The global nature of oil is becoming apparent

In good news, it appears they are getting some refineries on line faster than earlier anticipated. From Reuters
Marathon Oil Corp. on Saturday said it expected all seven of its oil refineries to be operating at capacity on Monday, after Hurricane Katrina closed one refinery and interfered with supplies to two others. The 245,000 barrel-per-day refinery at Garyville, Louisiana, the company's largest, was being reopened over the weekend, officials said. Of the eight refineries, belonging to various oil companies, knocked out by Katrina, the Garyville plant was the third largest.
In bad news: concerns that the US need for European supplies will drag on for more than a month, are already being expressed
The head of the West's energy watchdog said in an interview on Saturday that Hurricane Katrina could spark a worldwide energy crisis if damage to U.S. refineries led to a big increase in U.S. purchases of European petrol.

 "If the crisis affects oil products then it's a worldwide crisis. No one should think this will be limited to the United States," Claude Mandil, head of the Paris-based International Energy Agency (IEA) told German daily Die Welt.

 "They are already buying gasoline in Europe. If the refineries are damaged, that will only increase. Then this will become a worldwide crisis very quickly."

 Mandil told the paper that high oil prices represented a risk for global economic growth and urged consumers to alter their behavior to save more energy and limit the fallout.

 Poor countries were bound to suffer most from a recent surge in energy prices, which has been aggravated by Katrina and the shortages it has caused, he said.

And $100 a barrel oil is no longer an unmentionable.
This concern is also appearing in Asia as reported in the Asia Times
Since the beginning of the year, crude oil prices have increased a whopping 60%. So far we have seen US consumers bear $40, $50, $60 and now even $70 oil with little impact on consumer spending. Yet it remains to be seen whether they will be able to withstand $80 or $100 oil.  . . . . the average consumer will have a much more difficult time dealing with a price of $3 for a gallon of gasoline. . . . .

Unfortunately not every part of the country is graced with an efficient mass transit system such as NYC - many Americans have no alternative other than driving to work. According to the 2000 US census, 87.9% of Americans commute by car, van or truck. In fact, a Wall Street Journal poll of 4,000 people conducted on August 15 reported that 31% of respondents said they have already cut driving activities, 21% said they would cut driving when gas reaches $3-$4 a gallon while another 18% said that they wouldn't cut driving until gasoline prices hit $4-$5 a gallon.

The rule of thumb is that every $10 rise in oil will shave 0.4% off of GDP. . .

Meanwhile down in Argentina the Daily Times reports that
Argentina will not allow domestic gasoline prices to rise, President Nestor Kirchner said after oil companies in the country suggested it was time to end a price freeze due to soaring global oil prices.

Kirchner said late on Friday that the government "will not accept under any circumstance" a hike in gasoline prices, according to the state news agency Telam.


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It's great that their refinery is going to be operating at capacity. There are still a lot of variables that are unaccounted for though, so forgive me if I remain bearish about the prospects of energy costs going down significantly within the next 6 - 12 months. At the same time, I think that behind closed doors Big Oil and our government officials realize that ramping production back up is of vital importance to our economy. The SPR loans and assistance from overseas can only last so long and go so far to help us.

This is a cakewalk compared to what WILL HAPPEN if peak oil arrives and the entire world is caught unprepared. Right now the world is coming together to help us to respond to the crisis, but when happens when we are all fighting for a dwindling supply? Answer: Wars. Famine. Population reductions. Riots. Disease.

More and more it seems like that possibility isn't far off. I sincerely think that even if the 4 largest economies in the world remained stagnant, the crisis will only be delayed by a matter of months or years (at best). When the peak is coming is anybody's guess. But something is coming and more people are beginning to sense that more trouble is on the horizon.

We may have to hit $100 barrels of crude to reduce demand enough. Something is going to change before much longer though. I know that in the US, independently owned and operated truckers will not continue paying these prices for diesel. At best they won't keep going into areas where supplies may be short and/or price gouging may be taking place. With the current prices of diesel many are barely breaking even.

I don't think the crisis I really fear is here quite yet. At the same time I believe we have a volatile enough situation that things may get a lot worse than we suspect due to mere convergence of related factors. High gas prices, localized shortages, inflation, natural disasters, offline refineries, reduced domestic production, and a BIG DOSE of "herd mentality" may lead to this getting a lot worse before it gets better. Herd mentality is what I fear the most. Let's see how well people behave over this holiday weekend. If people rush out to fill up their gas tanks, we may see gas lines up and down the coasts by next week.

I have to admit that I'm puzzled by this notion of whether $100 oil is "unthinkable".  Huh?  It's a price, fer cryin' out loud.  If supply and demand get far enough out of wack, $1,000 oil isn't "unthinkable".

I really believe that this is a serious problem we face in our energy situation, the constant need for many people (including experts who should know better) to conceptually limit what can happen.  Perhaps this is a defense mechanism--they don't want to think about the Big Evil Stuff that could take away their SUV, 71-degree AC setting, and insanely cheap airline tickets.  (I know PO threatens much worse, but the people I'm takling about can't even conceive of impacts beyond the kind I just mentioned.)

Another manifestation of this same mindset is the way some mainstreamers dismiss any talk about a PO impact by saying, "Oh, they'll have to come up with something."  I had one of these conversations a few weeks ago, and instead of giving up, which is what I normally do in the face of that level of ignorance, said, "NO, 'they' don't have to do anything--there are no guarantees."  The look of utter incomprehension I got from the person was priceless.  She had instantly decided I was a nutjob and not worth listening to.


I often wonder how things will work out if PO hits and we try to maintain the current economic structures. If most oil goes to transportation then people will either have to bed down in their offices etc. and not drive back home every single day or there will be a run on hotel beds and the opening up of very basic hotel-like facilities. If families have two parents working then one may have to stay in town all week whilst the other looks after the kids.
One thing will be madness if we continue the throwaway society for much longer....things built need to last because the cost of replacing them could be so much greater in the future. This point really pisses me off because the microturbines on sale right now have only a 20 year guaranteed life...we need century long lifespans. Does anyone think (or is it obvious) that the 19th century form of capitalism focussed a lot more on competing on quality but now things have changed and we're producing a lot more throwaway, lasts a day crap? I can't seem to get a videoplayer that can last a year and cars seem a lot more fragile in every way than previously. Bah humbug.

Some people will be able to telecommute or carpool.  They might have to either move closer to work or change jobs.  You might start to see a lot more motorcycles on the road.

For people living way out in the boondocks, you may be right about someone having to live in the city during the week.  Maybe a studio apartment - a hotel would be too expensive.  Heck even a 2-bedroom apartment and a roommate would work.

In the end, these are all short-term coping mechanisms.

I got an email from someone at work this week pointing people at  This is from the guy who drives the Navigator, and his commute is only 5 miles or so.  Yeah, be my guest - go and try and find your cheap gas.

I already live in the city during the week and return to my home on weekends.  I don't think I'm alone.  Fortunately, I can stay with family in the area where I work.  

I've noticed more motorcycles and scooters.  I used to ride a moped, then a small motorbike.  Even before cell phones, enough auto drivers didn't notice me that I sold the motorbike.

Sounds like you are too young to remember the 60s. Back then engines with over 50,000 miles on them were one step away from the scrap yard. Tires needed replacement at least twice a year. Spark plugs needed replacement along with ignition points every year. Oil had to be added at nearly every fillup. I bragged about getting 20mpg from my VW. Overall even the cheapest cars now last longer than the most expensive did then. VCRs weren't even imagined and a remote control meant telling one of the kids to change the channel. We didn't have to say which channel since we only could get two.
On the other hand outside of the use of semiconductors and better materials there really isn't anything in new car engines that wasn't used in WWII airplane engines. B-17s had turbochargers and B-29s had electronic fuel injection. All airplane engines used aluminum alloys while many cars are still stuck in the iron age.  Hemi heads and 4 valve cylinders were racing around Indy back in the 30s. Duesenbergs had double overhead cams when most cars were still using flatheads. Automatic transmission are mechaniclly the same as those developed in the 30s and used by Sherman tanks in WWII. The only mechanical innovation since the 50s is the Wankel.
Good news if it happens.  Watch out for corporate happytalk at this stage of the game, though.
Near the end of that NY Times article HO cites, we find this intriguing text:
The Eurasia Group, a political risk consulting firm in New York, identified potential events in nine countries that could send prices higher - from terrorist attacks in Saudi Arabia, to which it gave a 10 percent probability; to unrest by oil workers in Nigeria, a 30 percent probability; or attacks on Iraq's oil industry, with a 50-50 probability.
While I'm still looking for this report, I did find this article titled Prices transform oil into a weapon. Interestingly, this piece by Ian Bremmer, president of the Eurasia Group, was written on Saturday before the storm hit. This is good reading. After noting that there is no global spare capacity, Bremmer says
... petro-states are rethinking their assumptions about the elasticity of global demand for oil. When oil sold for $30 a barrel, they accepted the conventional view that substantial price hikes might lower demand - and hurt their bottom lines - as importing states actively looked for new sources of oil, energy alternatives and other ways to cut fossile-fuel consumption. Now that oil sells for well above $60 a barrel, without (so far) a sharp drop in demand, energy-exporting states are changing their minds. Some now believe they can push the price still further and increase profits without a drop in demand.

The mere threat [by Iran] of a reduction in energy exports - even if it involves only 200,000 barrels a day - could have enough impact on demand-driven markets to be considered the world's largest potential supply threat to already high oil prices.
As Matt Simmons says here (pdf), Demand has become a Run Away Train.
Of course, we are dealing with two choke points:  Crude/natural gas production and refining.  

I'm skeptical that we will be able to ramp up refining production given the breakdown of regional physical infrastructure (freight movement, passanger movement, water, sewerage, electricity, etc.), as well as basic community infrastructure such as housing for workers, health care, basic retail (e.g., grocery stores), etc.  It's hard for me to see how any industrial facility operates at 100% under these conditions.  They may have to look at constructing temporary housing and dining facilities for workers before they have the manpower to crank up production--a task that will be daunting under all of the conditions outlined above.  If those workers have displaced families to take care of, then matters are all the more complicated.    

Regardless, it is also very hard for me to see how we get Gulf crude production back up to previous levels within 2 years.  That makes a previously bad situation worse, no matter how you slice it.  The SPR can only carry us so far.  Without any spare capacity from overseas, we're still in a pickle to say the least.  

Re: Iraq Update

Even as the NY Times was going to press with this happy article Thanks to Guards, Iraq Oil Pipeline Is Up and Running, On and Off saying
Saboteurs shut down Iraqi crude oil exports to Turkey for virtually all of the past year, but the oil is flowing again after Iraq's government put in place elaborate new security measures and decided to move its product in what is essentially a clandestine operation.
we learn that Bomb blast halts exports through Iraqi pipeline. (This was noted on a previous thread).
"The blast halted all exports, it stopped them completely," the source told Reuters.

Although the Kirkuk-Ceyhan pipeline has a nominal capacity of close to 1.5 million barrels per day, throughput has typically averaged only around 200,000 bpd since the U.S. invasion of March 2003 because of frequent attacks on the line. It has also been closed for long periods.
Also, we see that Iraq exports are down in August -- "Iraq exported between 1.46 to 1.47 million barrels a day of crude oil in August, down around 130,000 b/d from July, an oil official said Thursday" (see here).
From a terrorists/insurgent perspective, this is an ideal time to attack the global oil and gas infrastructure.  If they had any attack plans in the works, now would be the time to launch them for maximum impact while we are most vulnerable.  It looks like they might have figured this out.    
As alan said here, "it sounds like a movie I heard about". To paraphrase PG's response:

cue the muhajadeen
Would that mean that the "central front of the war on terror" has now shifted to New Orleans?  From another perspective, has it shifted to an "everywhere and nowhere" front?  Should you choose to, how does one fight a war that is won or lost in the trading pits?  
Apparently the trading pit war is fought by releasing oil from the SPR and strong-arming our fellow IEA member states to ship refined products to us.  The problem, of course, is that you can only do this so long.  

N.O. as the central front in the war on terror?  You might think so based on the number of troops that are arriving and the talk of federal marshall law, but I won't go there.  ; )

This kind of warfare is using weaknesses in vital areas to attack an enemy while doing it without the necessity of complex military structure.

Isn't this called Fourth Generation Warfare?

Unfortunately the only thing that is going to force people to confront the problem is high oil prices.  There will always be stories in the news about a pipeline here, or a new oilfield there.  The problem is that most people are innumerate, so if you tell them that an oilfield has a billion barrels, it sounds like such an inconceivably large number that they would never even suspect that on paper the world could suck such an oilfield dry in a matter of weeks.

People say that price is very inelastic, and in the short term this is true to an extent.  Prices go up, and people suck it up and pay the price.  Replacing a car is a big deal for most people, but if prices stay high long enough, it will ultimately happen.

Yes, I heard an NPR story about a new field in Utah with potential reserves of perhaps 1 billion barrels. This was reported uncritically, as though that was a lot of oil.
If Wolverine [Gas & Oil Corp] could produce 1 billion barrels at once, it could satisfy the nation's demand for about 45 days...
It's been mentioned here before about people in this country complaing about the high prices of gasoline.  The letters to the editor in our State wide newspaper, have been getting all kinds of letters from prople blaming the Oil companys and the Retailers for the hikes in gas prices, some times on a daily basis.  A frind of mine called me yesterday, and we talked about the price of gasoline, he was doing the same as all the rest of the people blaming the Oil companys.   I patiently explained as best I could that there just might be more to it than  "Gouging"  ie;  The refinerys that were affected furnished gasoline to a number of states that were not even close to the path of Katrina.  These states were in peril of running out of gasoline, and did he even give it a thought that the Major Oil companys that own refinerys, may just be shorting us here a small percentage in order to get gasoline to the areas that depended on the ones that were shut down, so that no one completely ran out.   He thought about it a minuete and then agreed, I also reminded him the gasoline is a product that runs on supply and demand, and if our stations are running low, for sure the price is going to rise. My only dissapointment in the conversation was;  He doesn't have an internet connection, so he could't come here and learn more about whats going on.  We live in Arizona.

charlie C.  

News Analysis: The oil shock of 2005 recalls the one in 1973

NY Times via the International Herald Tribune (no reg required)


From Aug. 26, when platforms were evacuated in anticipation of the storm, until Friday, the total amount of lost oil production was 8.7 million barrels, or about 1.3 million barrels a day.

That is not much compared with what was lost during the Arab oil embargo after the 1973 war between Egypt and Israel. Then, an embargo on oil shipments to the United States led to a shortage of about five million barrels a day at its worst point, in December 1973.

mw: True, but the embargo did not also cut a) refinery capacity, b) nat gas production, c) critical infrastructure, d) displace US based employees, e) put a big load on the military, at home, and at a time when f) the military is occupied elsewhere in foreign adventures, and...

despite the ratio of oil to GDP $$ having gone down, the reality is we are more dependent on oil than ever before and, what's really new this time, is our dependency on natural gas is as history highs.

Remember... decades ago NG was burned off as a "waste product". Its now the fastest rising energy source by new utilization, period.

Interview with Matt Simmons on WNYC (Public Radio NYC) August 30.  "Are we looking at 1970s style gas lines?" - Matt Simmons "Probably so."


Keep in mind that there will be significant differences between the effect of Peak Oil on prices vs something like Katrina. The difference will be in the time scale over which it happens. Katrina was a shock, gasoline shot up overnight. As Peak Oil approaches though we will see prices rise gradually and steadily over a period of years. This will give people more time to adjust and it won't be such a shock.

Another difference is that people expect the effects of Katrina to be temporary. In a few weeks or months all the refineries will be back on line and most of the oil production will be restored. With Peak Oil, as awareness spreads people will understand that oil is getting harder and more expensive to produce, so they won't expect prices to fall. People respond differently to temporary high prices than to permanent ones.

I don't know when Peak Oil will happen or how the scenario will play out, but I don't think Katrina is a good model for the situation.

Prices will only rise gradually if the balance between supply and demand tightens gradually. There's no reason to believe it will do this.

What's more likely to happen is a series of lurches up and down, as daily / monthly / annual oil production comes in at, under, or above the needs of the day. We've seen over the past two years what a relatively tight supply/demand balance does to price. No one would argue that the rise over this time has been "gradual".

As the gap between supply and demand tightens, prices will find higher highs at which the "new normal" will be formed. This has already happened, and unless the trend reverses, there is no reason to believe it will not continue, not unless one has data showing a solid surplus developing in the future.

When the "peak" arrives -- when growth in demand is such that supply can't catch up this month, next month or next year -- prices will have been rising very quickly. We'll know in hindsight for certain, when our unclear and unauditable output statistics finally can't be fudged further and show declines world wide, on balance, in production.

Prices and the nature of the rise do suggest we could be nearing a peak. Keeping in mind that there are myriad players in crude oil markets but that the majority stakeholders are the large producers and consumers of oil, one can only surmise that a significant fear of ever rising prices grips the market. Terrorism is a spot event and does not explain a fear of ever rising prices, however a fear of less future supply than future demand most certainly does.

Peak Oil is very likely analogous to the right hand side mirrors found on most vehicles - the sticker on that side announces "Warning: objects may be closer than they appear."

Halfin writes: "As Peak Oil approaches though we will see prices rise gradually and steadily over a period of years."

I have been thinking about this and I believe that we may be better off with a shock well before the peak than gradually rising prices.  The reason is that if we have gradually increasing prices, people will adjust but will not take drastic action until we are at the peak when it will be too late and our options are severely limited.  However, an early shock with a recession could delay the peak, force efficiency and conservation changes and possibly lower the annual rate of demand increase.  Of course one could say we had such a warning in 1973/79 and we squandered the opportunity.  If Katrina is such a shock, it may be the silver lining on the cloud.  


I think the big question is how long the pain lasts. A shock now, with sustained pressure thereafter, might lead to the best long-term adaptation. Even if an easing occurred, the government could keep the presssure on prices long-term. Nobody would have the stomach for it, though.

My scenario for the worst-case long-term result: a moderate-term shock (say a year or less) followed by relief (somewhat lower prices, no really apparent problems with supply). People will cut back short-term, then revert to the old ways as soon as possible. When the real crash comes, they will assume it's another temporary disuption and act accordingly. Then we'll have no changes in infrastructure, behavior or attitiudes before the peak.

A lot of the changes needed to reduce consumption have really long lead times. 69mpg Smart cars are great, but it will take at least 15 years for the US auto fleet to be replaced under good economic conditions. Unless the shock is sustained, we'll all think and act short-term. As you point out, we've blown the opportunity to be responsible on more than one occasion in the past.

Oil price shocks do induce recession, historically.

But unless the recession turns into a depression, the only effect will be a slowing in demand growth, not a reduction in demand.

This has been true since 1993, but not true over the long term. We have ample evidence of reduction in total demand. Looking at the 2005 BP Statistical Review of World Energy,(at, from table of total oil consumption worldwide, we see lots of historical demand reduction, not just slowing of demand growth.

1979     3105.6   record year
1980     2974.7   down versus previous year
1981     2870.8   down
1982     2776.8   down
1983     2760.4   down
1984     2811.8   first up year since 1979
1985     2800.1   down again
1986     2888.6   growth resumes until 1990

1990     3139.4   new record year
1991     3135.5   down trivially
1992     3168.6   up
1993     3141.5   down
1994     3204.4   new record year

Worldwide consumption has been up to a new record level every year since 1993 until today. Whether oil demand is just tempered, or actually reduced, depends on how big the shock is, and the circumstances under which it occurs.

I, for one, intend to experiment with making my own fuel using green technology. What prices will do could depend a lot on how steep the downslope is. If the world economy is doing poorly due to a worldwide recession or depression, we might be worried about more pressing issues... like putting food on the table.

Really we're talking a bunch of "what if's". We don't know WHEN to expect the peak, although there is a lot of fear that it's already here or VERY close. If it comes out of the blue, it could be catastrophic no doubt. Yet doomsday predictions have a long track history of being wrong.

My nightmare scenario is that we'll enter into a long period of social upheaval, wars, and economic problems. That isn't the only possible scenario though. Nobody can say with 100% certainty that we won't have enough finds down the road to get us by just long enough to switch to a more sustainable way of life. Forewarned is forearmed.