The second quarter of the year is normally quiet

For those waiting the tech talk on cracking, it has been delayed a week, since I was working on trying to index the first six months of our efforts.

It seems relevant to be talking a little about refineries since the latest ASPO-USA newsletter has a piece by Tom Standing about the dangers of including all produced hydrocarbon liquids into the total of oil products available.  As he points out the CERA study, that we have discussed earlier includes Natural Gas Liquids (NGL) and Condensate in their report that production of "petroleum liquids" will increase in volume by 16 mbd between 2004 and 2010.  Forgoing the reality of that increase for a moment, Tom points out that there are some problems with including the Condensate and NGL in the supply, particularly as it relates to transportation needs.

Gasoline, diesel, and aviation fuels consist of hydrocarbon molecules with roughly 8 to 16 carbon atoms. This size range keeps fuels within the specification for vapor pressure, but light enough to be readily ignited.
Condensate is a much lighter and more volatile liquid. It frequently is a co-product in natural gas fields, but also appears in some oil fields. Its molecules may be as large as 12 carbon atoms or as small as 4 (butane). The heavier end of condensate (higher boiling temperatures) can be blended into transportation fuels. But the light, volatile end must be used sparingly to keep within the specification for vapor pressure.
Natural gas liquids consist mostly of propane and butane (3 and 4 carbon atoms) with some ethane (C2H6). NGL is too volatile for blending into transportation fuels.
Given the relatively large amount of NGL that is anticipated to be available over the next four years this is a fairly critical distinction, that has not previously been obvious. However the article points out that most of the NGL goes into chemical feedstock, and thus including it in the crude oil numbers (which of most critically oriented towards transportation use where NGL doesn't work) is akin to "comparing apples with rhubarb."
In regard to the quality of product available Platts reported last week that OPEC production rose in February, with the largest increase (from 1.53 to 1.79 mbd) coming from Iraq, while there were production drops of 40 kbd from Iran and 30 kbd from Nigeria.  The report notes that Iran is having problems:
Iran, with a high depletion rate in its producing fields and experiencing great difficultly in selling Soroush/Nowrouz crude, has not managed to produce its 4.11 million b/d quota since it came into effect in July 2005.  
The production drop for Nigeria is a bit low, given the continuing attacks that have now cut production by 622,000 bd, some 26% of their capacity. (A number that over-rides the gains from Iraq). The two offshore Iranian fields were set to produce 190,000 bd  and to come on line two years ago, but are now reported to be coming into production by May of this year.  The Arab Times notes that UAE production is also now down 150,000 bd, due to maintenance at Murban.

Platts is also noting that Gazprom is still looking to increase its market penetration with talks scheduled with Israel for a pipeline extension that will secure additional supplies for the future.

And in regard to the "We Were Warned" program, I am still not sure of its value, so I may return to the topic later in the week.  I guess that in part I had not considered Westexas point about the role that advertising might play in setting the content.  I did note that the program did not say what would happen after the period covered by the program was over.  Certainly there was no arrival of the odd tanker from Russia to bail us out.  Guess we're toast.

Mexico's oil production seems to be holding up nicely at the moment. February figure is 3,747,000 bpd which seems typical and in line with previous years. Looks like we will have to wait until May/June to see what the production figures are telling us.

Norway's January figures are down on December's and February's preliminary figures are slightly down on January's but nothing spectacular.

As for prospects for production in the GOM, if Mother Nature keeps up the pace viz., today in Australia- 59 I doubt the third quarter will be quiet. And as for "We Were Warned", I think I'll produce a clip with just the pro New American Century propaganda. Terribly unsubtle in spite of their effort.
Got a question for HO.  I've been hearing on the news that over half of the platforms in the Gulf haven't been inspected since the hurricanes came through.  On the other hand I've seen that the production is back up to 75%.  Did they just turn some of them back on without inspection?
I would guess that means they inspected the most productive ones first.  
Re:  Total Liquids & Crude Oil Inventory Numbers

These two items have bothered me mightily for a long time.

First, in regard to total liquids, I never thought it made much sense.  I always thought that the crude + condensate numbers make a lot more sense, primarily because large volumes of NGL's come from natural gas reservoirs (also true for condensates, but less of a factor).    Also, you get distortions from refinery gains, especially here in the US.

Second, in regard to crude oil inventory numbers, they don't differentiate on the basis of quality.  A barrel of very heavy, less than 20 Degree API gravity, crude with a high sulfur content is counted the same as a barrel of 40 Degree API gravity light, sweet crude.   As Matt Simmons said, it's like counting a rusted out 1960 Plymouth the same as a 2005 Rolls Royce.  I think that it is quite likely--especially in light of the spread between heavy, sour and light, sweet crude--that growing inventories of heavy, sour are obscuring flat to falling inventories of light, sweet crude.

Yes, I'm also concerned about the shift in quality, especailly since I've learned, right here at TOD, that light sweet crude did peak in 2004?

As for the CNN outlet, it was pretty much along the usual line:
there is a problem (in this case:"huricane" & "terrorists")
they explain we need oil for mobility(i.e. the "economy")
there are "other" things to power mobility(like Hydrogen, )
problem solved!

There IS a problem (Peak Oil & Overpopulation)
We need oil, for FOOD ( i.e. to live comfortably)
There are other foodsources (like other people. Problem solved)

"You don't want to go there" (Mr. Simmons, as in CNN's " We were warned")

2nd Quarter Quiet?


A little off topic but I want to get in on a new thread and get some feedback.  This is an idea I had yesterday, I've been thinking a lot about PO the last couple months...

What if we could get the USGS to revise its reserve numbers??  Has anyone tried?  I'll do my part.  TOD certainly has some members whose inquiries would be deemed credible.  Portland Peak Oil, my new town, seems to have the ear of some local politicians, and I'm sure there are some other towns (the usual suspects) who could join the call.

As in the climate change debate, there was always that pesky satellite data that conflicted evidence of warming.  Finally someone recalibrated the instruments, the data concurred and serious opposition was pretty much finished.  It seems this USGS data is playing a similar role...

The publicity around not only a revision but the request for a revision would go far, IMO.

There is a great precedent for scientists speaking out and asserting the truth.  Look at NASA now (and NOAA?)and others in gov. speaking out against 'prevailing wisdom'.  Credible scientisits have every incentive to put out real data.

I even know someone at USGS, even though he does beach profiling/sand transport (He's from Santa Cruz - whad'ya expect?).

PO is our little secret but won't we all be better off having this widely known?

I doubt that you will get them to change their numbers, but I am backing through the various reports to trace where the original ones came from.
Climate change is probably a more terrifying event than PO. OTOH, it is now evident that climate change is accelerating due to the burning of FS. Meanwhile the same burning of FS (small particals) keeps out a significant part of incoming
(sunlight), more known as Global Dimmming. Going downslope after PO may cause less en less GD, accelerating Global Warming.

If Peak Oil is broadly accepted to be happening now, you're crashing the "market"

What if we could get the USGS to revise its reserve numbers??

Have you read and understood the methodology of the USGS report? That would probably be the best place to start.

I have looked at the USGS figures very closely, and no one as yet has produced any good evidence to show they are wrong. In countries where active efforts are being made to discover oil, the volumes being discovered are in line with USGS estimates. In general, the countries which are not performing up to USGS estimates are not discovering new oil because no one has been exploring for oil there. Iraq is the classic example. The USGS estimates that large volumes of undiscovered oil are present in Iraq, but the poor discovery record in Iraq doesn't prove that the oil is not there. No one is drilling because the country is at war.

To prove that the USGS estimates of undiscovered oil are wrong, you need to identify a country/province X satisfying TWO criteria:
 1) Discoveries in X are substantially lower than the USGS estimates suggest
 2) Actual efforts are being made in X to discover new oil.

So far, no one has met the challenge of identifying such a country.

The USGS has a evaluated its own track record, in a paper referenced here.  The USGS procedure for estimating reserve growth has an excellent track record, and in fact has underestimated reserve growth thus far, as you can see in the paper.

If you're curious, there's lots more analysis of the USGS available here

I have looked at the USGS figures very closely, and no one as yet has produced any good evidence to show they are wrong.

One thing I have learned from TOD and other peak oil sites is that reserve numbers are not that important. Evidence - and common sense - shows that the most easily exploited reserves are developed first; what is left after them is only good for managing the tail, which of course is important as such, but does not help the fact that we are close to the peak.

Thanks for the link JD

I truly did intend to mention that I have not read the report(s) in question.

I certainly have encountered a lot of indications that the USGS projections fly in the face of actual widespread evidence, though.

Hopefully they're somewhat readable...

What is in a name?

I guess I am a doomer. Physics is not the tooth fairy. You cannot escape that reality.

There are some Christian lunatics who feel either God will take care of them or that God will accelerate the apocalypse. They are arguing from the nut-job seats.

Then there are the techno worshippers. They feel that growth is unlimited with the right cool gadgets. Surprisingly the techno worshippers are often the least versed in simple physics. They are interested in the management of micro situations -- i.e. building underground air tunnels to heat and cool untenable desert habitation. They fail to look at the entire situation. It is analogous to remodeling their stateroom on the Titanic. A homeowner in Phoenix still needs work, food, water and energy to get to work. Holistically, Phoenix is a town that will collapse even as that house remains comfortable.

There are the other easily dismissed lunatics; free marketers, economists, the drill-as-fast-as-you-can group, the abiotic oil crowd, et. al.

To me the main problem seems to be the lack of global vision. Most of the arguments here revolve around people's pet theories or technologies. My favorite is the perennial hydrogen economy freak who envisions the limitless growth era through hydrogen. Most people here will agree that this fantasy is laughable at best, and dangerously diverting at worst. What many of those people, who do not see hydrogen as a viable option, do not see is the underlying reality of limited growth. Growth will stop. Population growth will stop. And when that stops ALL other growth dependent on population growth ends. PERIOD.

The problem is oil has allowed us to extend our natural footprint to cover far more of the planet than ever allowed under a natural checks and balances, thus resulting in human overshoot. Oil has allowed us to degrade the checks and balances of nature to such a point that systems we had once relied on to support us pre-oil are being and are degraded, though, due to cheap energy, we are able to ignore that serious problem. Once the cheap energy life support system begins to degrade, no amount of technology, religious BS, or Pollyanna hoohaa will save us from the completely natural end result of overshoot.


As a geographer I couldn't agree with you more. they call us doomers but we have a vision at least. I think that peolple are extremely adaptive and human communities will strive in the far future. Only much less people, and much less comfortable. Malthus was no grazy man.

Sadly, your description of various factions sound a lotlike the philosophical underpinnings for future neocon energy policy.  It's hard not to be cynical...

I also agree.  An excellent analysis.  You are on my list of favorite posters here.  Thank you for your contributions.

I guess I am a doomer. Physics is not the tooth fairy. You cannot escape that reality.
Among the realities of physics are the facts that the Sun delivers humanity's annual energy consumption to Earth in roughly 40 minutes.  That's about 36 times a day, every day of the year.  Another reality is that there's something like 72 TW (that's TERAwatts) of wind power potentially available in the world; that's enough to give each member of a world population of 9 billion more energy per capita than the average European - as pure electricity, no conversion losses.  That doesn't include available energy and materials from e.g. waste biomass.

Physical reality does not compel the doomer conclusion; you have to postulate massive human screwups.  That's why I've gotta ask all of you:  what side are you on?

Arguing that e.g. Phoenix and Las Vegas will become ghost towns is quite tenable.  We've seen towns and even whole cities be abandoned, partly or entirely; the exhaustion or destruction of the physical basis of their existence is a darn good reason.  People abandoned "rustbelt" cities when the jobs moved south.  But the whole world?  That scenario requires the same conditions to apply everywhere, and I have not yet seen anyone do a good job of arguing that it's so.

The claim that we're going to collapse because the supply of oil will start to slide is based on the inefficiency of current petroleum-fuelled systems.  That inefficiency is an artifact of internal combustion engines, which are currently dominant but no more guaranteed to remain so than horses were.  We've got a heap of technologies capable of replacing the ICE for most purposes (including transportation), and a number of them are much better converters of fuel to work than pistons or turbines.  For example, the direct-carbon fuel cell appears to have a potential efficiency of 80%.  We can't run the USA on bio-ethanol using engines that get 20%, but it looks almost easy with bio-charcoal and DCFC's which eke out 80%.

Of course, none of this allows infinite growth.  Technology can't make something from nothing, it just looks that way to people who don't look at it closely enough.

Good points.  Just because we will be screwed with our energy situation for an indeterminate period of time (10, 15 years?) doesn't mean that we are terminally screwed.  We're in for a very interesting transition, but I don't expect that transition to include, for example, Kunstler's fantasy of something resembling a return to the 19th century in America.  

Climate change and the general ecological damage we are wreaking are going to present more challenging issues in my mind, and will have a bigger impact on the quality of life for our children / grandchildren.

Here's a bold prediction:  Everyone who is smart enough and rich enough to read this blog will be just fine in the long run (i.e., you might lose your job but you won't starve or go to war with a neighboring cul de sac).  

The people who won't be fine are the few billion out there  without the means to adopt new technologies and restructure their economy around the innovations (organizational and technological) that emerge from this mess.        

The real problems will BEGIN in 10 to 15 years time. And probably last a lot longer - at least a generation.

IFFFFF we don't solve them quickly, we will have missed the historical chance to use our planet's oil and gas riches to move to the next level of energy exploitation.

IFFFFF we do solve them, then we will be able to move into the next level of growth. There are always limits to growth, but I doubt that Cherenkov knows where they are.

Hi Poet.

All of what you say is pretty good, and in the long run energy is still arround, we'll just have to learn how to use it.

But, if Peak Oil is coming in the next 5 years, you can't tackle it with technology that will be ready 20 years from now (at the best). I think you are familiar with the Hirsch report, so I don't have to tell you this.

Beyond this there's a much deeper problem with agriculture. In the XX century we lived with high intensity single-crop systems based on Oil. That will not last forever, someday in the (near?) future we'll have to go back to multi-crop systems, and it is highly doubtfull that 9000 million or even 6500 million people can be sustained that way.

Just because there are solutions to a problem it doesn't mean that there isn't one.

if Peak Oil is coming in the next 5 years, you can't tackle it with technology that will be ready 20 years from now (at the best).
True, but IIRC tech like molten-carbonate fuel cells (of which direct-carbon fuel cells are a variant) is nearly commercial already.  The USA can handle things in the short term by scrapping SUV's, and companies like Rentech are already building coal-to-liquids stuff.
Beyond this there's a much deeper problem with agriculture. In the XX century we lived with high intensity single-crop systems based on Oil. That will not last forever
Chemically-fixed nitrogen needs can be supplied from crop wastes, at least in maize.  I've seen no analysis for phosphate, so I can't say.  Rentech is converting an E. Dubuque nitrate plant from n. gas to coal; we're not going to see any near-term collapses there either.
we'll have to go back to multi-crop systems, and it is highly doubtfull that 9000 million or even 6500 million people can be sustained that way.
I calculated that we could support a great deal more than that (on far less area) using aquaculture.
Just because there are solutions to a problem it doesn't mean that there isn't one.
Um, what?

Take your time clarifying your response - I'm going away for 3 weeks, so there's no hurry.

Hi again Poet.

IIRC tech like molten-carbonate fuel cells

I don't have a clue of what this might be. I googled it and it return 8 results. One is your blog, another is this thread. Small results for a nearly commercial technology.

Can you tell us what this is? Maybe you can put in your blog?

I calculated that we could support a great deal more than that (on far less area) using aquaculture.

Very interesting, I'm pretty much into this subject myself, I'm trying to calculate the Planet's carrying capacity using multi-crop systems like Norfolk. How did you made your calculations?

As for chemicals, from what I learned its main function is to make crops grow faster, that's the way you support more people with the same land area. Using other nutrients (from animals or crop waste) the crops will grow but slower.

I know a hydroponics freak, I've discussed with him about this issue a lot. What I learned from it is that you can't grow every crop that way.

In my last sentence I tried to say this:
You have a problem - Peak Oil
You have a major solution - Solar
But still you have a problem to solve. It won't solve itsef.

Poet, you seem to have large knowledge about theese issues. Have you heard of the Beyond Peak Competition? Are you thinking of participating?

the Sun delivers humanity's annual energy consumption to Earth in roughly 40 minutes.  . . there's something like 72 TW (that's TERAwatts) of wind power potentially available in the world; that's enough to give each member of a world population of 9 billion more energy per capita than the average European - as pure electricity, no conversion losses.  That doesn't include available energy and materials from e.g. waste biomass.

 When you say 'no conversion losses', does that mean you did or didnt calculate for conversion losses. Does that include losses from making,implementing,and maintaining the infrustructure? Im curious how much metal(silver, platinum, copper etc.) it would take to capture enough of this wind/solar energy for everyone. How much arable land would be used? At what point would we run out of these things?

When you say 'no conversion losses', does that mean you did or didnt calculate for conversion losses.
It means that the 72 TW is electrical power out, not thermal power in (which is what's used in the "400 quads/year" figure for total human energy consumption).  To get effective thermal power in, multiply by three.
The problem with peak oil as I understand it, is not only that energy production will peak. That is the first step in gathering this concept. The global problem is that this will mean that the most valuable asset of world economy is going to disapear. Our whole system is based on the growth of oil supply which is an asset because it is :

 - an energy "source" (in fact is solar energy stored for the long term)
 - a prime matter : for fertilizers, pesticides, medicines, solvents, plastics, ...

If you believe that segmentation in that way of the peak oil problem will solve it, I must say that you should look more at the intricacies of the oil economy. An example : look at the price of all the other prime matters and energy sources (like uranium). Think about it : why does your bank lend you some money ?

Of course, there are substitutes for a lot of applications, in theory. We can imagine another world with new paradigms in which we can take care of 6 000 000 000 human beeings. But this will require :

  • an unprecedented effort in informing people, just everybody. This will mean, repower our schools, bring back the lust to learn and to teach. Begin yesterday.
  • to increase the number of researchers and engineers by 100 or better 1000 times the actual number
  •  to create a new philosophical and economic system

I for myself believe in human ingenuity. I don't believe that the economy will solve this on its own. History teaches us that if you want to resset the entropy of society, you need a huge shock. This could be the first time that we could change on our own, with conscious behaviour through information. An incredible powerful tool exists : the media. Could we, humans, for once be more intelligent than yeast ?
... increase the number of researchers and engineers by 100 or better 1000 times the actual number

While a more educated and scientifically and economically literate population would be a good thing (and so would a society which had far less use for lawyers), I think you're exaggerating just a little there.
I believe that a city in India was abandoned because it was built in an area with only limited supplies of water that didn't recharge quickly, so they had to evacuate it. Some capital of the Moghuls. No citation. It's still there because no one lives there.
What fraction of gas liquids are not suitable for motor vehicle use?
Propane and up have been used in internal combustion engines.
Great Opinion piece by Nathan Paulson in the Minnesota Daily today about the US Army Corps of Engineers Report made available last week and the peak oil implications coming as us fast.
"This insatiable appetite for petroleum has at once inflated the material affluence of the U. S. middle-class and become an Achilles' heel that is leading our nation headlong toward its final demise. As demand for oil exceeds production, soaring energy costs will render the global economy's transportation infrastructure useless and create the conditions for a widespread financial collapse that might well make the Great Depression look like a picnic by comparison. When this scenario begins to unfold -- as it almost certainly will in the very near future -- the need to conserve energy resources will be urgently felt."
"Our task now is to soften the impending catastrophe by taking steps to support local economies. This means purchasing food directly from local organic farmers through farmers markets or Community Supported Agriculture and learning useful skills such as sewing and gardening. We can also shop at stores that stock goods from local producers and get involved in organizations like the Permaculture Collaborative, Land Stewardship Project, Minnesota Institute for Sustainable Agriculture, Institute for Agriculture and Trade Policy, North Country Co-op, Seward Café or any of the many other groups dedicated to strengthening local economy."
"When this scenario begins to unfold -- as it almost certainly will in the very near future --"

Right. . .

"Our task now is to soften the impending catastrophe by taking steps to support local economies."

OK, you do that if it makes you feel better.

Who do you believe when it comes to OPEC crude oil production? Below are the figures from Platts, the EIA, the IEA and MEES, (Middle East Energy Specialists). The differences are mind blowing. From December to February the EIA has OPEC production DOWN by 827,000 barrels per day. However the IEA has them UP by 300,000 barrels per day. That is a difference of 1,127,000 barrels per day. It is unimaginable that one of them could be off by that much.

Platts, the EIA and MEES give monthly stats for each OPEC nation. However the IEA only gives total OPEC production. And all figures are for crude only.

Anyway, I trend to trust the EIA in this case because they more accurately report the situation in Nigeria. CNBC, about the middle of last month, reported that 445,000 barrels per day offline in Nigeria. The EIA has Nigeria down400,000 barrels per day in February while MEES has them down by 220,000 barrels (from December) and Platts has them down only by 50,000 barrels. Platts is not even in the ballpark. (As I said, the IEA Highlights of the Oil Market Report does not break OPEC down by individual countries. The Full Market Report does, but it is always a month behind the highlights.)

Other differences are:

MEES has Iraq recovering Dec. to Feb. from 1,550,000 to 1,900,000, a gain of 350,000 barrels.
Platts has Iraq recovering Dec. to Feb. from 1,550,000 to 1,790,999, a gain of 240,000 barrels.
EIA has Iraq dropping  Dec. to Feb. from 1,750,000 to 1,7000,000, a loss of 50,000 barrels.

MEES has Iran recovering Dec. to Feb. from 3,890,000 to 4,010,000, a gain of 120,000 barrels.
Platts has Iran dropping Dec. to Feb. from 3,930,000 to 3,960,000 a loss of 70,000 barrels.
EIA has Iran dropping Dec. to Feb. from 3,950,000 to 3,900,000 a loss of 50,000 barrels.

December .. 29,800
January    ... 29,680
February .. 29,920
Dec to Jan .. -120
Dec to Feb ... 120

December .. 30,160
January    ... 29,605
February .. 29,333
Dec to Jan ...-555
Dec to Feb .. -827

December .. 29,300
January ... 29,200
February .. 29,600
Dec to Jan .. -100
Dec to Feb ... 300

December .. 29,730
January    ..  29,270
February .. 29,940
Dec to Jan ... -460
Dec to Feb .... 210

Ron Patterson

There is an error in my post above. February OPEC production according to the EIA was 29,555 thousand barrels per day and NOT 29,333 thousand barrels per day as I reported. Sorry for the error.

Ron Patterson

Here's a different way of looking at things.

I've been reading the housing bubble blog for a couple of weeks -- the whole bit about a speculative buying in real estate created by artificially low interest rates. The bubble's now starting to hiss, and the people who bought at the top are going to get hurt.

But could you look at the entire industrial age, especially the petroleum age, as nothing more than a huge speculative bubble? The problem being that we're the ones who bought at the top.

Or were born at the top. How do we sell out to capture the profit? My solution is to mentally accept that "we're screwed" and take my profit in living simpler and amongst friends, and in particular, not having to worry about retirement and old age.
This is interesting.  The Transportation Energy Data Book defines petroleum as crude oil + NGL at the bottom of page one of chapter one (pdf warning).  Given that they are concerned with, ummm, transportation energy and not chemical feedstock, this is very curious.  Their analysis focuses on petroleum rather than crude oil specifically.    

Can we suppose that the use of NGLs for chemical feedstock relieves some of the demand for crude oil, or does it simply relieve demand for natural gas?  I would imagine there has to be some effect on the overall market for crude oil.    

Propane and butane work well for cars. Methane and Ethane need more pressure to stay liquid, and much cooler temperatures.
The second quarter is normally quiet? Gas Prices Up To Highest Level Since October

If this is quiet, let's see how it gets when summer arrives.

Propane (LPG) is used in Australia as a transportation fuel. LPG is commonly available at service stations. So I guess at least some of NGLs can be described as transportation fuels. I suspect butane would work quite well too in the warmer parts of Australia (4 degree C boiling point).
Compressed natural gas (CNG, mostly methane) is used to power buses in some Australian cities. So natural gas could be defined as a transportation fuel in some cases too :-)
Here's a an Aljazeera article on coal and the military:

The Germans fell back on coal to loiquids when they lost access to sufficient supplies of oil. So, see, our leaders aren't so dumb after all.

I'd call this a musing rather than a comment and not really on subject.

Seems like we are in a doldrum period when everything is ABOUT to happen, a sort of Alice in Wonderland time when things don't quite make sense.  We've been spared a tough winter resulting in lots of oil sloshing around, yet crude prices are stuck in a range of $57 - $64.  People attribute the "high" price to tensions about Iran, but nothing is actually happening in Iran.  Others say we're in for a tough summer with storms and driving season, therefore crude stays high, but that's all in the future too.  And we have an increasing awareness in the media and among politicians that PO is going to be a true problem, but every day the news focus is Iraq or trade barriers or who saw Hillary where.  Oil just keeps on truckin' at 85 mbpd with the public taking no notice.  Cyclical stocks make new highs, and yet so do some oil stocks.  It seems like the world is waiting for something to happen.

Here's my sense of what may be going on behind the scenes to cause crude prices to stay unreasonably high.  OPEC maintains its production quota at "full throttle ahead", but it seems to me we are seeing the start of a trend toward exporters taking some production off the market.  Of course there is the Nigerian involuntary reduction (and Iraqi as well).  But beyond that you see a fascinating report in the Wall Street Journal today that China is actually expressing its frustration with Russia [they hardly ever publicly express frustration with another country] for not living up to its oil and gas supply promises.  Putin is about to visit Beijing and the whole deal is about oil and gas supplies.  China wants a direct overland siphon by pipeline.  Japan wants a route to the sea so it can share in the oil supplies.  Meanwhile, Putin is playing like a shy girl at a dance, can't believe how popular he is, and is not giving up the goods either way yet, promising supplies, but blaming the beaurocracy for the delays.   Then we see the leftist and leading Mexican contender for the presidency saying he doesn't think Mexico should do any oil production deals with foreign companies(which they need in order to exploit the new discoveries in the GOM).  Again, sly like a fox, trying to slow up future production, husband it for themselves.  As long as the oil doesn't leave the ground, it's available for local consumption eventually.  Then we hear well informed people in Brazil accusing their government of TREASON for exporting oil.  Then a while ago we saw the Kuwaiti's suddenly discover they had only half the reserves they had claimed - a reason (excuse) to keep production down.  Who's to know what Kuwait's capacity really is?   Only her hairdresser knows.  Which is equally true for just about all exporting countries.

So as time goes on, I get more convinced that the mind-set of oil exporting countries in starting to change.  As a recognition of the implications of PO begins to seep into the minds of more people around the world, it is only logical that oil exporters will start to change their priorities toward husbanding more oil for their own future use and selling less.   I suspect this trend is being enhanced by the growing feeling that the US dollar (which is what they get in exchange for their irreplaceable oil) is going to have to fall precipitously at some point, given all our deficits and the enormous number of dollars sloshing around world financial markets.  The oil exporting countries by themselves picked up 600 BILLION new dollars just last year.   And that doesn't count all the dollars collecting in the accounts of China, India, and other trade surplus countries vis-a-vis the US.

My sense is that when basic currency relationships change, they start in slow motion.  An undercurrent of confidence-changes begins.  Then the numbers slowly change.  Then the pace of change accellerates.  Finally there is a collapse. Maybe that is the real shoes that we are all waiting to see drop.  And the underlying reason that oil (future scarce oil) is not slipping in price against the dollar (future cheap dollar).

I forgot to add that Iran is also among the exporting nations who's production is currently lagging projections and expectations.

Eventually, we will be left with Canada as the only reliable supplier, and of course their production is small compared with US needs, even assuming it all flowed south.  Canada will continue to be reliable not only because of NAFTA but more importantly because all their oil is produced not by a government but by private companies obligated to maximize quarterly earnings.

And I think there are those in Canada who are beginning to question the idea of fueling fortress America, especially after the U.S. refused to pay that WTO $5 billion fine for the soft lumber violation.

Other interesting things that slipped by in the media show:

  • The King of Saudi Arabia making an unprecedented trip to China a few weeks ago, with the announcement it would be filling a much larger Strategic Petroleum Reserve there than had been anticipated.

  • Saudi's announcement that it would begin using its oil revenue to build industrial infrastructure rather than purchase so many U.S. treasuries.

  • Al Sadr's speech last week: "May God Damn Donald Rumsfeld" for refusing to step in and help keep a civil war from growing in Iraq. Al Sadr is now an extremely important political player in Iraq, he is no longer just the "fiery young Shiite cleric."
Excellent point about the Saudi's.  And I wonder, will they be filling those reserve oil tanks with their light sweet, or with the their newer production: heavy sour?  
Well stated. Thank you for your clear and cogent reasoning.
Tom Standing is IMHO completely right, 'All Liquids' is a bundle of data for completely different energy sources including ethanol.

To understand what's happening we should look more closely to Conventional Oil, like Deffeyes or Campbell do.

I believe that Stuart is a subscriber of O&GJ. I hope when he has more time he can update us on the Plateau of Conventional Oil.