi Arabia but the world's oil superpower expects a resurgence of that oil after the crisis.

The government-owned Saudi Aramco, which runs the kingdom's hydrocarbon industry, said oil would remain the main source of energy and driver of the world economy for the foreseeable future despite global efforts to lessen reliance on crude.

China Tarim oilfield aims 50m tonnes of output by 2020

BEIJING -- The Tarim oilfield in China's western Xinjiang Uygur Autonomous Region expected to see its combined output of crude oil and natural gas reach 50 million tonnes in 2020, China National Petroleum Corporation (CNPC) announced Friday.

Refiners call for halt to ethanol mandate

WASHINGTON - Oil refiners want the government's biofuels mandates suspended, citing the limits on how much ethanol can be blended into gasoline.

Charles Drevna, president of the National Petrochemical and Refiners Association, also labeled as unworkable a proposal under consideration by the Environmental Protection Agency to allow newer cars to run on higher amounts of ethanol than is now permitted.

"We're using as much corn as this country can for fuel," Drevna said after testifying before a subcommittee of the Senate Environment and Public Works Committee.

Valero to run new ethanol plants full throttle

Valero Energy Corp, the recent buyer of seven ethanol plants, said it will run them at full capacity despite poor average margins.

Big oil companies, little investment in renewable energy

The Center for American Progress released a new report analyzing 2008 oil company profits and lack of investment in renewable energy, even while the companies spend millions of dollars on ad campaigns touting their emphasis on renewable energy.

Despite their $656 billion in combined profits from 2001-2008, big oil companies are running ads and lobbying Congress to oppose ending tax breaks worth $30 billion over ten years.

California faces greater risk from global warming

SACRAMENTO — State officials on Wednesday released what they called the most comprehensive and detailed report on the effects of climate change in California — a 40-volume set of scientific studies that shows the state more at risk to global warming than previously believed.

Among the projected effects: a loss of up to $3 billion in agricultural revenues by 2050 resulting from reductions in the water supply, a statewide increase in electricity demand of up to 55 percent because of extended use of air conditioning, and a heightened risk of wildfires that could cause billions of dollars in property damages annually.

Warming Takes Center Stage As Australian Drought Worsens

On March 28, for the first time in anybody’s memory, the floodlights surrounding the soaring white shells of the Sydney Opera House were temporarily extinguished, part of Earth Hour, an international event spanning 88 countries and 24 time zones to prompt world leaders to take action on global warming.

Although iconic buildings in Paris, New York, London, and Tokyo were similarly darkened, arguably none of these symbols was as apt as the unnerving black space that suddenly opened on the shores of Sydney’s harbor. Perhaps more than any industrialized nation, Australia is contending with the increasingly dangerous effects of hotter, dryer, and more unpredictable weather patterns — changes that many of the country’s leading scientists and politicians now attribute to shifting weather patterns, at least in part due to climate change.

Did the Oil Price Boom of 2008 Cause Crisis?

Reeling from the housing bust and the banking crisis, it’s hard to think that the energy shock — the one that carried the average price of gasoline to a peak of $4.11 a gallon last July — was much more than a minor player in the economic downturn. But there’s the uncomfortable fact previous oil shocks, like the ones that came with the 1973 oil embargo, the 1979 Iranian revolution and the 1990 invasion of Kuwait, were also associated with recessions. And the 2001 recession, too, came on the heels of a run-up in oil prices.

In a paper presented at the Brookings Panel on Economic Activity Thursday, University of Calif.-San Diego economist James Hamilton crunched some numbers on how consumer spending responds to rising energy prices and came to a surprising result: Nearly all of last year’s economic downturn could be attributed to the oil price shock.

Managing a finite resource

How quickly we have forgotten. Yesterday’s banner headline is today’s inside page filler, consigned to the back of the book as something more pressing forces its way to page one, above the fold.

The subject I’m talking about is oil, the story before all the world’s stock markets decided to implode simultaneously. We used to worry about the price of oil, when it would run out and even non-petrochemical engineers understood the concept of “peak oil.” But whether alternative energy is still big news or not, this much is clear; the world’s oil supply is finite, fossil-fuelled cars pollute and the public desire for an alternative is strong.

In the Centre of the Storm

Stan Odut is one of a growing contingent of oilmen now subscribing to the concept of peak oil – the notion that the planet’s maximum rate of oil extraction is at hand. After that point arrives, the rate of production will enter terminal decline. “I believe we probably aren’t going to see an increase on the supply side globally,” he says. “With the global economic situation there has been (crude oil) demand destruction, but I would add that there has also been supply destruction because drilling has been declining, producers are shutting in supply” and many large projects, world-wide, have gone on hold.

Prices are low because “right now oil is overbalanced on the supply side,” he says. “When things do recover, I think we are going to be in a really tight situation. The horizon might be shorter than many people predict. I think within the next five years – certainly within the next ten – we will meet a supply crunch probably like we have never seen before.”

Instability & Depletion Add Uncertainty to Energy Sector

Matthew Simmons made an excellent new presentation last month on the outlook for the energy sector. He concludes crude oil supply will soon drop sharply as credit and pricing issues slow development to a crawl—and he also contends global demand for energy has not fallen as much as many assume (see chart of U.S. demand at right – the U.S. is the largest global consumer of crude oil).

Longer term Simmon's analysis confirms the bullish trends are still in place, global demand will continue to be robust while supply becomes more expensive to develop.

Simmons strikes again

Matt Simmons, head of his eponymous Houston energy investment bank Simmons & Co. International, is always one for controversy. His theory that the world has reached peak oil -- that is, our oil production has hit the highest it ever will and it's downhill from here -- enraged oil company executives and oil-producing nations alike and spawned the 1995 book, "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," which became an international bestseller.

The Age of Oil: When Will It End? - Peak Oil Task Force Prepares for Possible Impact: Q & A With Bloomington City Councilman David Rollo

There's only so much oil on our planet, and it is not a renewable resource. The easy-to-reach deposits will be used up first, then it will become more expensive to reach or pump or transport. Production has been increasing on an upward curve since oil's discovery. But that can't continue forever, since supplies are finite.

Meanwhile, the Earth's population is growing, as is the demand for creature comforts and development -- all of which depend on oil.

Some fear that the end of cheap oil will bring harsh consequences. That's why the city of Bloomington has established a Peak Oil Task Force, chaired by City Councilman David Rollo.

Abu Dhabi sets its sights on oil sands entry

In an interview from Abu Dhabi, Mr. Barker-Homek said his company, a petroleum and power producer known as TAQA, would consider an asset purchase, a partnership or an acquisition for portfolio diversification and to deepen its expertise.

"If you are going to get into oil sands, the least-expensive time to do it is while prices are low, so you can actually get into some [good] acreage at low cost," he said, addressing rumours this week that TAQA is assessing multiple targets.

Nigeria forced to diversify as oil drops

ABUJA, Nigeria - The head of a new Nigerian ministry charged with calming the restive petroleum region of Africa's biggest crude oil producer said yesterday that the global economic meltdown may paradoxically be contributing to peace efforts.

Even as the oil region's main militant group rejected the government's offer of amnesty to fighters who lay down arms, Ufot Ekaette, the newly installed minister for Niger Delta affairs, said in an interview that the global slump in demand for crude oil had changed the dynamic on the ground.

Russia to Supply China with Significant Portion of Oil Needs

A global credit crunch is prompting Russia to diversify its energy sales eastwards. In February, Moscow and Beijing signed an agreement, where Russia would supply oil to energy-hungry China for the next 20 years. In exchange China will lend Russia $25 billion, which will help fund an extension of the new Siberian pipeline to the Chinese border. Analysts in Moscow say that while the deal is beneficial for both Russia and China, it might not be all good news for the Western customers of Russian oil.

Marathon cuts Alaska gas drilling

US oufit Marathon Oil cut its Alaska natural gas production well drilling programme by about 50% this year, according to a company source.

Will Obama's Revolution Deliver Energy Independence?

Steven Chu, the Nobel Prize-winning physicist who is President Obama's energy secretary, recently gave a speech in which two key words never passed his lips. He talked about energy efficiency, electricity transmission lines and renewable energy sources. He waxed eloquent about technology and the need to fund energy research. But afterward, Chevron vice chairman Peter Robertson noted disconsolately that "it would be nice to hear a bit about oil and gas."

Oil and natural gas, however, are not what's lighting up the Obama energy agenda. The new president is setting out to change the very nature of American energy, from the way we use it to the way we generate it. It's a goal that drives his policy on automakers, whom he wants to push to manufacture more fuel-efficient cars. And it's why he inserted a "down payment" of mammoth proportions into the stimulus bill, roughly $70 billion or more in grants, loans and loan guarantees for Chu to hand out for high-tech research and commercial projects for renewable energy such as biofuels and wind, solar and geothermal power. That's nearly three times as much as the baseline Energy Department budget and more than the annual budgets of the Labor and Interior departments combined.

The mouse that roared

Hermansen made another really interesting point. In Denmark the wind industry developed with many relatively small wind farms, not just a few giant offshore farms. This means that the wind is usually blowing somewhere, so there is a more consistent supply of electric power to the Danish grid. If you think solely in terms of a few giant offshore wind farms in Denmark or Maine, the problem of generating large amounts of intermittent power to the grid means that enormous investments in upgrading transmission lines before large-scale wind farm can proceed. On the other hand, with many small wind farms, grid operators have learned how to balance the load without imposing huge upfront infrastructure costs.

Report: Wind could supply enough power to meet US electricity needs

Wind turbines off US coastlines could potentially supply more than enough electricity to meet the country's current electricity demand, the US interior department reported today.

Simply harnessing the wind in relatively shallow waters - the most accessible and technically feasible sites for offshore turbines - could produce at least 20% of the power demand for most coastal states, interior secretary Ken Salazar said, unveiling a report by the department's minerals management service that details the potential for oil, gas and renewable development on the Outer Continental Shelf.

Ethanol fight gets revved up

Picture a chain saw calmly idling. But then its blade suddenly starts spinning on its own, as if someone had goosed the throttle.

The power equipment industry warns that such a scenario could happen if the federal government agrees to increase the percentage of ethanol mixed into gasoline. Upping the ethanol content would add more oxygen to the fuel, causing the engine to idle at a higher speed and literally fooling the chain saw into acting as though its clutch were engaged.

US believers going green, hold media fast for Lent

WASHINGTON (AFP) – From giving up their cars to abandoning their Facebook pages, many US Christians are being called on to help reduce global warming and turn their backs on Internet distractions over Lent.

"It's an insult to God, it's a sin to spoil the environment, to hurt creation," said Episcopalian pastor Reverend Sally Bingham, who is coordinating "The Regeneration Project," an interfaith group of some 4,000 congregations looking for a religious response to global warming.

Wordie Ice Shelf has disappeared: scientists

WASHINGTON (Reuters) - One Antarctic ice shelf has quickly vanished, another is disappearing and glaciers are melting faster than anyone thought due to climate change, U.S. and British government researchers reported on Friday.

They said the Wordie Ice Shelf, which had been disintegrating since the 1960s, is gone and the northern part of the Larsen Ice Shelf no longer exists. More than 3,200 square miles (8,300 square km) have broken off from the Larsen shelf since 1986.

I'm very pleased to see that top story, "Did the Oil Boom of 2008 Cause Crisis"?

I've been arguing against the either/or tendencies of the views of this crisis. Was it the sub-prime mortgage fiasco that "caused" this recession to the Nth, or was it "caused" by high oil costs and therefore by the inflection in extraction rate commencing from 2005?

It is both. It has as many heads as Hydra, and is just as terrifying.

Did the people on the Titanic die because of: 1) human hubris 2) faulty navigation 3) the iceberg 4) hypothermia.

Come on , now. Only ONE answer is acceptable.

Here's Jeff Rubin's graph from a previous oildrum article:

A quote from Hamilton's research paper:

With hindsight, it is hard to deny that the price rose too high in July 2008, and that this miscalculation was influenced in part by the flow of investment dollars into commodity futures contracts. It is worth emphasizing, however, that the two key ingredients needed to make such a story coherent — a low price elasticity of demand, and the failure of physical production to increase — are the same key elements of a fundamentals-based explanation of the same phenomenon.

I therefore conclude that these two factors, rather than speculation per se, should be construed as the primary cause of the oil shock of 2007-08. Certainly the casual conclusion one might have drawn from glancing at Figure 1 and hearing some of the accounts of speculation — that it was all just a mistake, and the price should have stayed at $50/barrel throughout the period 2005-08 — would be profoundly in error.

and this central conclusion:

If one could have known in advance what happened to oil prices during 2007-08, and if one had used the historically estimated relation to form a 1- to 5-quarter-ahead forecast of real GDP … one would have been able to predict the level of real GDP for both of 2008:Q3 and 2008:Q4 quite accurately. That last claim seems hard to believe … Nevertheless, a few points about the respective contributions of housing and the oil shock deserve mentioning. I would note first that housing had been exerting a significant drag on the economy before the oil shock, despite which economic growth continued. … At a minimum it is clear that something other than housing deteriorated to turn slow growth into a recession. That something, in my mind, includes the collapse in automobile purchases, slowdown in overall consumption spending, and deteriorating consumer sentiment, in which the oil shock was indisputably a contributing factor. Second, there is an interaction effect between the oil shock and the problems in housing.

Here's the beast:


The many-headed Hydra of peak oil, climate change, over-population, ecosystems collapse, financial catastrophe.

Where's Hercules when you need him?

That's why my view does not qualify as "apocalyptic": there is no messiah/deliverer/savior/redeemer. And the world won't end. No, we'll have to deal with it, one way or another.

Sorry, had to replace the image with a link. The image didn't look very large, but the file size was humongous.

Thanks. It works fine. I worried a little about posting it.

:O and ofcourse the biggest credit bubble in history with it's associated scams and fraud had nothing to do with it. Of course the great depression, panic of 1873 and the ones before including the Mississippi, south sea and tulip bubbles were caused by oil price shocks.

This clears it up for me, thanks. So the accelerating job losses in the world we're seeing is because oil went from 45 to 50? :-)

Hamilton's interpretation is that the housing bubble collapse was a drag on the economy before and after the oil price spike. But the oil price spike multiplied what was merely a slowdown in growth to a full blown recession. In the short term we are still seeing the economy collapsing worldwide, but Hamilton concludes:

If growth in the newly industrialized countries resumes at its former pace, it would not be too many more years before we find ourself back in the kind of calculus that was the driving factor behind the [oil price] problem in the first place. Policy-makers would be wise to focus on real options for addressing those long-run challenges, rather than blame what happened last year entirely on a market aberration.

So the accelerating job losses in the world we're seeing is because oil went from 45 to 50? :-)

I suspect that many firms and investors are not so much worried about the price of oil today, but the price of oil over the course of the payback period for long-term investments they want/need to make. The fact that people actually bought and sold barrels of oil for $140+ in 2008 throws many profit models out-of-whack. If you want to estimate the payback period for a given investment, you want to assume some stability in the price of the key commodities involved. A recent history of a core commodity doubling or tripling in price in a matter of months will generate some scary looking error terms if your investment requires a 10 year payback period.

So what do you do? You probably sit on your money and think about it for a while, and you probably get a whole lot more conservative about the ventures you fund.

The way I think of it can be explained with the following image.

The economy is like an airplane, zooming along nicely. The oil price *shock*, was such a shock to the plane that it blew up one of the engines.

The plain stalled and is now dropping faster and faster, the remaining engine is not enough to keep the plain in the air.

It is using less oil now, so oil price is low, but the economy is caught in self-reinforcing downward spiral:

=> slowing consumption
=> slowing economy
=> joblosses
=> slowing consumption

There really isn't a contradiction with the oil price spike being part of the cause that sent the economy into a tailspin and the oil price being low right now.

Your logic is akin to being in a plane seeing the engine of the plane explode and then a few minutes later declaring that the exploding of the engine has nothing to do with the plane currently loosing altitude, because the explosion already happened 5 minutes ago.

My point would be that, if you assume the price shock may have caused some serious damage to the economy, it may now be in a "broken" state and still loosing altitude, even though the oil price is down.

Actually it worries me. If a drop of the oil price from nearly 150 to around 50 isn't enough of a "stimulus" to the economy, then what is?

Also I believe that economic recovery will be hard if not impossible. As soon as the econmoy starts recovering, oil price will shoot up again, and that'll be the end of that.

Of course, it ain't as simple as that here. We can't know for sure that oil price spike was the cause, and likely it was a combination of things.

I've thought of it as a system stressed to breaking point. Just an overstressed system goes "kaboom" I think you'd expect a lot of "measurable parameters" will show extreme values. So many things may seem to be going wrong at the same time. None of these parameters were really "the cause". The thing just finally blew up because it was being driven beyond its limits for too long.

Another quote from Hamilton's paper:

The most important principle for understanding short-run changes in the price of oil is the fact that income rather than price is the key determinant of the quantity demanded. One quick way to become convinced of this fact is to examine Figure 2, which plots petroleum consumption against GDP for the U.S. over the last 60 years. Despite the huge fuctuations in the relative price of oil over this period, petroleum consumption followed income growth remarkably steadily. There was some downward adjustment in oil use at the end of the 1970s, though achieving that 20% drop in petroleum consumption required an 80% increase in the relative price and two recessions in a 3-year period over 1980-82.

There is a flattening in the slope of this path over time, which some might attribute to delayed conservation consequences of the 1970s oil shocks. However, this flatter slope persists long after the price had fallen quite dramatically, and seems more likely to be due to the fact that income elasticity declines as a country becomes more developed. One sees a similar pattern of slowing growth of petroleum use as other developed countries became richer, while post-1990 data for the newly industrialized countries is still quite supportive of an income elasticity near unity (Hamilton, 2009; Gately and Huntington, 2002).

If one looks at Figure 2, it is an analysis of the relationship of real GDP and total petroleum products supplied. Hamilton 's view seems to be that if the country has enough income (actually real GDP), it will buy petroleum products, regardless of how high or low the price of these products. Another interpretation of this graph might be that petroleum products drive GDP growth, so lack of petroleum products in the future is likely to be a major problem. Since the graph only shows correlation, one can't prove which variable is in the driver's seat.

Footnote describes this graph as follows:

This is essentially a scatterplot with adjacent years connected by a smoothed curve. Tracing this curve from the lower left to the upper right identifies the combinations of real GDP and petroleum consumption that were observed at increasingly later dates as one moves along the curve.

Excellent discussion, Gail. IMO, another way to look at it is Affordability [Un-Affordability?] as a way to remove the mind's eye focus on price.

If you are employed, paying $4.11/gal for gasoline financially hurts, but that won't stop you from buying/filling your perceived minimum needs--It is still income or cash flow affordable.

If that same person is now unemployed, or working part-time at a greatly reduced income: Even $2/gal is much more 'expensive' or un-affordable than when they were paying $4+ per gal.

Now mentally multiply the above by the unemployed global multi-millions.

I think you will find that Americans will buy gasoline until they are destitute not even unemployed.
This does not mean our addiction to gasoline won't cause other parts of the economy to collapse esp housing and new automobiles.

I only see us confronting our addiction and starting on the traditional AA twelve step process once enough people are mired in deep poverty and its obvious that our addiction to gasoline is destroying our lifestyle.

We are a long long way from this at the moment.

Indeed! Toto nails it on the head. Deflationary death spiral, it's called that for a reason - you can't get out without going through severe pain. Oil prices should still fall as global demand is going to collapse. The worst of the Greatest Depression is still ahead of us.

Gail, you wrote:

Another interpretation of this graph might be that petroleum products drive GDP growth, so lack of petroleum products in the future is likely to be a major problem. Since the graph only shows correlation, one can't prove which variable is in the driver's seat.

The notion that GDP and oil use are directly linked has been around since the 1973 Arab/OPEC Oil Embargo. The graph you present does indicate this, but the last portion of the graph, 1985-97, was a period of relatively low world oil prices. Remember that the Saudis flooded the market with oil to drive the price down in 1986, which indeed made oil a low cost energy source. Of course, people used that oil in their commerce and the rate of use increased as a result. I would certainly like to see a similar graph for the period 1998 to 2008, which has been another period of increasing prices, which I would think would show a reduced slope. The U.S. is still one of the largest consumers of oil per capita on the planet.

To assume that the future will be like the past is an old game which has repeatedly been found to mislead. Of course, that's what many analysts do and if can work reasonably well for static conditions. But, it's the changes to the underlying reality which make such predictions useless. For a simple example, women almost never died from lung cancer before WW II, thus, it would have been reasonable to predict the future rates of the disease in women would continue to be small. However, women began to smoke like men and now their lung cancer rate is similar to that in men.

In the short term, a nation is stuck with the capital infrastructure already installed, so a short term reduction in oil availability will likely result in a reduction in economic activity. As people adjust to a shortage (or to the resulting higher oil prices) less oil will be required for the same economic activity. This is because much of the oil consumed is for transportation and there remains much which can be done to increase transport efficiency, especially within the U.S. Technological change is not a bottomless well and at some point a reduction in oil use will mean less economic activity.

E. Swanson

Figure 2 is directly out of Hamilton's papers.

The big discontinuity in the late 1970s took place when we consciously made an effort to switch from oil to other fuels. Prior to that time, oil had been used in electricity production. When we discovered there was a problem, we ramped up nuclear, coal and natural gas. Now that we have made that switch, the "low hanging fruit have been picked." We also send a lot of heavy industry offshore. We are now getting the benefit of China's coal use, rather than using petroleum or coal ourselves to get the same result.

If we have to go back to producing more ourselves, it will be much harder to make up for the lack of oil.

Gail this is and important post.

The real problem technically is our ability to change our system is very difficult. Going forward we are now in the position that we have to rob from the present to pay for the future. Deflation is one aspect of this but its a lot broader phenomena than that. Up until recently with our monetary system we where able to rob from the future to pay for the present. This is no longer possible.

Hopefully you can see a huge gulf develops when a society that has repeatedly plundered future generations to live for today is forced to steal from today to live for tomorrow.

What you find out rapidly is not only do you have nothing you have less than nothing because the drain of simply staying alive prevents change. This is I think how the EROEI cliff propagates through society. This cliff is what really creates this ever growing gap.

If you look at the news its focused not on our future but simply not collapsing in the present and I think it will become even more focused if we are correct and oil prices rebound. At some point the massive deficits being built up in fiat currency may well simply become irrelevant nobody cares about 30 year bonds or notes or our high finance system they care about eating tomorrow.

I think you are distorting the history a bit, for example, nuclear power which hasn't seen a new order since Three Mile Island, which happened before the Iranian Crisis. The big discontinuity in the 1970's was from the two rather large increases in price of oil, each followed by a recession. Of course, there were changes in the uses for oil, including an increase in MPG for new cars. In the U.S., we've been able to backslide on MPG even with the CAFE standards, since the market has shifted toward larger truck based vehicles. The CAFE standards weren't increased for about 20 years after they were ramped up to a maximum in the 1980's. With the price of oil at $25 a barrel or below, there was less incentive to conserve and that incentive was further lessened as inflation reduced the real price to the consumer.

My point is that there's still quite a bit of excessive consumption in the U.S. in the form of SUV's and overly large houses located far from town, which could be shed with relatively little pain to the economic system (meaning business). The savings would need to come directly from the consumer, not just commercial and industrial users, which is not going to be easy for the politicians to accept, since their situation would be directly threatened at the ballot box.

E. Swanson

My continuing point is that most people are focusing too much on on the past couple of years. Since hitting a recent annual low of $14 in 1998, oil prices over the next 10 years went up more than seven-fold, to an average price of $100 in 2008, rising for nine out of ten years, with the fastest rate of increase being 2000, not 2008. I suspect that when we get the average 2009 price, it may not be too different from the percentage decline that we saw in 2001, following the big jump in 2000.

BTW, I'm working with Khebab on a paper focusing on projections for post-2005 cumulative net oil exports from the top five, but here are the actual data for Indonesia. The percentage number on the right hand side is analogous to a fuel gauge--it's the percentage of remaining post-1996 cumulative net oil exports at year-end.

The numbers for Indonesia, founding member of OPEC, are as follows (EIA):

Year; annual net exports (mb/yr); Remaining post-1996 cumulative net oil exports at year-end (mb); % of remaining

1996: 285; 1149; 100%

1997: 243; 906; 79%

1998: 259; 647; 56%

1999: 221; 426; 37%

2000: 180; 246; 21%

2001: 130; 116; 10%

2002: 78; 38; 3%

2003: 38; 0; 0%

2004: -49 mb (net imports)

Interesting "Obama revolution" article above-wow-a massive 70 billion-approx 1/2 of 1% of the size of the financial bailout (so far). Obviously change has come.

Yes, "wow"... how underwhelming.

Virtually insignificant really. How much will go for practical uses that will help now?

And how much will be wasted on pie-in-the-sky, sci-fi bullshit - the equivalent of investing our energy future in "lottery tickets."

I think Obama and Mr. Chu are focused on the Post-Bottleneck Period - energy producing novelties for Survivors of The Transition.

Virus battery could 'power cars'


You'd better hope that some of that "pie-in-the-sky sci-fi bullshit" pans out, or things stand to be mighty rough.

Sci-fi like nuclear power, communications and weather satellites, and high-speed data communications.

If we knew what would work and be useful in advance, we wouldn't need research.

No, I don't better hope for more pie-eyed sci-fi from the ivory towers.

We have enough interesting, soon to be useless to the mostest, artifacts - like the ones you mention.

I hope the occupants of the ivory towers learn some "skills" from the Coon Man:

Today people got no skill and things is getting worse," he laments.

"What people gonna do? They gonna eat each other up is what they gonna do."


Fine. You don't need it.

Don't you realise that everything that people do depends on or is technology? Just because you don't like that current generation of it for whatever reason doesn't make it qualitatively different from sharpening a wooden stick to make a spear.

No matter how far back you go, unless you are planning on scrabbling out a living naked, eating whatever you can catch and eat by use of hands, feet, and teeth, you will be depending on the inventions of "sci-fi ivory towers" and artifacts of previous generations.

It runs deep in the blood and bone of what it means to be human, why do you hate it?

I'm not against technology. My point is their priorities are screwed up.

The funding is not sufficient to make an impact now.

The research is focused Chu's imaginary future.

Obama and Chu do not seem to realize the energy crisis is Now.

what do you expect in 74 days ? instant gratification ?

Really, You're right. What did we expect ???

Personally, we are getting about what I expected.

I did not expect Obama to come up with anything more than token efforts and funding.

I did not expect Obama to begin thinking and planning before "74 days ago."

I did expect Obama to pretend to have a plan, and to pretend to offer solutions.

Enough to pacify the public.

sorry to hear you are dissapointed that obama can't walk on water.

I'm not disappointed.

I never expect he would float. At least not very long.

Here is a vid for the Obama Public:

Sheep (waters et al again)

Harmlessly passing your time in the grassland away
Only dimly aware of a certain unease in the air
You better watch out
There may be dogs about
I've looked over Jordan and I have seen
Things are not what they seem.


(beware, adult themes)

OK-so he has had 74 days of lying and coverups-now he can start being honest with the American public he is supposed to work for http://www.pbs.org/moyers/journal/04032009/profile.html

" ...a drastic reduction in regulation and oversight.."

are you blaming obama for that ?

Elwood: George Bush was rightfully blamed for Iraq. He wasn't able to fall back on the defense that he was a clueless buffoon and his prized military advisors should bear the responsibility. This is exactly what Obama's defenders are claiming-he is basically ignorant on all financial matters and bears no responsibility-he can't even be expected to control Geithner, Summers or Bernanke as he has no choice but to accept everything they tell him because of his ignorance. Ignorance isn't a plausible defense when you are employed as the President of the United States-if he is ignorant on financial matters then it is time he got brought up to speed. Personally, I don't buy this defense at all-I think he is quite aware of what is unfolding.

Maybe he *is* being "brought up to speed" by Geithner, Summers and Bernanke...

Oops :-)

I supported Obama - still do - mostly. In most areas I give him no less than a B. Management of the Wall Street (and) Banks: F

Three things I see as questionable: Geithner, Rubin, and Summers

Administration Seeks an Out On Bailout Rules for Firms

The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials


The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.

Although some experts are questioning the legality of this strategy, the officials said it gives them latitude to determine whether firms should be subject to the congressional restrictions, which would require recipients to turn over ownership stakes to the government, as well as curb executive pay.

Summers Received Hundreds Of Thousands In Speaking Fees From TARP Recipients

Barack Obama's chief economic adviser, Larry Summers, received hundreds of thousands of dollars in speaking fees last year from firms that have direct financial interests before the government or are intimately involved in the White House's bank relief programs.

Watch/listen to the Black interviw with Bill Moyers.

BILL MOYERS: To hear you say this is unusual because you supported Barack Obama, during the campaign. But you're seeming disillusioned now.

WILLIAM K. BLACK: Well, certainly in the financial sphere, I am. I think, first, the policies are substantively bad. Second, I think they completely lack integrity. Third, they violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutions. And they're refusing to obey the law.


On the plus side, at least we picked the guy that wasn't previously involved in a major banking scandal.

Heads they win, tails we lose on this one.

From "The Skeptical Enquirer"................

President Obama has declared that U.S. science policy will no longer be dictated by myths and beliefs. I can almost hear the collective cry of "It's about time!" from all of our supporters.

The President says science policy is going to be about "ensuring that scientific data is never distorted or concealed to serve a political agenda—and that we make scientific decisions based on facts, not ideology."

I can't begin to express my happiness when I hear that the president has joined our cause. We need to take hold of this opportunity to promote scientific inquiry and critical thinking in America's classrooms and in its public policy. But that means we need your help!

You might be wondering—is there really that much work to still be done? A recent Harris Poll (Forbes, March 9, 2009) found that of those Americans surveyed:

31% said they think astrology is "very" or "sort of" scientific
44% believe in ghosts
31% believe in witches
33% said they believe intelligent beings from other planets have visited the United States

They also found that "around a quarter of us are superstitious about knocking on wood, 13 percent about a black cat crossing a path, 12 percent about walking under a ladder, 11 percent about breaking a mirror, 9 percent about the number 13—and 9 percent of respondents believed that speaking ill of a person makes it come true."

These statistics may seem ludicrous, even comical, to us; but unexamined belief in pseudoscience, fantastic claims, and irrational superstitions can cause larger systemic problems in society.

In another survey, Gallup (Digital Journal, Feb 12, 2009) asked Americans "Do you, personally, believe in the theory of evolution, do you not believe in evolution, or don’t you have an opinion either way?"

39% responded they believe in evolution
36% responded they have no opinion on the subject
25% responded they do not believe in evolution

Why should we be concerned if other people believe in astrology, ghosts, or intelligent design? Many of the people holding these beliefs are powerful leaders in our culture. These leaders influence the educational and cultural standards for everyone else.

Statistics like these—and what they portend for the future of our society—make the work of the Committee for Skeptical Inquiry more important than ever. We need to support the work of the president and help foster a commitment to science that will last for many generations to come.


Being an Aries, I feel it is always important to push forward.

Seriously, I agree, but I fear we will face an uphill battle in the coming years. This is Nate's territory so I'll leave it at that.


Before people start on the whole “People didn't use to walk into places and start shooting” meme.

You might want to do a refresher course in American history. This is a part of the American experience and has occurred as long as this country has existed. It just happens to be something that everyone likes to conveniently forget about.



Jeez-i glance at your first link for three seconds and the first thing that jumps out is a tremendous increase in frequency-for the Primary School incidents, there is an incredible 127 year gap between the first two and a two month gap between the last two-did you even read these?

The list isn't complete, just happened to be convenient to post those links.

Of course this kind of thing increases during times of injustice and stress, but it's not Prozac, automatic hand guns, or fluoride in the water. It was going on long before any of those existed.

The Chinese for instance, prefer to use bombs, since guns ownership is restricted, and they have a long history, and access to, fireworks and explosives.

And I left out serial killers and organized mass murder. People need to get a grip.



Some interesting talk not unrelated to the issue;

"Ask a Scientist: Sex and War"


"Why is it that humans, nearly unique in this regard, have a natural inclination to band together and kill off members of our own species? The fact that chimpanzees, our closest evolutionary relatives, are the only other animals known to exhibit such organized warlike behavior is a big clue."

"Malcolm Potts and Thomas Hayden, authors of the new book Sex and War, assert that the answers lie in our biological history -- that aggression against our own species is rooted in deep evolutionary impulses and predispositions. In other words, intra-species battling among our protohuman ancestors gave a reproductive advantage to the most violent males -- and here we are, their pugnacious descendants, still at it."

Thanks Souper--
We seem to kill our species on a rather regular basis, as long as we don't share to many genes.

Wow, thanks, I fell a whole lot better now.
More weapons for all, make them as lethal as possible, get 'em in the stores by Xmas, it's the American way! Export them by the truckloads to the Mexican drug lords and the corrupt police and military, and sell lots to our border citizens so they can defend themselves too...quite the stimulus package there!

These numbers are a little dated, but I think that the ratio is on the order of what we have recently seen.

Welcome to the “Harper’s Index” of teenage myths!
(Deemed unsuitable for reprinting in publications Left to Right)
updated 12/28/01

Number of kids murdered at or around school in the last three years: 47.
Number of kids murdered at home: 3,000.

Can't help noticing another couple of articles relating to Matt Simmons and mention of 'twilight in the desert'. But it's worth remembering that Twilight does also have its critics, e.g.;


I would be interested to get the views of one or more people close to the oilface (e.g. petrogeologists) as to where the truth most likely lies wrt KSA reserves and production capabilities. Without a balanced perspective there is a danger that Simmons becomes gospel on here.

Note - I'm not saying myself he's right or wrong (I don't come close to having the relevent expertise!), just that I would welcome expert comment one way or the other.

Any illumination either way gratefully recieved.


This has been discussed many times on TOD.

Try checking out TOD's tags feature and The Best of the Oil Drum index

For example



Thx for the links, undertow. I've read a fair bit of this stuff on here before but the articles and discussion always seems to quickly devolve to the Simmons viewpoint without really addressing whether or not what the Saudis claim could be valid. I'm not saying it neccessarily is, just that it rarely seems to get much air time - especially the specific points expanded upon rather than the broad-brush reserve updates (see my link for details).

Plus a lot of the articles you reference look at KSA production profile and attempt to extrapolate future production and reserve levels. For me this doesn't work because there has been too much obvious voluntary constraint - you could fit an elephant to the profile as easily as a HL!

I just think it would be interesting to see a competent petrogeologist or two take apart the individual KSA claims blow-by-blow and give some sort of probability of their likelyhood. For example, is horizontal drilling in Ghawar good field management or a recipe for production collapse in the near future? Accepting that this is all about probabilities given the lack of shared field-by-field data.


Perhaps we could use the prior swing producer, Texas, as a model for the successor swing producer, Saudi Arabia:


Or perhaps we might consider that the bulk of Saudi production comes from old oil fields found many decades ago.

Or perhaps we might reflect on the fact that Saudi Arabia has shown three years of lower annual production relative to 2005, and three years of significantly lower net oil exports, relative to their 2005 rate.

Saudi Net Oil Exports (EIA):

2005: 9.1 mbpd
2006: 8.6
2007: 8.0
2008: 8.5*


Or perhaps we might consider Hubbert's observation, in 1956, that a one-third increase in projected URR for the Lower 48 only postponed the projected peak by five years. An increase of 100 Gb or so for Saudi Arabia, over the HL estimate, would be a 5% increase in Deffeyes' estimate for world conventional URR, which suggests that the world peak might be postponed by nine months or so.


The comparisons of Texas and KSA production are a bit misleading if you show 20yrs Texas vs the last 10yrs KSA + 10yrs projected KSA. Go back further with KSA and it's much harder to fit anything resembling Texas, a gaussian, or anything at all except an over-riding sense that production has long been constrained. The same point can be made with Texas but what we don't know from looking at the curve is how long KSA bumpy plateau management can continue.

Similar discussions with regard to Saudi capabilities have taken place on other sites, TMF being a good example. This is a thread from that site that I thought of good quality from summer last year (interesting in the context of $100+ oil!);


Plenty of +ve refs to TOD in the thread :-)

The links provided in the posts from BertEEE are worth looking at for anyone not familiar with the Saudi presentations. Also worth pointing out that he was one of the few posters on TMF that correctly called the oil bubble last year, even though even he was surprised at how high it went.

I agree with you that World peak date will not be much affected even if KSA can remain on plateau for decades to come. But it would reduce the steepness of the downslope and (especially if replicated in other ME countries such as Iraq) make a critical difference in giving us the time needed to adapt away from oil.


The following graph, lining the Texas peak up with the 2005 Saudi production, was prepared in early 2006, and I first made the point in January, 2006:


We looked at the total Texas HL plot and at the Saudi HL plot through 2005 (which was the latest annual data point we had). As I said down the thread, a key question is how accurately the HL model predicted post-2005 cumulative Saudi production. This is what the HL method is best at--estimating the area under a production rate versus time curve.

I think that it is wildly unrealistic to expect Saudi Arabia to stay on a production plateau for decades to come. As we have demonstrated, even if this were possible, rising consumption would quickly erode their net export capacity:

In any case, our middle case is Saudi Arabia will remain a net oil exporter for about 22 years:


I think that it is wildly unrealistic to expect Saudi Arabia to stay on a production plateau for decades to come. As we have demonstrated, even if this were possible, rising consumption would quickly erode their net export capacity


If the graph situation comes true, KSA will consume as much oil as China now before 2030. This is very unrealistic.

Sorry WT but trying to plot a HL for KSA just doesn't work in my opinion. Look at their production profile and, if you accept the 80's dip was voluntary constraint, they could be seen to have been on a plateau since 1980. Back then production was similar to recent levels;


The extrapolation on this curve is just as valid as envisioning depletion. Bottom line - if you can't see anything even remotely like a Hubbert curve then no amount of derivitisation or replotting of the data will have any more meaning. Certainly not tunneling into the last 3 or 4 years data - there is simply too much politics going on!

As for KSA growing at 5.7% for the next 20-30 years, sorry but I can't see that as realistic. They may double their oil consumption over the next 20 years but that erosion of export capacity could be made up by ramping up total production to 12mbpd.

No, the only guide to whether KSA can maintain voluntary plateau comes from assessment of reservoir size. And that's where the problems begin and end. On the one hand you have the Simmons camp and on the other you have the Saudis;


From which;

"Reserves and Future Potential:

Saudi Aramco's oil and gas reserves conform to industry standards. Reserves attributable to enhanced oil recovery (EOR) processes are excluded, underscoring the conservative nature of the Company's reserves. Year-end 2003 proved oil reserves totaled 260 billion barrels. Incremental probable and possible reserves (over and above the 260 billion barrels) are estimated to be 103 billion barrels. Exploration, delineation and development efforts have increased Saudi Aramco's oil initially in place from 600 to 700 billion barrels during the past 20 years. Vast unexplored acreage exists in the Rub' al Khali desert region, the northern basin (along the border with Iraq) and the offshore Red Sea Basin. US Geological Survey 2000 projections point to additional recoverable oil resources ranging from 29 to 161 billion barrels to be discovered in Saudi Arabia by 2025. The Company projects its oil initially in place volume to reach 900 billion barrels by the same date."

The problem is we, and Simmons, simply don't have access to all the data. If the Saudis task is to compensate for 2%pa (rather than 6-7%)depletion then it seems reasonable they could do this for some while yet by a combination of bringing online currently unproducing fields or areas of fields, EOR and new discoveries.

It's a stretch to believe the size of the KSA claims but not to believe the truth lies somewhere between those and Simmons claims. What happens with Ghawar over the next few years may prove a good testbed for the overall situation. Do we have access to ghawar production alone?



Certainly not tunneling into the last 3 or 4 years data - there is simply too much politics going on!

The last years Bush asked KSA several times to produce more. The conclusion was that they didn't because apparently they weren't able to do so. Ramping up production can damage oilfields.

US Geological Survey 2000 projections point to additional recoverable oil resources ranging from 29 to 161 billion barrels to be discovered in Saudi Arabia by 2025.

USGS projects an additional 1000 GB to be discovered for the world. Unrealistic. Even if true, most of the oil would be in small fields and/or difficult to extract.
I trust more the opinion of Simmons and other experts than the Saudi's. They never will tell the world if they expect production problems within 10 years or so.
The world would develop alternatives more quickly, wich is not in their interest.
A plateau only for KSA for 20 more years doesn't change the PO timing. There are simply to many key countries in decline.

I would be interested to get the views of one or more people close to the oilface (e.g. petrogeologists) as to where the truth most likely lies wrt KSA reserves and production capabilities.


Looking at reserves and production what to say about this: the U.S. has 4,6% of the world(proven and probable?)oilreserves, but produces 9,2%. The Middle East has about 60% of the reserves and produces how much ? 30-35% ? At least in theorie, the ME should be able to produce much more than they did last year. Considering PO what counts is the size of the tap, not the size of the tank but certainly the ME has a lot (thousands?) of small fields that could be developed. One could think of two reasons why they will not develop these small fields in the near future: cost of building infrastructure and the fact that they want to leave some oil in the ground for their (grand)children. When the conclusion is f.i. 'KSA oilproduction peaked in 2008' it seems this is more because of 'above ground' factors than because of remaining reserves.

We should constantly keep in mind the the kind of production responses resulting from sustained oil price increases, in areas developed by private companies, using the best available technology, with virtually no restrictions on drilling (in other words, with every incentive to develop smaller oil fields in the time periods shown).

For example, Texas & the North Sea:

If this is what private companies could achieve in Texas and the North Sea, imagine what they could do worldwide.

In any case, I wonder what the Texas & North Sea decline rates would have looked like with less aggressive drilling efforts?

BTW, so far what may be the final Saudi annual crude production rate peak of 9.6 mbpd (2005) has not been exceeded. The preliminary EIA data show a 2008 annual rate of 9.3 mbpd. The EIA shows one month, 7/08, about 100,000 bpd above the 2005 rate (subject to revision). Some estimates have lower production numbers for 2008, and I suspect that a lot of the June/July 2008 uptick in global production was an artifact of inventories being drawn down, because of very high oil prices--note the sharp drop in production in August & September (inventories being rebuilt?), despite still high $100 plus oil prices.

Texas & Saudi production (2008 rate of 9.3 mbpd not shown yet, will be soon, note color change for Texas):

Have you noticed that U.S. exports of petroleum products have skyrocketed in the last 5 years. We are now exporting almost 2 million barrels per day.


This is incredible since we are only pumping 5.2 million barrels a day from our wells

Quite a bit of what we export is Diesel. When we import oil, we convert it to a mixture of products. We use relatively more gasoline than diesel, so we have left over diesel from the mix. We also import gasoline from Europe, because they use more diesel than gasoline, and they have left over gasoline.

Even though that's all true, last year (2008) the USA exported more "finished motor gasoline" than at any time in history - with the single exception of the years 1944/1945.

And that post war export record was set despite a couple of hurricanes shutting down production, pipelines and refineries thus forcing tens of millions of US citizens to go without for a period of time.

My concern is that this looks like it is going exponential. It could severely effect net imports, keeping U.S. prices high in the face of an economy which remains strangled do to the low amount of liquids available for growth. It means foreigners are more willing and able to pay for petroleum than we are.

One possible theory is that oil exporting countries reduced their home refinery runs to allow them to export more crude and increase their apparent production. They then had to buy more refined product on world markets.

As I said, just a theory...

BTW, so far what may be the final Saudi annual crude production rate peak of 9.6 mbpd (2005) has not been exceeded.


This doesn't mean that, with some projects, like Khurais, coming on stream, they never could exceed their 2005 production rate. Decline rates from existing fields are estimations and from Ghawar I read conflicting statements. One is saying North Ghawar is o.k. and South Ghawar is bad, another is saying the opposite.

As we all know, Peak Oil doesn't mean we stop putting new production on line. It means that we can't offset the declines from the older, larger fields. And the bulk of Saudi production comes from a group of fields found many decades ago.

Regarding North Ghawar, the exhaustive analysis that Stuart Staniford, et al, did was pretty compelling regarding the thinning oil column on the north end of the field, which has by far and away the best reservoir properties. Peter Wells, who gave an optimistic talk on world oil production at ASPO-USA, said that North Ghawar would be "Effectively watered out by the end of 2010."

As we all know, Peak Oil doesn't mean we stop putting new production on line. It means that we can't offset the declines from the older, larger fields.

What you describe is the post peak situation. Regarding the world situation the question most likely is: how long will the production rate from the 2005-2008 period last (supposing the economy can recover). Most of the risk from OPEC is 'above ground' leading to a geopolitical peak (unwilling to invest in new infrastructure, leaving oil in the ground for the next generations)

Regarding North Ghawar, the exhaustive analysis that Stuart Staniford, et al, did was pretty compelling regarding the thinning oil column on the north end of the field, which has by far and away the best reservoir properties. Peter Wells, who gave an optimistic talk on world oil production at ASPO-USA, said that North Ghawar would be "Effectively watered out by the end of 2010."

I read that article. The increasing amount of rigs isn't a good sign either. Water cuts of above 90% can be managed, although I don't know that if this happens a field is per definition in the decline phase. Common sense says: yes

Do you plan on updating your KSA vs Texas Oil Production graph to show the large increase in average 2008 oil production from Saudi Arabia?


How do you reconcile the growing difference between each production regions historical production rates when they now seem so radically different?

From my post:

Texas & Saudi production (2008 rate of 9.3 mbpd not shown yet, will be soon, note color change for Texas):

The key question for Saudi Arabia is what the HL model predicted for post-2005 cumulative production, versus the actual post-2005 cumulative production. Khebab is working on this analysis, along with an updated HL plot.

Written by westexas:
Some estimates have lower production numbers for 2008, and I suspect that a lot of the June/July 2008 uptick in global production was an artifact of inventories being drawn down, because of very high oil prices--note the sharp drop in production in August & September (inventories being rebuilt?), despite still high $100 plus oil prices.

My guess about the spike in oil production in July 2008 is that the price began collapsing in early July prompting oil producers to sell off inventories before the price declined further. The sharp drop in August 2008 was caused by the fire in the BTC pipeline in Turkey and Russia's invasion of Georgia which shut off about 1.5 Mb/d for a portion of the month. The decline in September was caused by hurricanes Gustav (landfall at LA, Sept. 1, 2008) and Ike (landfall at TX, Sept. 13, 2008) which shut down some oil production in GOM, pipelines and refineries in the U.S.

A price collapse in July seems a little bit of an exaggeration. You made some good points, but I wonder what 2005 production would have looked like without Katrina & Rita?

In any case, if we look at the 2005 to 2008 crude production numbers, the world has shown a cumulative shortfall in production, relative to what we would have produced at either the 5/05 rate, or the annual 2005 rate.

A price collapse and a peak in production both occurred in July 2008.

From NYMEX Light Crude Oil Price Chart:

Here is the World Crude Oil Production Chart from The Oilwatch Monthly March 2009:

The price of crude oil peaked at $147.27 / barrel on July 11, 2008, and by August 1, had declined to about $125 / barrel and continued an overall downward trend. The same month showed an ~800 kB/d increase in production. Price went down but production jumped before falling off a rock the next month.

When looking at the production chart with a rolling annual average, I do not see a cumulative shortfall since 2005. The world crude oil figures supposedly have an accuracy of about 1 Mb/d and the annual rolling average stays within that error range. I see a plateau, not a shortfall.

CNN had a story this morning about a mobile job center. A man who just wanted to help the unemployed set up an RV with computer cubicles in it, that travels around so people can use the equipment and supplies. Kind of like a bookmobile, only with computers. People can write resumes, visit online job sites, etc. He said the unemployed often lose their cars, so they can't go to the library.

Meanwhile, libraries are facing new problems, with the stresses of rising unemployment.

"XTO chairman's pay value climbs 38 percent in 2008"


xto's market cap dropped by close to $20 billion. but simpson had no control over product prices, right ?

xto recorded a $43 million hedging gain, $ 22 million short of the compensation simpson recieved.

Oh wow, this is just great.

Maybe this helps to explain why the Obama administration seems to be connected at the hip with the finance industry. They always say you should "follow the money:"

Lawrence H. Summers, the top economic adviser to President Obama, earned more than $5 million last year from the hedge fund D. E. Shaw and collected $2.7 million in speaking fees from Wall Street companies that received government bailout money, the White House disclosed Friday in releasing financial information about top officials.

Mr. Summers, the director of the National Economic Council, wields important influence over Mr. Obama’s policy decisions for the troubled financial industry, including firms from which he recently received payments.

Last year, he reported making 40 paid appearances, including a $135,000 speech to the investment firm Goldman Sachs, in addition to his earnings from the hedge fund, a sector the administration is trying to regulate.


Pigs (Three Different Ones) (Waters) 11:26

Big man, pig man, ha ha charade you are.
You well heeled big wheel, ha ha charade you are.
And when your hand is on your heart,
You're nearly a good laugh,
Almost a joker,
With your head down in the pig bin,
Saying "Keep on digging."
Pig stain on your fat chin.
What do you hope to find.
When you're down in the pig mine.
You're nearly a laugh,
You're nearly a laugh
But you're really a cry.

Hey you, Whitehouse,
Ha ha charade you are.
You house proud town mouse,
Ha ha charade you are
You're trying to keep our feelings off the street.
You're nearly a real treat,
All tight lips and cold feet
And do you feel abused?
.....! .....! .....! .....!


Little Timmy and Larry Summers star in video:



I live in the Phoenix, Az area and I am curious if other regions are experiencing
shortages/runs on handguns and ammunition.

After the election there was a brief period of "panic" buying by some who were concerned about new gun control laws. That was no suprize. But for the last 4 to 6 weeks there is virtually no ammo available ( unless you are buddies with the sporting goods manager at Wallmart or real good friends with a gun store owner).

This also includes reloading supplies. A quick check of the internet revealed
limited ammunition, bullets, very limited powder, and virtually no primers available.

I talked to several store owners and they will not accept "prepayment" for any of these articles because their wholesalers don't have any idea when they will receive products. It turns out most of the powders and primers are made "overseas".

Several stores I visited can't keep up with the demand for handguns. Are there
some "unintended" consequences starting to develop?


On another board, a poster made the same statement regarding lack of ammo.

The board is organized along interest in the Meyer-Briggs Type Indicator model.

The poster had previously shared that he had 27 years in the mortgage industry. He said 'he could see it coming', regarding the financial mess and had taken precautions. Presumably this is how he learned of the lack of ammo. He didn't say what his location was, and was dubious if one could find any online.

This post didn't stay up long, though. I don't know if a mod or the original author deleted it. I do know it wasn't up long, so I suspect the original author deleted it.

Google Trends for "ammo shortage"

Or try a google trends for ammo.

Wow -- some conspiracy theory? Hmmm I am thinking as the SHTF "the power that be" wants to be able to control the amount of damage. The last thing they want is an armed revolution on their hand. If the amount of the violence in the past few weeks is any trend, we might be in for a long long hot hot summer.

LOL ! Conspiracy didn't occur to me.

The board at which this occurred has a VERY strict Terms of Use. Beside the particular author seems to be very cautious about what he puts in writing, generally speaking.

I you don't already, you may find this site interesting:

Maybe all the ammo is being sold to Mexican drug lords and their gangs.

Ghana constantly comes up in articles about fuel shortages, in the midst of our supposed glut of oil. An example: Fuel shortage intensifies in Tamale - modernghana.com/regional news

Private and commercial drivers in the Tamale Metropolis have for the past one-week been going through stress in fuelling their vehicles, as fuel shortages intensify in the Metropolis.

Petrol has been in short supply in the Metropolis ever since government reduced the fuel prices. This situation is gradually bringing untold hardships to the people as most commercial and private drivers have since packed their vehicles waiting for the problem to be addressed.

At some places, only diesel and kerosene products are on sale. Majority of the drivers, especially Taxi Drivers are now moving from one fuel station to another in search of petrol.

Dealers are allegedly offloading the fuel at night to fuel vendors along the streets who sell in gallons and at exorbitant prices. A gallon of petrol now sells between six (6) and seven (7) Ghana Cedis by the retailers in Tamale.

Some of the retailers who spoke to The Northern File on condition of anonymity confirmed they have connections with the fuel station operators who secretly offload the petrol to them during the night, for their mutual benefit.

Solutions proffered include what's hip in the OECD: Ghana can do without Kerosene

Professor Frimpong Boateng who is reckoned to run his cars and other energy needs from biodiesels he produces himself, said Ghana can, and must also concentrate on what it is capable of doing conveniently in generating alternative fuels.

“I believe that right now, kerosene is used just for lighting, basically, to give light in the villages and so on, but that one we can do ourselves with biodiesel, and we can teach our people in the villages to do that.

“If it is just for light, then we don’t need kerosene. If we plan well, in five years we should be able to replace kerosene with jethropha or from palm oil..”

He said he was convinced then candidate J.E.A. Mills was sincere in his December 2008 electioneering campaign message and desire to reduce fuel prices.

However, now in government, the realities are such that President Mills cannot honour that promise but adopt pragmatic measures in dealing with Ghana’s energy challenges.

Professor Boateng also speaks of building trams and bicycle lanes.

Thought this might appeal to TODers: DIY vehicles and other items:


the bikes are pretty cool too:



Bank loans fell to a record low in the first quarter as the Obama administration steps up efforts to jump start debt markets and revive corporate lending.

Bank of America Corp. and JPMorgan Chase & Co. led banks in providing $79.6 billion of syndicated loans in the three months ended yesterday, a 61 percent drop from $203.2 billion a year earlier, according to data compiled by Bloomberg. The volume has dropped from $446.4 billion in the first quarter of 2007, before credit markets seized up amid the worst financial crisis since the Great Depression.

Bank lending is down 86% from it's Peak. This is a recipe for some serious deflation and it's just going to get worse. Oil at 5 dollars a barrel by September anyone?

Doncha know, the stock market has surged more than 25%, so the good times will roll in six to nine months. :)

Yeah, Barack and his motley crew are staying up late worrying that Joe Sixpack can't get his 7/11 store financed http://www.politico.com/news/stories/0409/20889.html

Daily Kos: Startling revelations on Three Mile Island & nuclear power

Thirty years later, it appears that what were were told about the few if any adverse effects of the accident at Three Mile Island ... was not entirely accurate.

You know folks, I read the DB today, and you all depress me. That's OK I expected it. But we have some hints of spring here, renewal of life. I learned in the 60's that outrage only goes so far. Life goes on no matter what. You grow old, get sick, and die. Happens to all of us, no one gets out of jail free card on that one. Try as we might we can't all be winners. But you need to define winners here, a growing awareness that it is not the toys, up here in fact, I see every boat, off road 4 wheeler, and plow trucks sitting in the yard with for sale signs.

There is an under current sometimes, that some of you folks wish you were the ones with money, it easy to see when you denigrate the ones who do. I'd like to speak for 20 minutes and make $135,000 like Summers did, as we all would, probably be more cogent as well.

But you know, something along the way tells me life is not kind. But I might say life is what you make it. I'm seriously prepped here, thanks to the 80's recession. A bit of a different, outside persepctive, I have very few worries no matter what happens. I do have some, and of course there is the stuff I never figured on.

But life is sweet, it teases you to take part. Really feel the fur of the kitten you pet, play with the dog. Time is short, smell the air, listen to the wind it has much to tell you. It's you friend.

There are times in life that are just sweet, April breezes and young ladies in skirts, I know you are almost all geeks, but these are things that need to be just enjoyed.Pretty things. Chill, we have a new cycle of life happening here, and I'm glad I'm still alive to see it. Won't go on for much longer, and it does something to the way you think.

I need to get some morphine, so I can die here quietly, and I do not understand why that is so hard,
why is that so controlled. Why is even our way out under government control?

Because with control, they can send you a bill.

Stars at night and wind in the trees to you all.

Don in Maine

I need to get some morphine, so I can die here quietly, and I do not understand why that is so hard, why is that so controlled.

I'll take a stab at it.

It's because "our" country has a long tradition of christian flagellism. The more you suffer, the closer you are to christ, and the more it increases the glory of god.

Same reason folks in AA regularly confine themselves to small rooms full of people who loathe each other and listen to the same stories, over and over....

Same reason folks in AA regularly confine themselves to small rooms full of people who loathe each other and listen to the same stories, over and over....

Thanks Mike. That was the best laugh I've had in a while. 10 years ago I got popped in a sobriety checkpoint and part of my probation was attending AA meetings for six months. As a result I had to listen to these drunks reminisce about "...gin man! I loved the smell of it...the taste of it on my fingers...but those were the old days and now since I've been (blank years) sober I've discovered the miracle of having a higher power...blah,blah,blah,blah,blah..."

I think if I ever get arrested again I'll take time over attending those meetings.


Written by Warren Brown in "Detroit's Critics Just Don't Get It":
The Detroit that Washington loves to hate... stopped existing at least 15 years ago. It faded because executives at GM, Ford and Chrysler reached a consensus not fully embraced by Congress or the American consumer. To wit: Oil will not last forever.

This statement is absurd. If the they had understood peak oil, then they would have embraced California's Zero Emission Mandate instead of undermining it. They would not have revoked the leases and crushed the EV-1's. They would have manufactured PHEV's 10 years ago. GM would have manufactured the Volt rather then shelving it for the future. They would have improved fuel efficiency rather than manufacturing gas-guzzling SUV's by the millions. The reality is they did not become aware of peak oil until a few years ago.

That whole article is absurd. I think Warren Brown may be a pseudonym for Rick Wagoner.

It is clear from their actions that the major car companies want to keep SUVs running on cheap gasoline. They begrudgingly improve mileage solely because they are forced to. He claims they were selling SUVs and trucks to using the money to finance research on alternative fuels. And they managed to squeeze out a few E85 trucks? Stunning accomplishment there.

GM, Chrysler, and Ford dropped the ball. They had a chance to develop hybrids and electric cars but they built progressively bigger SUVs instead. There's no reason besides bad decision making that they should have crashed into the ground while Japanese companies did better and better.