More thoughts on Prudhoe Bay

As the situation up in Prudhoe Bay has become clearer, over the course of the day, and thanks to information that has appeared in comments, it might be worth an attempt at summarizing some of the issues.

To begin with, thanks to Westexas, the cause of the corrosion appears to be known.

And a tip of the hat to Mike A for an UPDATE, I have moved into the post on these bacteria. (8:35 AM)
And (10:35 AM) I also added a note on where Platts suggests the relief supplies might come from. It gives an idea of the global nature of the business. I also add a comment from the Oil and Gas Journal that perhaps I got out too far by assuming that the new corrosion was the same as the old.

[editor's note, by Prof. Goose] EIA says Prudhoe Bay back to normal after January (thanks Darwinian).

The information comes from a Petroleum News article written after the first spill that occurred back in March. To begin with, oil production from a number of adjacent wells is collected at one of six Gathering Centers that serve the field. (As Triffin found the field has a total of around 1,111 active producing wells, 39 gas reinjection wells, 82 water injection wells and 136 water and miscible gas injection wells). The leak in March, for example occurred beside one of these Centers that serviced 230 wells which had been drilled from a 12 drill pads. The gathering center separates the oil, natural gas and water that comes out of the wells, and then passes the oil into a transit pipeline that carries it toward the main Trans Alaska Pipeline (TAP) terminal. The major corrosion that was found in March was in the line from Gathering Center 2, before it joined with the flow from Gathering Center 1 to flow on to the terminal.

Flow from the individual wells in the field has been decreasing, Triffin (ibid) also noted that:

The average well production rate was about 546 barrels of oil per day in 2001, 375 barrels per day in 2002, 350 barrels per day in 2003, 317 barrels per day in 2004 and 293 barrels per day in 2005.
Since the diameter of the pipeline remains the same, as the flow drops, then so does the speed of the oil through the line.

The petroleum news article explains further.

All indications are that the corrosion that caused the hole in the transit line was biological in origin, caused by sulfate reducing bacteria inside the pipeline, Johnson said. . . . . The bacteria form in water, so that problems associated with microbiological corrosion tend to be associated with water carrying pipelines, such as the lines that are used for waterflood operations. . . . . . BP has viewed oil carrying transit lines, such as the line from GC-2 that developed a leak, as much less susceptible to corrosion than a water bearing line. But the company has regularly monitored the Prudhoe Bay oil transit lines for internal corrosion using two techniques: ultrasonic testing and the use of corrosion coupons. . . . . . The company ran a smart pig through the GC-2 transit line in 1990 and again in 1998. According BP's incident investigation report for the transit line oil spill, the 1990 pig run "noted nothing of significance" and the 1998 pig run "showed moderate internal and external corrosion". The evidence for corrosion in 1998 was confirmed by ultrasonic testing -- BP subsequently used the ultrasonic testing to monitor any continuing development of corrosion in the line. . . . It was only in an inspection in September and October of 2005, that evidence of increasing corrosion activity started to appear. . . . . . . However, an inspection of the line after the March 2006 leak showed evidence of high rates of corrosion, even in place that had been free of corrosion in the fall 2005 inspection. Clearly, there had been an exponential growth of corrosion, culminating in the hole that caused the oil spill.
It was in surveying the miles of pipe following this initial accident that the problems with the corrosion damage throughout the transit pipe network have become apparent. Corrosion pits have penetrated almost all the way through the wall in over 12 places. The article notes that the accelerated rate of corrosion is of considerable concern, and posits two different possible causes. The first is due to the nature of the oil that comes from GC-2, which has a higher solids content. These might have adsorbed some of the corrosion inhibitors that are injected into the line, diluting the concentration beyond the point that they were effective.

The other possible cause is a little more worrying. It was noted that the corrosion occurred in the section of the pipe from GC-2 before it joined the flow from GC-1 on the way to the terminal. The speed of the oil is slower where the flow is from only one center. This suggests that as the field production declines, and flow slows, the corrosive bacteria are being able to settle and pit into the walls of the pipe. There are two worries here, one for the transit network, as flow declines, but also now perhaps for the main Trans-Alaska line also, since as flow diminishes (as it now is) both now, transiently, and permanently in the future, then the speed at which the oil moves will also drop. And apparently there may be a speed at which, all of a sudden, bacteria, and thence corrosion, blooms.

The need to make sure that the problem is completely addressed, BP cannot afford another spill, is probably behind the decision to replace at least 16 miles of the pipeline. Since they must also satisfy the Alaskan authorities, the process is likely to take longer rather than shorter.

Oil production at Prudhoe Bay could take six months or, perhaps, as much as a year to return to normal, Societe Generale said, citing an assessment by one of the bank's engineers with an oil-field services background.
"Three weeks is the absolute minimum," said Deborah White, an energy analyst with Societe Generale in Paris. "Six weeks makes a more likely base case." . . . . . Signaling that the pipeline maintenance effort would be more complex than originally thought, Bob Malone, president of BP America, said BP would replace the field's main transit lines as part of a "wider plan in restoring production and operations in a safe manner." BP will also conduct a study, together with supervising government agencies, to determine if it's possible to continue production from some parts of the field, Malone added.
So what do we do in the meanwhile.

Totonella pointed to where the Alaskan oil went, when there was more of it:
Puget Sound: 419,521 barrels/day
San Francisco 123,870 barrels/day
Los Angeles 333,006 barrels/day
Hawaii 42,682 barrels/day
Exports 78,763 barrels/day
Source: Alaska Department of Revenue.

And if one goes to the EIA, they have correlated spot shortages with retail gas prices. It does note, perhaps a little smugly, that the west coast (PADD 5) is almost self-sufficient in gasoline and low-sulfur diesel. However, the downside to that is that gas prices have been the most volatile of the country.

There are two principal reasons for the greater price volatility in California. First, only 13 refineries in California supply the gasoline and diesel fuel markets in that State. The unexpected loss of supply from one of the larger refineries represents the loss of a significant share of supply. Second, the California Air Resources Board (CARB) product quality requirements for both reformulated gasoline and diesel fuel are more stringent than any other in the United States and all other countries. Because California does not routinely receive product supply from outside the region, refiners in the U.S. Gulf Coast and other countries that may be able to supply CARB quality products do not maintain inventories of these products and any possible response to meeting California supply shortfalls will be delayed. Consequently any unexpected disruption of supply from a California refinery results in short-term price increases.
On the other hand they did not find a consistent response to incidents. So I suppose we will have to watch this one play out.

In the same way it will be interesting to see, given that the oil seems to need to be refined in CA to meet their specifications, where they get it. It can either be piped from the Gulf, or it might come from OPEC. Well if we look at where Intertanko tells us that China is getting their oil, maybe we can see who is shipping that way.

Well Saudi supplies to China have been dropping, and they have those tankers full of oil, with no place to go . . . . . .? (Of course the refineries would have to be able to refine that oil . . . .)

It will be interesting to see.
UPDATE: 8:35 AM EST And, thanks to Mike A there is more information on the bacteria that are causing the problem.

I'm a corrosion engineer in the industry with some experience with sulphate reducing bacteria (SRB) so I'll give a quick primer on SRB for those that are interested.

SRB are small (5 microns long by 1 micron wide), anaerobic (require absence of oxygen) and ubiquitous, a typical North Sea concentration might be 1 cell per gram. When conditions are right they can multiply to the level of millions of cells per gram and generate significant quantities of hydrogen sulphide (H2S). The H2S together with the stagnant conditions formed by the colony on the pipewall lead to enhanced pitting corrosion rates, which are on the order of 1-2mm/year, depending on conditions.

SRB get their energy from the reduction of sulphate(SO4 2-) to sulphide (S 2-). They thus require another species to be oxidised, usually volatile fatty acids (VFAs) such as acetate (i.e. vinegar!) which are present in most reservoir waters. The requirements for their growth are:
1 Nutrients, ie. sulphate & VFAs for their metabolism, together with trace nutrients such as Nitrogen & Phosphorous
2 Moderate temperature 5-50 deg C, although some thermophiles can grow at temps up to 70 deg C
3 Moderate pH (~5-10), salinity (less than 5-10%) and pressure (less than 500 bar).
4 Absence of poisoning species such as oxygen or biocide chemicals
5 Low enough flowrate to establish colonies on the pipewall

I'd say in the alaskan pipelines all the physical conditions of temperature, pressure, salinity, lack of oxygen and flowrate were met. Acetate and other VFAs will normally be presented in produced reservoir formation waters.

Often reservoirs will sour (ie. start producing H2S) after seawater injection as the seawater provides a large source of sulphate ions. It normally takes many years for injected seawater to make its way back to the producing wells but if this has occured that that could be the source of the sulphate for the SRB.

One thing that this event has the potential to show is that oil is possibly entering a phase where it stops being fungible. We have seen some of that in the difficulty that Saudi Arabia have encountered in selling some of their heavier crude. Now, from the other side, the serious question arises as to where the California refineries can find a crude that they can refine. It is not that easy, as an article in Platts discusses. (Hat tip for the tip ). However, it also suggests that BP are not totally unprepared.
"There's about 3 to 4 million barrels of unsold Persian Gulf crude in September; this will help clear it," said one Asian crude trader. He added that "it's in a small number of hands, so will get done quietly." The source noted BP and Shell recently had been buying additional volumes of Persian Gulf crude, possibly in anticipation of a Prudhoe Bay shutdown, which has been experiencing problems for several months.
I just noticed a couple of sentences in the story in the OGJ that suggest that the corrosion is not the same as that discussed above, and which caused the March pipe failure.
BP Alaska Pres. Steven Marshall reported a wall thickness loss of more than 70% in the 30 in. pipeline. He said the corrosion appears to be of a different type than the corrosion that was responsible for a Mar. 2 leak in Prudhoe Bay Operating Area pipelines. "Clearly, there is another corrosion mechanism occurring here," Marshall said.
they can take all their oil and stick it right up their ass.

So if this issue of corrosion is problematic due to reduced flows, has this been documented elsewhere (like in West Texas for instance) or is it only the reduced flows in combination with the arctic climate and specific nature of the crude from that basin?

Basically, is this a problem that could recur elsewhere (or has already occured) anytime flow through pipelines drops a certain amount below the optimal range.

major, you know how we like charts here.....can you deliver a chart to demonstrate the validity of that position?
:-) gottta' laugh, this has without a doubt been one of the most outragous days I CAN EVER RECALLL, in logic, in press coverage, in wild and stupid assertions both here on TOD and all over the energy and national has now completely entered the real of "Bizarro World".  I have NEVER SEEN such an open and obvious attempt to whip up histeria to the max, to creat fear, and to drive the price higher with assertions that are COMPLETELY STUPID ON THE FACE OF IT.  Linking this idiotic situation to "peak" in any way will only serve to discredit peak as a subject of serious study,

With the histrionics I have heard today, I would like for someone to tell me how anyone is going to accept any advice from anyone involved in the "energy speculation game", and the operative word here is GAME.

What a freakin' joke.....

Roger Conner  known to you as ThatsItImout

Bacteria are eating the oil pipelines!!!!
It's in the amazing, but true category.  In another life I was a pipeline engineer in Ponca City and Lake Charles for a major.  I'll bet you insiders have no idea who THAT is.

Once a sulfur-reducing bacteria colony gets a good toe-hold they create a tough-as-hell shell.  Scraper pigs won't dislodge them in the worst case.  Then the acids that they metabolize burn a very neat hole straight down.  You'd swear that some holes had to have been done with a drill; perfectly circular with clean, straight sides.  These guys are really bad news.

I managed a few smart pig surveys like the ones that I imagine found the corrosion in Alaska.  The technology is was pretty amazing 10 years ago, and it must be Star Wars-like today.  With decent maps and a good odograph (yuk, yuk), we could usually make one backhoe hole to find the corrosion.  And the corrosion was always there.  Although sometimes the anomoly was actually from some very, very lucky backhoe operator sometime in the past who almost had a really bad day.

In another life I was a pipeline engineer in Ponca City and Lake Charles for a major.  I'll bet you insiders have no idea who THAT is.

Heh, heh. I spent two years in Ponca City myself. But I will never, ever move to Lake Charles.

The scale of equipment at CRMT and LCPL were impressive.  Great big pumps that could flat get up and move some oil!

Gotta love zydeco.

Smart Pigs and now Scraper Pigs..
  Sounds like a new John Carpenter movie is in the works..  maybe Jim Cameron.
There's a whole taxonomy:  brush pigs, batch pigs, rescue pigs, de-waxing pigs, de-watering pigs, tow pigs, magnetic cleaning pigs.

You even have to provide the appropriate ecosystem: pig launchers, pig traps, pig signallers, etc.  A pipeline system is much more than just some round steel that you punch a hole through.  Just make sure that OD > ID.

BTW they got their name from the sound they make as they travel the line.

I heard a story from an old oilman to the effect that in the very olden days they actually ran a real live pig (or piglet, depending on size of pipeline) down the pipe to test for obstructions. The pipeline was too narrow for the pig to turn around, and so it could go in only one direction. If the pig got stuck, then you could hear exactly where the problem was and bring the steam shovel to the appropriate location.

True story? I don't know. Does anybody know?

I don't know if that is true but some years ago New Scientist had a small news item about a new instrumented pig that was going to be used in the North Sea and the resident cartoonist decided to illustrate the item with a cartoon showing the four legged sort of pig being put in a pipeline. The magazine was inundated by animal lovers protesting at such cruelty.
No idea.  But I have seen formerly-live chickens that were found in the pig trap.  There were some known malcontents who had motive and opportunity.  Also, wildlife will creep into the open ends of pipelines under construction.  Good work practice is to cap off the ends at the end of the day, but we all know that every best practice is always followed, eh?
Mark Twain story.
The Romans had lead pipelines that carried aquaduct water under pressure down and up a valley to save on building one of those masonry aquaduct bridge things. Pigs might go back farther than you think...
We've seen bacteria corrode stainless steel pipe in nuclear plants.  Different conditions, of course, but those little bugs can go anywhere.
I would like to suggest that this problem does have an indirect link to peak oil, in that because of peak oil, supply is in such tight margins that ANY disruption (even if for normal maintence) will cause a dramatic effect in prices.

I find it interesting to consider the timing of this event. If energy prices soar before November, the republicans stand a poor chance in the polls. If however, a great deal of oil is let out of the strategic reserve around that time, energy may take the back burner to whatever contrived panic the media stirs up that week. Furthermore, if an energy event occurs in the late summer/fall causing consumer to become accustomed to $4 per gallon gasoline, then this event is suddenly resolved in, say, late October, I think we could be looking at the same strategy as releasing oil from the reserve. Hopefully, the whole situation will backfire and leave us with $5 per gallon gas by election day...

I don't think it works that way.  I think the shock of seeing oil at $4.00 will create a lasting impression even if the price goes back down.  I really don't think there is any way to manipulate this for true electoral advantage, and I also think that the electoral implications are probably of a secondary nature.  In other words, if everything was going great for Republicans then this would only be a minor knock to them.  With everything hardly going great, and arguably closer to the poor end of the scale, this could just make the situation worse.  In the best case scenario I don't see how they, as the party in power, benefit from this, as even releasing oil from the SPR is not going to reverse the impacts, only mute them.  If they don't try to combat higher prices with the SPR then they get hit by the shock factor I mentioned earlier, even if they can get gas prices to go back down by the election.  

Another interesting timing factor: BP, Exxon, and COP have now potentially arrived near the closing phase of a $20-30 billion natural gas deal (with arguably extraordinary "incentives," credits, and tax bennies regarding both oil and gas).

Alaska governor Murkowski has adopted a posture of being more eager to close even than the Big 3, who simply seem to have outfoxed the governor from day one. Meanwhile, for re-election this fall, Murkowski is not doing well in the polls, and for some time it has seemed that the legislature would not approve a variation on his package deal.

Now, suddenly, with the pipeline closing, Alaska's primary revenue source (90%-ish?) has dried up. Gasp. Suddenly during the last days of legislative special session, we've been delivered a new incentive to close the deal.

   I have been pretty much only reading here and the articles linked here, but shutting down the largest U.S. oil field for an indefinite period is connected to peak oil in one concrete sense - which producer or combination of producers will now make up for a significant shortfall likely to last months?

Since I don't believe in any oil industry meta-conspiracy (I do believe that oil companies will act in a normal fashion to maximize profit in ways which many would consider indecent), this is one of those rare windows into reality - the pipeline will truly be delivering less.

If the shortfall can be compensated (which opens its own can of worms between short and long term), obviously with a time lag, peak is not really here. If replacing 400,000 barrels a day of formerly fairly average quality crude on the world market is not possible in any realistic time frame, I would consider it a sign of peaking to peaked production.

I do wonder how crazy the speculation has been.

I do wonder how crazy the speculation has been.

If you look at NYMEX crude prices over time and did not know there was a pipeline issue starting would you really be able to point out that the price was so different there had to have been an event this week?

I think NYMEX crude prices are close to business-as-usual. Only a slight increase has occurred yet.

Linking this idiotic situation to "peak" in any way will only serve to discredit peak as a subject of serious study
Which idotic situation are you referring to? If it's the fact that 400,000 bpd is off line, then of course that's linked to peak. Do you understand what peak is?

Although there may be "plenty" of oil in the ground, it gets harder and harder to produce. This results in a peak well before all the oil is produced. One of the things that makes oil production more difficult is corroding infrastructure. It's not difficult to understand. If we're near peak, then this could rush us to peak a little earlier. The return of the 400,000 bpd, if it happens, may not make up for declines following the premature peak, which would make that the actual peak.


Do you understand what peak is?

Is there a standard definition?  To me "Peak Oil" is short for "peak (maxium) oil production rates".

I have seen articles, even from ASPO, that use the term "peak" to refer to non-global oil production rate peaks.  For instance Colin Campbell writes that the FSU had multiple production peaks.

FSU has had one peak so far. A second, but lower peak is still in the future. The first peak was in 1988 at 12.053 mb/d. But that was for the entire Former Soviet Union. Russia is working on a second peak and reached 9.5 mb/d last December. If you add the output from the other FSU states it would probably be above the previous peak. But they are slowing down. Current growth is about 2.5% per year, much lower than 2003, 2004 and 2005. Many expect them to peak in the next two or three years.
Tony, you are exactly correct, this has everything to do with Peak Oil. If we were not at or near the peak, then 400,000 barrels off line would be no big deal. Only in a very tight oil market could such panic be caused by such a small cut in oil supplies.

400,000 barrels off line for two or thre months, will insure that US oil production in 2006 will be lower than hurricane reduced US production in 2005.

US domestic oil production of crude only (not counting condensate) averaged 5.097 mb/d in 2005. This year through week ending July 28, US crude production had averaged 5.083 mb/d. But production was climbing fast as we continued to recover from hurricane damage. It had reached a yearly high of 5.275 mb/d the week ending July 7th. But last week we saw production drop to 4.94 mb/d. And I suspect it will drop a little further this past week. Now there is little chance that US 2006 production will surpass 2005 production.

The data for week ending August 4th will be on the net tomorrow at 1PM Eastern time at:

"Tony, you are exactly correct, this has everything to do with Peak Oil. If we were not at or near the peak, then 400,000 barrels off line would be no big deal. Only in a very tight oil market could such panic be caused by such a small cut in oil supplies."

That's exactly my point....400,000 barrels is no big deal.

"Only in a very tight oil market could such panic be caused by such a small cut in oil supplies."

Give carte blanche control over OPEC and and Alaska supplies, and I can make a tight oil market....I don't need peak to do conspiracy theory either before folks start screaming their head off, just good control of your product, you would do it in any business.....

Roger Conner  known to you as ThatsItImout

That's a ridiculous statement - "carte blanche control over OPEC and [sic] and Alaska supplies" - as it presumes that some single entity controls Iran, Iraq, Saudi Arabia, Nigeria, Khazakistan, Angola, Venezuela, the North Sea, continental US, Alaska, Brazil, and most other major suppliers. You claim no conspiracy needed then cite one as the basis of your post. Circular logic in the extreme.
GreyZone, to paraphrase..."Senata', I have heard some ridiculous statements....I have made some ridiculous statements...But that senata', is no ridiculous statement!"  :-)

Now of course, we assume coordination between these players....
Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE, Venezuela....uhh, that's called OPEC, a sum greater than the combined nation areas you mentioned....and over half world production the last time I checked.  Let's play through a few of the remaining ones you mentioned...Nigeria, small player, but we need um', Khazakistan, let the devil have the hindmost, no one knows where to find Khazakistan, and only the Europeans care...Angola, we keep hopin', but a marginal, the North Sea, call the ambulance, this ones on life support...continental U.S., still important to us, but I think Hubbert himself kind of explained our "flexibility" after 1970, Alaska, please, don't, laughter causes my side to hurt, Brazil, who "supplies" themselves, and the loose catagory of "most other major suppliers" (???? Addresses, names, we need NAMES!!)

Now most folks here assume that the majority of the nations above are peaked (conspiracy theory?  No, it's a fact of history in many cases, and consensus based on visible evidence in some others....but some say they are not peaked, so there would need to be a conspiracy to hide it), and proceed to say of OPEC (we don't know if it's peaked or not...conspiracy to hide it?) that of OPEC, "as Saudi Arabia goes, so goes OPEC, and as OPEC, so goes the world (check the very good posts by Westexas), so The long and short of it is, do I need to be in "conspiracy" with Khazakistan to create a tighter oil market?

Greyzone, I think you were involved in a string on Aug 5th called " Heinberg: Middle East at a Crossroads" in which I was also involved.  In explaining the incongruities of explanation for what seemed to be almost exactly the same  results in 1979 through 1981 as we are seeing today, they used  two major explanations:  War  (question:  Is it possible there could be a war issue in the Persian Gulf today?) and to use another poster of long standing at TOD's own words,

"But the vast majority of us knew very well that OPEC was manipulating production and that the production swings was due to OPEC control and not anyone peaking."

My answer remains as it did then:  And yet, if control and " "manipulating production"  then (1979-1981) could create a situation where every Gulf state and in fact world production could drop for a half decade, and Saudi Arabia could stand at "plateau" for the full decade of the 1990's, why is it considered the ultimate horrendous sacralige to be considered remotely possible today?  Do we assume the world oil producing nations have renounced all desire for Earthly gain, and taken at last the vow of poverty (chastity? ummmm....perhaps later....)

J' say....
"You claim no conspiracy needed then cite one as the basis of your post. Circular logic in the extreme."

Whom did I accuse of conspiracy with who, who are the conspirators?  I would make the case that if I accept the logic right here at TOD, then Saudi Arabia could engage in a conspiracy of one knows their true production, their true capability, their true URR, and as the wise men say, "as Saudi Arabia, so goes the world" is to be noted that here, to speak of a "conspiracy of one" would be forbidden because it uses the concept of conspiracy!  But to call the Saudi's bold faced liars is considered a great sport!  (o,k, it may be justifiable sport and great fun, but still...)

 I must close confronting you with some hard questions my friend.
 How is it that folks here at TOD will blush as though they have seen a great sin,  foul indecency, or Lady Godiva upon her stallion, will cringe and turn away (!) from any suggestion that the producers of oil would act in their own behalf, and exercise their right to hold some sway over supply, (gad, man, De Beers has been doing it for over a century!!),... while having no difficulty accepting with no evidence or proof the idea that their suburban neighbors will in fact beat them with shovels to a merciless death in their happy post peak garden just to steal a bushel basket of their rutabagas!

P.S.  you guys have got to help me kick this writing habit, it is just too much fun!  :-)

Roger Conner  known to you as  ThatsItImout

"Linking this idiotic situation to "peak" in any way will only serve to discredit peak as a subject of serious study,"

I think that the common link regarding "Peak Oil" is aging infrastructure and rising water cuts in the large fields.  Simmons talked about the problems the Saudis are having with increased corrosion as their water cuts rise.  

As I noted elsewhere, all of these old, large fields are on their way to where the East Texas Field is now--99% saltwater and 1% oil (oil stained brine, as Matt Simmons put it).

Having said that, the Ghawar decline (probable but not officially confirmed) and the Cantarell decline (officially confirmed) stories are actually much bigger stories than Prudhoe Bay.  I would guess that the ratio of Prudhoe Bay stories in the MSM to Ghawar/Cantarell stories is on the order of about 100:1.  

Ghawar has produced about five times as much oil as Prudohoe Bay, and the (Heinberg) reported decline of about 2 mbpd at Ghawar is five times what Prudhoe Bay was producing before the shut-in.  

The rise and fall of the large oil fields is the reason that we can compare all of these regions to each other using the HL method, and the fact that we now have credible reports that all of the four largest producing fields are now declining is a key reason that I believe that we are on the downslope of peak production.  

Hubbert accurately predicted the Lower 48 peak.  An associate of Hubbert's, Deffeyes, using a simplified version of Hubbert's technique, predicted a world peak for late 2005 (within a range of 2004-2008), and world production is down since late 2005. I don't see any conspiracies here.  I see simple--and relentless--depletion.

As Campbell and others continually point out, the moment of "Peak Oil" isn't the real problem, it's when supply fails to meet demand.  And demand MUST grow or economic growth stops.  And Capitalism fails.  This can happen well before we reach geologic peak (which we probably have anyway).
Not to mention that they said already that production could be up to 10% lower when it is brought back online. And thats before they even start I expect the news will only get worse.
"Linking this idiotic situation to "peak" in any way will only serve to discredit peak as a subject of serious study"

What are you nuts? A lightbulb goes out in Bangladesh and it taken as proof of peak oil. A rusting pipeline must be triple proof. Maybe quadruple.

ThatsItImout, it's called groupthink. Humans act a lot like a herd animal. One panics, and the whole group follows. One person's hysteria sparks off another's, which compounds the first, and you have an exponentially increasing panic until something brings it to a halt.
I see little sociological evidence of "panic" here.  
Perhaps you could elaborate?
I wasn't referring to TOD, but to the markets and the media. Didn't you notice the escalation of the fear and hysteria, and the bizareness of some of the reports yesterday? It didn't get too bad thankfully, but if BP can't fix that pipe it might.

A good example of everyone panicing would be 9/11, when half the country went mad that day. Rumors, gossip, hearsay. People lining up at the pumps to try and get gas, runs on the stores for everything from milk to clothing.

Another minor example -here in the South, everytime there's a hurricane in the Gulf (and we're nowhere near the coast), or a winter storm coming through, everyone and their brother runs to the store for milk, bread, flashlights and the like.

Okay, I'm with you now. There is an almost palpable "feel" in the media and populace as a whole that, while not panic, is somewhat frentic, a growing sense of uneasiness and agitation.
External stimuli finally illiciting a response?
I think so. People are starting to realize that something is up.
Now, if it all blows over and things go back to 'normal', people will forget and go back to their normal habits like nothing ever happened. I think it will take a few more shocks for people to wake up to the fact that PO is real, this is serious, and the situation is likely to be permanent.

Just MHO.

To quote from David Lynch's art-noir scifi classic Dune:
"The sleeper must awaken!"
um, wasn't there also a phrase in there that went something like, "the Spice must flow..."?
And it did -until everything came crashing down.

There might be a good model for PO transition in there somewhere...

Another suitable quote:
"He who controls the spice, controls the universe!"
And Arab Terrorist = Fremon?  ;o)
I agree---A few people I have met in the last 6 months when the price of gas comes up say -"It's just only going to get worse" in those exact words from each person---
well people in the South are still a little agitated over the 1993 Superstorm that left half the population without power for a week (or more) in freezing temperatures.  Before that, there wasn't much of a panic before winter storms, just a whole lotta school closures ;)

As for hurricanes, well, Southerners are just stupid that way....

Very interesting, thanks. What is the proportion of sulfate to sulfide in Prudhoe oil? How much of that is from seawater? Also, what happens to sulfate on combustion of the oil? Does it remain in the residue or does it get aerosolized (I know what happens to sulfide)?

Finally, if the cause of corrosion is biological, presumably they will check the entire pipeline. Has this been done, or will there be further output restrictions?

Ive been out of pocket for a few days, so havent read everything on TOD regarding Prudhoe. But using a broad lens, if our leaders 'know' about Peak Oil, but know that a gas tax would be political suicide, wouldnt 'conspiring' to shut this oil in the ground effectivcely leave it there for later, while the market deals with higher prices in the interrim? (this theory holds as long as we dont drain barrel for barrel from SPR)
I thought there were no oil pipes coming from the Gulf to Ca. That only NG is piped to Ca. Am I wrong?
Here is an interesting post I just found concerning California.
Hello HolyShit,

Great link--Everybody needs to read this!

That is a very informative link on the West Coast problem of securing the correct API ingredients to efficiently process crude through the refineries.

It also states that there is no GoM to West Coast pipeline--Heading Out, have you made a small mistake in your original post for this thread? Whether or not this pipe dream exists or not is something we definitely need to clarify once and for all.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?  

no GoM to West Coast pipeline

Makes it a little harder to explain why we had a post-Katrina price spike out here, doesn't it?

I suppose some will suggest that the flow of refined products from California went east, restricting our supplies ... but I wonder how much was just an emotional reaction in the markets.

Yes, it was an emotional reaction.  That was stated at the time, as California is not connected to the rest of the system.  Except in the sense that oil is fungible.
I was skeptical about a market connection, it seemed at the time people were arguing for it.  Ah, from the formidable JDH at Econbrowser:

"Steve, the way this would work in practice is that gasoline from New Mexico or Texas would be piped east rather than west. The bottom line is as if a gallon of gasoline were "shipped" from California to Georgia, though of course the market would accomplish the same thing in a much more efficient way."

I think that's where I got the bit about "flow of refined products from California [going] east"

Good article. On one theme it deals with, it begins to prove that oil is not that fungible after all. When oil is tied up in long term contracts, it seems hard for another buyer to purchase that oil. Makes you wonder about China and its long term contracts of oil. At least they are guaranteed oil in the future, unlike spot buyers who will be in a rapidly shrinking market. For those who say that means China is not buying oil from other suppliers, it presupposes that other suppliers have enough oil for selling to other buyers.

This seems to mirror the UK gas situation at the moment. We have a free market for our oil and gas, but continental Europe doesn't. We sell our oil and gas to anyone with money, but nobody will sell us any gas when we need it in winter. Could be hard for California to get the extra supplies of oil it needs. It certainly won't be quick. They will have to import extra petrol from somewhere, with a time lag built in. Perhaps there will be politicians saying people must conserve (wonder if Cheney likes that comment) and drive less.

Actually, my understanding is that your gas couldn't really be sold to anyone on the Continent, since the pipeline infrastructure doesn't really exist currently.

And when Gazprom cut supplies, Italy and France faced 25% shortfalls - there isn't any magic natural gas fairy in the EU, the same way there isn't a magic petrol fairy in the U.S.

Last winter the available infrastructure (ie the Interconnector pipeline) was embarrassingly underutilised for bringing gas into the UK despite much higher prices than on the continent. This was understood to be occurring because the european gas industry gives a higher priority to delivering gas to its own citizens rather than selling it to the highest bidder (shock horror); this triggered inquiries into their competitive practices at the EU commission.
A clear echo of westexas "available for export" theory for the oil market
Not in this case. Continental suppliers don't buy or sell on the spot market. In fact, there is no spot market for natural gas in Europe. Eon-Ruhrgas, the biggest importer, has longterm Take-or-Pay contracts with Gazprom on the upstream. Downstream, they also have longterm contracts with local distributers. There is almost no natural gas market here, nothing to buy...
From the article: ""There's about 3 to 4 million barrels of unsold Persian Gulf crude in September; this will help clear it," said one Asian crude trader."

OK... so 400,000 barrels per day, divided into 4 million, is 10 days.

Where will the other 21 come from?


How likely/unlikely is it that production in the field fell below the minimum level necessary to operate the pipeline? Those declining production numbers, year over year, beg the question...

(Yeah yeah, I read the sludge story.)

Can anyone answer that with a high level of confidence?

Hello HO,

Near the end of your posting--you said FFs could be piped from the GoM to CA.  I apologize if I missed an earlier posting on this, but do you know the transit volumes and transit time, and if this would be sufficient to safely resupply CA, OR, WA, NV, and AZ?  This is info that I was not aware of, but it is a relief to know that tankers will not have to make round trips past the Falkland Islands.

Also Greenman's earlier posting on Panama's Isthmus pipeline states that it was used one-way [West-to-East] when utilized back in the 80s [link info was '87 dated].  Do you know the current operational status and if the pipeline is bi-directional?

Bob Shaw in Phx,Az  Are Humans Smarter than Yeast?

I googled up a bit more information from here:

The page is dated:
volume 7, issue #19 - Tuesday, October 01, 2002

If transit were halted through the Canal, the Trans-Panama pipeline (Petroterminal de Panama) could be re-opened to carry oil in either direction. This pipeline is located outside the former Canal Zone near the Costa Rican border, and runs from the port of Charco Azul on the Pacific Coast (near Puerto Armuelles, southwest of David) to the port of Chiriqui Grande, Bocas del Toro on the Caribbean.
It was opened in October 1982 as an economical alternative to the Panama Canal for transporting Alaskan oil across Panama en route to Gulf Coast ports. Transit time from Alaska to the US Gulf Coast via Panama is about 16 days, whereas a tankerwould take 40 days to reach the Gulf Coast from Alaska if rerouted around Cape Horn (the southern tip of South America).

To date, more than 2.2 bn barrels of Alaskan crude oil has been transported through the 81-mile pipeline. However, the 860,000-bpd pipeline was closed in April 1996 after Alaskan oil shipments to the Gulf Coast declined with falling Alaskan oil production (Alaska now produces about 1 mm bpd) and increased oil consumption on the west coast of the United States, especially in California.
In addition, the decision to allow Alaskan oil to be exported outside the United States reduced the incentives to ship Alaskan oil to the Gulf Coast. There has been some discussion of reversing the direction of the pipeline to allow Caribbean oil producers a less expensive outlet to Pacific destinations.

Heading Out, something you did not consider - how much of the increased bacterial activity is correlated to observed global warming in the far north? We know that temperatures to the north are warmer than ever. We know that some regions of Canada have lost over 100 potential construction days (50 days on each end of the frozen season). This indicates to me seriously increased temperatures.

Could the warming due to global warming be the driver behind the bacterial infestation?

Oh that would just be grand.  Poetic to the n-th degree.
Nah.  The flowing oil dominates the temperature profile in the immediate vicinity of the alleged bacteria colony.  I'm sure that it's nice and comfy-cozy year-round in that pipe.  Assuming that I were a bacteria, that is.

One realistic dynamic in this affair is the reduced flow rate.  The pipes were sized for a particular flow rate.  As flow rates slow down, water starts to settle out and create a nice micro-environment for galvanic and bacteriological corrosion.

Increased galvanic corrosion in The Great White North, eh?, could possibly be correlated to warmer temps.  Galvanic corrosion is the garden-variety corrosion that we are most familiar with.  And it requires an electrolytic medium for electron transport.  Moisture in the soil provides that path in the case of pipelines.  Cathodic protection systems are installed to mitigate corrosion.  I don't know, but would suspect that corrosion slows to a virtual stanstill when the soil is frozen.

Now I'm curious.  Anyone familiar with CP systems in The Great White North, eh?  Are they operated differently during the winter than in the summer?  Eh?

I was looking around for information on this issue this morning and came up with this factsheet for starters. It seems that CP is intended to protect the exterior of pipelines from corrosion. I have no idea what effect it may have on the interior.

My partner was involved in modelling the effects of geomagnetic storms on transmission systems a few years ago, and other erstwhile colleagues have been doing the same for pipeline CP systems (see here for the title of one paper and excerpt from the introduction). Pipelines at high latitudes would be most at risk from this type of problem - initiating corrosion which could then increase the impact of other corrosive agents.

I have no idea what effect it may have on the interior.


Pipelines at high latitudes would be most at risk from this type of problem - initiating corrosion which could then increase the impact of other corrosive agents.

Fascinating.  So a serious charge could be generated on the pipeline, concentrate at a certain point, and then blow a hole through the polymer or tape coating through an over-voltage.  Yep, if that mechanism exists, then the resulting failure in the coating would be a problem.

For those who don't know, corrosion defense for a pipeline system is generally a layered approach.  The first line of defense is a coating on the exterior of the pipe that acts passively to hide the steel from the evil agents of corrosion.  For mainline pipe, the steel arrives on the job site with an extruded polymer coating.  Special tape is also wrapped on the pipe for a variety of reasons: compromised polymer coatings, thin spots, clumsy welders, or manifolds.

A second layer is a CP system that actively creates an electric potential that keeps those rascally electrons in their place.  Excuse the over-broad handwaving, but a technical discussion could be quite long and would not contribute greatly at this stage.

In essence, the electrons in the pipe steel want to go to ground and the CP system creates a barrier.  They are in a higher energy state and will gratefully take any opportunity to go elsewhere.  I sense some parallels to Hollywood stars and fidelity here, but we'll leave that for now.

The voltage difference that electrons in the steel see between their present state and elsewhere is slight, less than a volt.  But the number of electrons in a pipeline system is pretty big.  More than at least 12 I should think.  Yeah, definitely more than a dozen.  I feel pretty safe there.  When the pipe has a gap in its coating, this area suddenly sees a greatly reduced electrical resistance between the pipe and ground.  So all the electrons for miles around take this spot as their chance to leave.

If the CP system is shut down, poorly maintained, badly designed, or any of the other hundred reasons why complexity is so hard to maintain, corrosion rates can get pretty hairy.

Question? Does the technology exists in applying a liner in the existing oil pipes like that is used in other piping systems? It seams that this would reduce the down time immensely in getting oil flowing once again.
Does the technology exist?  Absolutely.  Is it possible in principle to apply it?  Sure.  Do I feel like Donald Rumsfeld asking and then answering my own conveniently framed, softball questions?  You bet!

But in practice where real dollars are at stake, not for any non-trivial application.

You could build a case where a sufficiently small pipeline for a sufficiently valuable product could justify the cost.  But it would be dead-on-arrival in this case.

A pipeline system is a reasonably complex thing.  And a gathering system, as this seems to be, is very complicated.  There are likely to be a number of different diameters of pipe.  It probably grew hodge-podge as the field was developed.  There are specialized fittings that reduce pipe size (concentric and eccentric), turn corners, provide branching points, etc.  Significant waterways, roadways, etc. are usually provided with block valves so that a rupture can be mitigated by closing the valves; oil companies want to keep the oil in the pipe just as much as the next person, albeit for different reasons.  Pumping stations have got a whole suite of complexities with manifolding, pig stations, etc. making a mess of an internal coating project.

Generally, corrosion in a modern pipeline system will be fairly localized.  In this sort of situation it's relatively simple to cut out a small section and put in a 'pup' as short sections of pipe are called.  In the bad ol' days bare steel was just thrown in the ditch and after enough time you really have to rip it all out and start all over.  The Louisiana gathering system that I worked on had some really bizarre stuff, and there was some butt-naked pipe that had been in the ground for decades.  Whoo--weee!

I think I've heard '16 miles' as the amount of pipe to replace in Alaska.  I'm puzzled why so much.  And I wonder how readily available that much stock is.  I've never been up there, but isn't the summer season the wrong time to do significant work?  Logistics may be a real bugger.  Wanta make some money fast?  Go bring a few containers of mosquito headgear to the North Slope!

There is also the pressure rating to consider.  Presumably, the pipe walls have been thineed sufficiently to reduce their safe operating pressure.  
Bjj wrote:

The voltage difference that electrons in the steel see between their present state and elsewhere is slight, less than a volt.  But the number of electrons in a pipeline system is pretty big.  More than at least 12 I should think.  Yeah, definitely more than a dozen.  I feel pretty safe there.

Bjj, did you forget to put a smiley face  after this statement? Humor seems so out of place in this post. Otherwise what the hell are you talking about?

Sorry.  I assumed that it would be so obviously and egregiously out of whack that it would recognized as an attempt at humour.  Which it was.


My thanks to you and everyone else for the clarifications!
GreyZone -

It's not really a case of bacterial  'infestation', because, as was pointed out by a previous poster, sulfate reducing bacteria are ubiquitous.  They are everywhere and  just need the right conditions to multiple to dangerous levels and do their dirty work.

Nor is it just oil pipelines that have this problem.  Pitting caused by sulfate reducing bacteria is also a common problem in potable water distribution lines. It's almost like plaque that forms on your teeth. A crust develops, and then bacteria find a nice cozy place underneath the crust to do their thing.

Also keep in mind that even though the flow of oil through a pipeline is turbulent, there is still a thin relatively quiescent  'boundary layer' of oil between the pipe wall and the main body of flow. This is probably why bacterial colonies are not automatically swept away by the flowing oil.

I've seen similar occur in facility (building) boiler water systems, over time. Makes sense to me.
ok, so here's what I'm wondering.  Has production fallen to the point that the slower-flowing oil pretty much makes it useless to rebuild the pipeline.  I mean, what's the point in spending a year building it if it gets corroded again in two more years?  

Alternatively, is there a way to reconstruct the pipes such that they can flow faster with less oil, hence less corrosive?

yes - use a smaller diameter  :-)
heh, I was trying to word that without sounding like I had half a brain, but just wanted to make sure.  thanx ^^;
Alternatively, is there a way to reconstruct the pipes such that they can flow faster with less oil, hence less corrosive?

Good question, I have another one: is it possible to keep the speed up in the existing pipeline when there is less oil?

In other words, if the slow-flow-boosting-bacteria-growth theory is correct, is there a cheaper way to resolve the problem than the huge expense of replacing the pipeline? I can think of two possibilities offhand - both pretty wild, admittedly:

  1. Clog the pipe like a fat man's artery. If you put a thick layer of corrosion-resistant coating on the inner walls you protect the pipe and simultaneously decrease its effective diameter, increasing the speed of flow. The thicker you coat it the higher speed you'll get. The only thing to figure out is how to paint the pipe from the inside.

  2. Put the oil in a string of "pigs" and use the pipe as a rail track. One of the pigs needs to be self-propelled, of course. The only thing to figure out is what to do when it breaks down in the middle of nowhere :-)
Could the pig use the pipeline's oil as an energy source?
Not without an oxidant. I wouldn't like to mix oxidants with oil in a pipeline.
From what I understand, pipelines can have different materials pumped through them in turn. Where they meet and mingle is called the "interface" and has to be separated out but it's quite feasable to pump some oil then some water. If you use a pig-like thing to separate the flows then it becomes even easier.

So I don't see why it'd be a serious problem, as you can pump 3/4s oil and 1/4 water with buffers at either end to keep flow rate up.

I thought about that as well but if your basic problem is corrosion I don't think you want to be pumping water (I presume, since the water from the well is separated before the oil enters the pipe, that the pipe was not designed to tolerate much water).
Baaaaaad idea.

Don't mean to jump you, sorry.

The idea is to keep H2O out, not deliberately put it in.  And this situation shows how sneaky water is and will resist attempts to get it out.  Despite what I've seen in the press, I actually trust that the BP pipeline folks actually have pride in their work and generally take prudent steps to run their system professionally.

And lastly, Alaska has another attribute that would argue against using water.  Hint...0 deg C.  Imagine how frantically they would be working right now if the engineers were saying, "umm boss, we have to start the pumps back up in 48 hours or we're going to have a 73 mile popsicle on our hands."

73 mile popsicle
thanks for the imagery
so now I'm trying to visualize emptying this pipeline.
needless to say I'm drawing a blank
You don't have to pump water. Anything liquid will do.
sea water?
Only if you want to be sure it corrodes.  :)
Stuff it with politicians to take up space.  More volume = higher flow.  Maybe we could refine them into something that helps with PO> Teddy Kennedy might add his weight in Ethanol
"Stuff it with politicians to take up space."

Good grief man, do you know how dangerous that could be?  The hot air emissions could set the whole thing ablaze!

there's a pig joke somewhere here. it's on the tip of my tongue
A pig goes to the psychiatrist's office wrapped in....
what do you get when you cross an insomniac, agnostic and a dyslexic?
 Someone who stays up all night wondering if there is a Dog.
 A man is driving up a steep, narrow mountain road.

A woman is driving down the same road.

As they pass each other, the woman leans out of the window and yells "PIG!!"

The man immediately leans out of his window and replies, "BITCH!!"

They each continue on their way, and as the man rounds the next corner, he crashes

into a pig in the middle of the road.

If only men would listen.

Shortly after, the woman collides into a dog of the female persuation.

By next morning, and after having not slept, she still is unsure if she had killed the supreme being.

Be honest, did you just improvise that part? Because if you did, I gotta say, I'm impressed.
Yeah. It takes a sick sense of humor to think like that, especailly the 2nd line. You had to have been following the thread, including that original joke about the guy going to his psychiatrist wrapped in nothing but Saran Wrap --I see you're nuts. (LOL)

PO is a gloomy topic. Gotta have some humor to keep your sanity. Cheers.

I'm always concerned about the "nuts" line from a joke point of view. I always think this can only work if it is spoken. How does this work written? Even with an English as only language crowd, since it depends on the your/you're thing. And as soon as you try to analyze a joke like now, it kills it. At least I'm talented at that. I have the worst delivery.

It can definitely work as a screen for English comprehension, though.

Ever seen that show,"The Office"?

As long as you and Donal laugh, I'm happy.

I'm a corrosion engineer in the industry with some experience with sulphate reducing bacteria (SRB) so I'll give a quick primer on SRB for those that are interested.

SRB are small (5 microns long by 1 micron wide), anaerobic (require absence of oxygen) and ubiquitous, a typical North Sea concentration might be 1 cell per gram. When conditions are right they can multiply to the level of millions of cells per gram and generate significant quantities of hydrogen sulphide (H2S). The H2S together with the stagnant conditions formed by the colony on the pipewall lead to enhanced pitting corrosion rates, which are on the order of 1-2mm/year, depending on conditions.

SRB get their energy from the reduction of sulphate(SO4 2-) to sulphide (S 2-). They thus require another species to be oxidised, usually volatile fatty acids (VFAs) such as acetate (i.e. vinegar!) which are present in most reservoir waters. The requirements for their growth are:

  1. Nutrients, ie. sulphate & VFAs for their metabolism, together with trace nutrients such as Nitrogen & Phosphorous
  2. Moderate temperature 5-50 deg C, although some thermophiles can grow at temps up to 70 deg C
  3. Moderate pH (~5-10), salinity (less than 5-10%) and pressure (less than 500 bar).
  4. Absence of poisoning species such as oxygen or biocide chemicals
  5. Low enough flowrate to establish colonies on the pipewall

I'd say in the alaskan pipelines all the physical conditions of temperature, pressure, salinity, lack of oxygen and flowrate were met. Acetate and other VFAs will normally be presented in produced reservoir formation waters.

Often reservoirs will sour (ie. start producing H2S) after seawater injection as the seawater provides a large source of sulphate ions. It normally takes many years for injected seawater to make its way back to the producing wells but if this has occured that that could be the source of the sulphate for the SRB.

Hello Mike A,

Thxs for this info.  Any guesses on how far down the pipeline this corrosion has occurred?  Do you think the pumps and manifolds are significantly corroded too?  Does 50 miles of pipe seem reasonable, or for enhanced safety and future uptime should they just go ahead during this shutdown and replace all pipe to the top of the Brooks Range?

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

Gday Bob.
How far down the pipeline the problem goes entirely depends on the conditions. Pumps would not be at risk as the flow rate would be too high for SRB colonies to form on the metal surface. Similarly, manifolds may have too high/turbulent flow for establishment of the bacteria. Also manifolds are often at a much higher temperature which could be a factor.

Regarding length down the pipe the problem extends, this would depend on the amount of nutrients originally present. If there is only a relatively small amount of sulphate or VFAs at the pipeline inlet, the limiting reagent could be consumed within the first few kilometres. I have figures for the amount of sulphate/acetate SRB can metabolise per day at home somewhere.

If someone can find a water analysis I can run some calcs ;)


I suggest this should be added to the heading of the thread, it's great info!
Mike, many thanks for this. Particularly in the light of your last paragraph what is your take on the likely condition of the Saudi infrastructure? Ghawar has been seawater injecting for a long time now. Do their conditions fall within your parameters?
I'm not aware of the Saudi conditions... its likely the physical conditions (temperature, pressure) for SRB activity are present in pipelines but whether that occurs depends on the amount of nutrients available.

If the reservoir initially had a low amount of VFAs it is possible that was completely consumed in the reservoir by reaction with sulphate from the seawater (sulphate is normally in excess as seawater has ~2,700 mg/L sulphate whereas VFA concentration on the orders of hundreds of mg/L) such that there are no nutrients remaining for microbial activity in the pipelines.

Again, it really depends on the chemistry of the produced waters.

Slightly off topic:  What is the origin of these bacteria?  Are there species like this living in the oil deposits?  I guess if they were in the seawater, and this gets pumped into the resevior, they're there now.
Good question. SRB are pretty much found in almost all waters (like fungal spores can be found on almost all surfaces). The level depends on the amount of nutrients available - seawater has plenty of sulphate but very little acetate or other VFAs so concentrations are very low (~1 cell/gram) unless effluent or rivers etc. provide more organics for them. (I should have mentioned in my initial post that they cannot metabolise oils, the oils are too unreactive).

Bacteria have been found deep deep under the earth, and are often found in acquifers. Normally, if physical conditions (temperature, pressure, salinity) of a reservoir allow SRB activity then sulphate and VFAs will not be found in the same reservoir - over geological time all of the limiting reagent will have been converted to hydrogen sulphide H2S.

Seawater injection into reservoirs is the primary cause of reservoir souring - the formation water provides the VFAs and the seawater provides the sulphate. Even if initially the reservoir is too hot or too saline, local cooling and/or dilution of the reservoir by seawater will allow SRB activity to take place. Biocide treatments can delay the onset of souring by reducing the amount of bacteria injected into the reservoir, but no biocide treatment is 100% effective and the bacteria will eventually become established.

The most effective treatment these days is actually to inject nitrate ions, which encourages the growth of nitrate reducing bacteria whic produce harmless nitrogen gas and outcompete the SRB for the VFAs. However this is an expensive treatment due to the fact that the nitrate injection must be continuous and of a similar amount to the amount of VFA in the reservoir. Nitrate has been used for waste-water (sewerage) treatment for a long time, and has only recently been applied to reservoir treatments.

"Seawater injection into reservoirs is the primary cause of reservoir souring - the formation water provides the VFAs and the seawater provides the sulphate. Even if initially the reservoir is too hot or too saline, local cooling and/or dilution of the reservoir by seawater will allow SRB activity to take place. Biocide treatments can delay the onset of souring by reducing the amount of bacteria injected into the reservoir, but no biocide treatment is 100% effective and the bacteria will eventually become established."

It is my understanding that treated seawater is being injected into both the water leg and the gas cap at Prudhoe Bay.  I wonder if the gas cap injection is increasing the rate of bacteria growth as part of the water reaches the oil leg through gravity drainage.

Google search results for water injection into the Prudhoe Bay gas cap:

Injecting water under the oil to keep up the pressure I knew about, but injecting wate over the oil I didn't think of. That's one more thing I learned today!
I'm currently arguing for injecting water into a depleted gas cap in order to repressurize an oil reservoir.  I'm using Prudhoe Bay as an example.
SRB get their energy from the reduction of sulphate(SO4 2-) to sulphide (S 2-). They thus require another species to be oxidised, usually volatile fatty acids (VFAs) such as acetate (i.e. vinegar!) which are present in most reservoir waters. The requirements for their growth are:

Aren't there marine bacteria that live by oxidizing iron? I recall seeing pictures of the titanic, and it's covered in 'rustsicles' that were bacterial in origin according to the Nat Geo article. I think that't the explanation in the origninal TOD article — bacteria caused pits by oxidizing the iron in the pipe using SO4-- as an oxidant.

Not sure about this sulphate SO4-- already has sulfur in its highest possible oxidation state (+6), so it would not be possible to oxidise any further. I do know that SRB can profiliferate at the bottom of lakes and swamps where the low flow conditions mean that anaeorobic local conditions can occur. This would not be the case with the ocean due to ocean currents etc. so I would imagine if its microbiological it would be some other microbe (I'm not a microbiologist by the way).
Sulfate is used as an oxidant, so is itself reduced.

Basically it goes like this: life uses reduced carbon as an energy source for growth, maintenance, and reproduction. In an oxidizing environment, CO2 is the thermodynamically stable form of carbon, so reduced C -> CO2 is exoergic. All we need is an oxidant.

The most efficient way in terms of bang-for-buck to oxidize carbon is to use oxygen as your oxidant.

CH2O + O2 -> CO2 + H2O

Here CH2O is shorthand for carbohydrate, not formaldehyde. This releases 478 kJ/mol C and is known as aerobic respiration.

Somewhat less efficient is nitrate reduction, aka denitrification, which uses nitrate as an oxidant:

NO3- + 5/4 CH2O + H+ -> 1/2 N2 + 5/4 CO2 + 7/4 H2O

This is good for 398 kJ/mol C, good enough to be competitive in aerobic environments.

Then there is sulfate reduction:

SO4= + 2 CH2O + 2 H+ -> H2S + 2 CO2 + 2 H2O

This is good for 126 kJ/mol C

In the absence of other oxidants, there is always carbon itself, which disproportionates to the tune of 70 kJ/mol C

2 CH2O -> CO2 + CH4

Obviously aerobic respiration has a huge competitive advantage, which is why the other routes only work in anaerobic conditions (except denitrification, which is widespread, but since N is usually a limiting element and is used for proteins, it's limited to microbial systems) Anaerobic oxidation in general is limited to microbial systems.

SRB are probably most common in marine sediments: only the top few cm or so is aerobic, and anaerobic oxidation can extend 100s of m into the sediment column, mostly by SRB.  There is also a type of SRB which also uses iron

8 SO4= + 2 Fe2O3 + 15 CH2O + 16 H+ -> 4 FeS2 + 15 CO2 + 23 H2O

This leads to huge deposits of reduced S, which is the source of sourness in petroleum. The FeS2 deposits as pyrite, or fool's gold, and is not stable in oxygen (though kinetics are slow):

4 FeS2 + 8 H2O + 15 O2 -> 2 Fe2O3 + 8 SO4= + 16 H+

(this is why mine tailings are acidic) In any case, those deposits of reduced S (~1.5x10^20 mol) are important in the global oxygen cycle. Clearly if we keep reduced material where oxygen can't get to it, that leads to a buildup of oxygen, and reduced sulfur currently accounts for ~1/3 of the total oxygen in the atmosphere. Deposits of reduced carbon account for the rest. So "fool's gold" actually has real value, if we don't dig it up, anyway. Unlike true gold, which just sits there looking shiny.

Now, this...this is geeky.  I love it, and I am learning something.  Thanks.
Glad you liked it. If you want something really amazing (in a geeky sort of way, of course), think about the reverse of the first reaction. Normally when we react CO2 and H2O we get ... soda water. Add energy and we get warm soda water (soon to be flat) But 2.5-3 billion years ago, cyanobacteria (aka blue-green algae) figured out how to reduce the carbon using sunlight to get food and building material, instead of soda water.

Let's run some numbers ... 478 kJ/mol C ... if we use one photon to reduce one C atom, and there are 6.02 x10^23 photons or atoms in a mole, and E = h nu, and c = lambda nu, we find we need a photon with a maximum wavelength of about 250 nm.

Minor problem: the photon flux on the surface of the earth at 250 nm is zero. No biggie, you set up a wildly complicated battery of light absorbing compounds (chlorophylls first probably, then carotenoids, anthocyanins, fucoxanthins ...) and a stunningly complex energy transfer mechanism (requiring more complex compounds like cytochromes, ferredoxins, phosphate esters) as well as the infrastructure to make and maintain the whole thing, and you can use several photons of lower energy that are plentiful in the solar spectrum to reduce that atom of C. All in a day before clean rooms, lasers, HPLCs, etc. If you've ever done photochemistry, you know that calling this "nontrivial" is a massive understatement. Even today our attempts at solar powered carbon reduction are clunky, amateurish, and just plain pathetic compared to what a green plant does.

Needless to say, photosynthesis changed everything, from atmospheric and marine composition and chemistry to terrestrial landforms to the hydrologic cycle to radiation balance to climate.

Which leads to the inevitable question:
Are Human Beings smarter than blue-green algae?

Fantastic post. The comparison of the energy available from the reduction half reactions (I'm assuming its enthalpy delta H) really solidified in my mind why oxidation with oxygen is preverred if its available, why nitrogen reducing bacteria outcompete sulphate reducing bacteria (more energy available), and why direct reduction of hydrocarbons by bacteria is not seen (not enough energy available).

On the subject of iron sulphides, it is interesting to contrast that the kinetics of pyrite FeS2 reaction with oxygen are so slow whereas the finely divided FeS formed in process equipment with even trace amounts of H2S is extremely reactive. So reactive that its known as pyrophorric iron sulfide - i.e. self-igniting. I've seen incident reports of self-ignition of process equipment opened to air even when it is only treating a few ppm of H2S. Chemistry is wonderful stuff...

Actually they're Gibb's free energies (delta G, more specifically) for the whole reaction, not just the half-reactions.

why direct reduction of hydrocarbons by bacteria is not seen

You do: CH4 is swamp gas. It's also landfill gas. Also, if conditions are right (simple sugar feedstocks, enclosed reaction volume), the process does not go all the way to CO2 and CH4 but stops when concentrations of CH3CH2OH (toxic waste) build up enough to kill the critters that cause the reaction. Then we call it fermentation, and encourage it in huge quantities. The CO2 part, of course, provides the fizz. (So next time you pick up a glass of your favorite pale ale, or single malt scotch, or a bottle of La Tache, think Bacterial waste! Mmmm!)

On the subject of iron sulphides, it is interesting to contrast that the kinetics of pyrite FeS2 reaction with oxygen are so slow whereas the finely divided FeS formed in process equipment with even trace amounts of H2S is extremely reactive.

Didn't know that! But it doesn't surprise me, sounds like a surface area thing. Heating a block of aluminum gives you warm aluminum, heating finely divided aluminum powder ... think thermite bomb, the Hindenburg, when an Exocet meets an HMS Sheffield class destroyer ... think Run away!

Ok you two...what about that "fuz" and "water like liquid" that forms in Kerosene.  raises hell on rocket heaters and makes filtration required- no letting it sit in the tank..bacteria is what I  was told it was
I don't have energy figures handy, but some microbes run by oxidizing iron. Using sulphate, roughly:
SO4-- + 4Fe -> S-- + 4O-- + 4Fe++

This reaction provides energy and labile iron in an anaerobic environment. I trust that Mike A's facts are correct in that acetate is also a limiting nutrient. The bacteria still need carbon for synthesis and it's hard for a low-energy anaerobe to break down paraffins. They would need phosphate and fixed nitrogen as well.

It would also explain the destructive nature of the little buggers to pipelines. They are manufacturing rust as a byproduct of metabolism. Or a mishmash of ferric and ferrous sulphides and oxides.

Kay-righst, you people keep this up and we're going to have to make a TeX interface.
I'm not a microbiologist either, but did have some firsthand experience with some of your bacteria. I'll try to keep it short:

I was keeping a marine aquarium many years ago, trying to maintain some invertebrates, mostly, from Cape Cod back in Indiana — the parents were biologists. Anyway, I made little gadgets for circulating water with glass tubing and bubbling air; the tubing was held in place by plaster (CaSO4) and buried in sand at the bottom of the aquarium.

After several months, and most of the interesting varmints were gone, I took it apart and the plaster was all soft and black and stinky. Anaerobes in the mud/sand had gotten into it and reduced some of the SO4-- to organic S compounds, reducing the plaster to muck. It was noticeably stinkier than the rest of the bottom material.

In reply to your comment, yes, the SO4-- is in a high oxidation state. I suspect the pipeline microbes make use of sulphate to oxidize iron. That sort of redox combination is known to power some extremophile bacteria. Iron is also a handy micronutrient and shell-building material for them (such as the aerobes eating the Titanic). Of course acetate and other organic goo also comes in handy, since our little bugs need carbon.

I'm basically agreeing with your post, and thanks for contributing it.

the earth abides ; )
as does the "Dude"...
"as does the "Dude"..."

The Big Lebowski?

part of me wanted to scream when you said redox.  Chem 2 was fun :P  definitely good to know how things work though.
So, as someone in California, do you think it would be prudent to buy a couple 20 gallon gas cans and fill them up for a rainy day?  I topped off the tanks in all my cars this morning.  So far today there's been no impact on gas prices (I know it's way too early, but some people tried gouging immediately after Katrina for example).  
Hello Nagorak,

That would be a hell of a 40 gallon fire hazard--probably illegal to store that much without a proper permit and installation equipment!  Don't store any inside or near your house as it will probably expand and try to pressure-vent fumes past the gascan cap.  I don't recommend it if your property is small or if your kids are still at home--not worth the risk.  If crunch time hits-->carpool, bus, buy a scooter/cycle/street-legalized ATV, bicycle, etc.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

Using some figures from TOD and EIA, I reckon there should be no overall problem. Crude stocks should last 220 days (55 MB divided by 0.25 mbpd reduction) before they run out. Petrol stocks should last another 200 days after that to cope with a 10% reduction in refinery runs, if no crude oil has been bought in from elsewhere. Of course this is all mathematical, not real life "I have used up 2 gallons, I must queue for several hours with my engine running to refill again". That will cause more of a problem in panic buying as happened over here in the UK on a couple of rumours of petrol strikes.

Losing 10% of your oil supply for a couple of months shouldn't be a real problem given the large quantities of stocks PADD 5 has. Panicking will cause a problem, where there wouldn't have been one.

The simplest answer? No.

Gasoline is a fairly dangerous thing to have around the house. A separate outbuilding can improve the picture somewhat - especially without any potential source of ignition and very good ventilation.

Unfortunately, a number of people are likely to start doing just what you thought, and it will kill and maim a number of people.

well isn't that just evolution at work?
Thanks for the replies.  I guess I will just sit tight.  My vehicles are all fuel efficient anyway, so I should get by better than most.  If worst comes to worst I guess I'll just cut back on driving to a bare minimum.  
HO thanks for summarizing!
Hello TODers,

Latest update from San Fran Chronicle:

20¢ a gallon gas price hike predicted for California

State has crude oil reserves, but closure of Prudhoe Bay eventually will hit bay refineries.

"Throughout the course of the month, you'll see refineries have to cut runs, which is going to yield less gasoline, less diesel, less jet fuel," said Denton Cinquegrana, West Coast markets editor with the Oil Price Information Service.

The federal government moved Monday to calm fears of an oil shortage by offering to lend crude from the nation's Strategic Petroleum Reserve to refineries that requested it.

That offer, however, has little practical effect on California refineries. The petroleum reserve is stored on the Gulf Coast, not in California. Any crude coming directly from the reserve would need to be sent by ship -- a three-week trip.

"They have to bring it in by tanker because there are no incoming pipelines to California's refining centers," said Tupper Hull, spokesman for the Western States Petroleum Association, which represents West Coast refiners.

Reads like they assume it will be no problem getting ships through the Panama Canal--Hope they are right.  Or is 3-weeks the normal time to sail around South America?  I was hoping to read about transfers through the Panama Isthmus Pipeline.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

It's front page news today on the Sacramento Bee as well.  I filled up my Metro's gas tank - it took 7 gallons being nearly empty - at $3.01/gallon at the local cheap gas ARCO station.
I reported this yesterday but I am wondering why since this is only a pipeline shut down it would result in lower production when it is replaced and started up. Would the wells themselves dry up or would it simply be uneconomical to restart marginal wells. Maybe Westexas or others in the industry have an answer?

We estimate it could take between 2-3 months to get it back on line," Bruce Lanni, an industry analyst with A.G. Edwards, wrote in a research note. "However, there are no assurances that it will return to current capacity, given the complexities and age of the reservoirs. Thus, we would not be surprised to see volume losses in the area of 5 percent to 10 percent."

I would actually be surprised if there was any significant loss in production, after all the wells are brought back on line.  There had earlier been some reports of problems with some of the wells, but I believe that has been taken care of.

This news report says the oil goes around South America to the West Coast.

For now, there will be a short-term impact to the consumer of 10 to 20 cents more for a gallon of gasoline, said Borenstein, with the institute's Center for the Study of Energy Markets.

But if the shutdown keeps the drain on current capacity from being replaced from the Alaska fields, there will be a significant long-term impact, he said.

"We simply can't move oil in quickly enough" from other sources like Texas or South America, Borenstein said.

There is no pipeline to funnel sweet crude into California from Texas or the Gulf Coast, and the giant tankers that haul supplies over water are too big for the Panama Canal.

That means they must navigate down around the tip of  
South America, eating valuable time before the state's supplies can be replenished.


I am going to try googling something on the Panama Pipeline, the MSM is not mentioning it so maybe it is dysfunctional.

Bob Shaw in Phx,Az  Are Humans Smarter than Yeast?

Does the Panama Canal ban oil tankers under a dangerous cargo restriction? I cannot find a reference to it on their site. If not then tankers up to PANAMAX size can get through. These are smaller than ULCCs of course so you need more of them to move a given quantity but reduce the trip timing and add in delivery flexibility and you should be able to ship from the Gulf without too much drama.
Hello TODers,

Panama Pipeline currently inoperative according to EIA

Transit time from Alaska to U.S. Gulf Coast refineries is about 16 days, as compared to 40 days for a trip around Cape Horn (the southern tip of South America).

If transit were halted through the Canal, the Trans-Panama pipeline could have been used to re-route a significant proportion of northbound oil to the Atlantic. This pipeline is located outside the Canal Zone near the Costa Rican border, and runs from Puerto Armuelles on the Pacific to Chiriqui Grande on the Caribbean. It had been used to ship Alaskan oil to Gulf Coast ports; however, the pipeline was closed in early 1996 following the decision to allow Alaskan oil to be exported outside the U.S. Plans are currently being made to reverse the flow of the pipeline to allow about 650,000 barrels/day of South American oil to flow from Atlantic to Pacific destinations; this plan is contingent upon lining up enough customers to make the investment needed to reverse the flow.

Looks like the Supertanker: USS Condoleezza Rice has to sail the Drake Passage in wintertime.

Bob Shaw in Phx,Az  Are Humans Smarter than Yeast?

Looks like the Supertanker: USS Condoleezza Rice has to sail the Drake Passage in wintertime.

I presume you mean summer time. Southern South America is entering springtime now. No picnic anytime of the year though.

NY Times today.
"We can't explain it," Ronnie Chappell, a spokesman for BP said...

Mr. Chappell said the pipes where the corrosion was detected had not been inspected with a "smart pig," a device that travels through the inside to measure pipe wall thickness, since 1992. The reason the device was not used, he said, was that the pipes were too clogged with sludge for the device to pass through easily.

But after a major spill in March along the same network of pipes, the Department of Transportation ordered inspections with the smart pig. Those tests revealed that the steel had corroded in 12 places on the eastern side of Prudhoe Bay to thicknesses less than BP considers safe.

Not to worry, though. Dan Yergin is on top of it.
Daniel Yergin, president of Cambridge Energy Research Associates, said the shutdown would not ordinarily be a major problem by itself. But he added: "This is a disruption on top of several other disruptions that are currently afflicting the world's oil markets in Nigeria, Iraq, Venezuela and production is still out in the Gulf of Mexico. The numbers are starting to add up."
Not ordinarily a problem by itself? West Coast refinineries are set up to process Alaskan crude. The numbers are starting to add up? I need to get something off my chest here.

Disruptions are normal to the world oil market. The levels of disruption fluctuate over time. Any number of things can cause an supply interruption, from routine maintenance to wars to politics. After 9/11, something changed.

Crude Oil Prices 1947-2004

The rules of this game have changed. From Stuart's post.

Click to Enlarge

My view is that regarding oil shocks, we are now living in a different world. In this era, suppliers are asserting their power. Consumers (US, China) are aggressively trying to secure supply. The illusion created by low prices in the 1990's, especially the 1998 dip, is now broken. The gloves are off. Geopolitical news is now mostly energy news. Even Condy "Oiltanker" Rice has admitted as much. This trend will never change in our lifetimes. Those unsustainable exponential growth curves eventually end up changing the rules of the game. Any kind of event can tip the system into a new paradigm. So...

An historical shift has occurred. It's not just "starting to add up", Danny Boy. It's been making sense for some years now.

In essence, you are correct.

The times, they are a changing.

However, I think there is a substantial chance (roughly one chance in four using totally subjective probability) of a severe global economic slowdown/recession/depression that will produce substantial oil surpluses and falling prices within the next eight years. True, global recession does not reverse peak oil (which is, for all intents and purposes, here and now), but it could produce rapid and drastic price declines in petroleum products that could last for a couple of years, depending on how long it takes to pump enough money into economies to erase debts and get investment moving again.

I do not understand the premises of those who say Peak Oil is more than a few years away. Or, to be more precise, I do understand the premises but find them to be mere wishful thinking.

I am in general agreement with you here Don, with the caveats that I would put the chances much higher than one in four and I see it being much more difficult than you do to reverse the dynamic once it has begun. IMO the economic slowdown has already begun, and I would expect the decline to pick up speed significantly by the end of this year and into 2007.
You could be 100% correct; there is good evidence for your position.

In regard to economic recovery, I have great faith in the power and inclination of central bankers to destroy the value of moneys so as to mitigate a global depression, and once inflation effectively eliminates debt, then we have a whole new ballgame.

If my best guestimate is correct, load up on debt now, because dollars are going to turn into pesos, and the Euro won't be much better.

The uncontrolled deflation scenario I put at maybe one chance in fifty. Helicopter Ben has those bundles of currency all printed up and ready to go; perhaps FEMA will send their black helicopters to redistribute wealth. (Stranger things have happened in fairly recent history.)

I was wondering how you define inflation?
I define inflation the way it is defined in dictionaries and economics text books.
Thanks. Which dictionaries and which text books? I wasn't being a smart arse, I was serious. Apparently, so I am told, there is some real contention about what inflation is and how to measure it, and I was simply asking your choice. Clearly, the definition is so complex that you were unable to reproduce it in a line or two. But thanks for the curt bugger-off reply.
Inflation is typically defined as a a sustained increase in the general level of prices. However, I prefer the older defination, that inflation is a devaluation of money. The difference becomes obvious when you think about a currency that is only used as a medium of exchange, but not as a standard of value.

Now, if someone increases the money supply, its value, measured in the standard of value, will sink. That's inflation.

Prices can also rise for reasons that have nothing to do with inflation. A good example is the oil price. It rises, and because it's used in the production of some many other products, the general price level rises. This, however, is no inflation, because the value of the money measured in the standard of value has not changed at all. If the central bank now reduces the money supply, the value of money will increase. This, however, is deflationary for the economy.

Modern money, however, is the standard of value and the medium of exchange at the same time. So, it is quite difficult to distinguish inflationary price increases from other price increases, even though the difference is still important. When central banks cut the money supply because of the oil price, they create deflation and hamper growth.

Inflation is typically measured by the consumer price index (CPI), which is flawed. Inflation can hide in real estate prices, equity prices, commodity prices, which are not represented in the CPI. This makes such things as housing bubbles possible.

Very good post, Siggi.
(*) Marked for future reference.

Thanks for the reply. :)

I was less than precise in my question. I was not asking for "the" (or even "a") definition of inflation, I was asking for the definition DS (rhymes with BS, make of that what you will) uses. Just wanted to know the terms of reference in order to assess his assertions correctly.

Sadly, I my question was inadequately phrased and thus subject to an equally inadequate reply. Having used three dictionaries (two printed), I noticed that even those contained more than one definition per entry.

Sorry. I misinterpreted your question.

There is a lunatic fringe out there that insists that the dictionary (any collegiate or large dictionary will do) and the textbooks are all wrong! That the proper definition of inflation is glibbety globbety glue, rather than the definitions that have been in solid use for the past century and a half.

Among reputable economists, to the best of my knowledge, there is no debate about definitions of inflation at all. Now there are debates--and legitimate ones--about how to measure inflation, but note that the two common formulations

  1. a decrease in the value of money and
  2. a general increase in the price level

are exactly equivalent--just different words for the same concept.

However, once again, you have my sincere apology.

Your 1. and 2. are not equivalent in my point of view, see my post above. That's one of the issues that the money theorists of the 1920ies understood much better than modern theory does.
All economists that I know (more than one hundred) believe the two definitions to be identically equivalent.

Specifically who does deny their equivalence?

BTW, it is simple arithmetic to show that the two formulations are identities.

Then you think that the market value of money is its purchasing power, as most, but not all economists do. Especially money theorists don't.

The problem is, that usually, we think that the price of a good is its market value. So, what is the price of money?

This can be easily solved if you distinguish the medium of exchange purpose of money from the standard of value purpose.

In such a case, there is a price for the medium of exchange. If this price sinks, you have inflation, if it rises, you have deflation. Inflation and deflation have nothing to do with the prices of the other goods.

When money is both medium of exchange and standard of value, there is no longer a price of money. There still is a market value. This market value is formed by the supply of money and the demand for money.

When prices increase because of an increased scarcity of oil, that has nothing do to with inflation, even though prices go up. In such as case, typically, the demand for money will increase. That means that the market value of money increases as well, so we have deflation rather than inflation. A central bank that wants to stabilize the value of money should increase the money supply.

When, however, the central bank increases the money supply and the demand for money is constant, the value of money decreases. Prices go up again, this time, because of inflation.

You don't find this in standard textbooks, but in books about money theory. In my point of view, it is much more convincing  than the tautology that the value of money is its purchasing power.

I think you are using circular economic logic here.

The Central Banks print more money, since the price of oil goes up and most oil needs to be paid in $. So you suggest this additional money is only used to trade oil and it does not affect the rest of the economy? How?? Only initially there is additional money supply needed to facilitate payment. After it is paid there is just more money circulating in the economy chasing the same amount of produced goods, so we have inflation equal to amount of additional money. Since we use money both as an exchange mechanism and as a store of value the net result is still that the additional supply flows into increased equity values if not also our wages are increased by the same proportional amount. We have been witnessing this for the last few years.

Following this logic the increase in energy prices will soon have us on the path to hyperinflation....

The US government simply cannot afford the deflationary scenario. Too much debt is owed overseas and deflation would give holders of such debt even larger control over US actions. To eliminate this and maintain freedom of action requires inflation.

I agree, Don. The only way I can see a deflationary collapse occurring is accidentally, coming from some unexpected direction and catching the Fed off guard.


You hit the nail on the head.  The economic slowdown has already begun, even if the media fails to acknowledge it, and it will soon accelerate.  To the media's great shock and consternation, we could have negative growth by the end of the year.  Another thing the media has backwards is the threat of inflation.  The markets know that the real threat is recession and even deflation, not inflation.  Just look at a chart of the exchange traded bond fund TLT, which has risen steadily over the past two months or so, sending yields down.  Throughout this same period, the MSM has continued to talk about rising yields.  Remember, the bond market is 5 times larger than the stock market, so as money continues to pour into funds like TLT, equities and COMMODITIES will be hard hit.  Another thing to keep in mind is the lag time involved with housing.  While equities respond to events immediatly, or even anticipate events, with housing there is a definite lag.  What happens during this lag?  Inventories rise.  Well, inventories have been rising and are now at record levels.  Soon enough, home prices will begin their delcine, and this will be extremely deflationary over the next ten years or so.  The housing market decline and its recessionary and deflationary consecuences will be THE story of the next ten years.  But for now, the key concept is declining global liquidity.  Over the past year or so, central banks around the world have been steadily reducing liquidity.  Again, there is a lag time here, but whenever this has happened in the past, equities and ESPECIALLY commodities have been hard hit.  It is always difficult to go against the herd.  Two months ago, the media was ridiculously bullish on equities, but that was the best time to sell or go short equities.  The media is still ridiculously bullish on commodities.  Go to any MSM financial site and you can read an endless stream of articles telling you to pour your money into commodities.  And, in fact, that's what everyone has done over the past two or three years.  Meanwhile, the insiders are selling.  In short, everything seems to indicate a near term pullback in commodities and energy prices.  

Of course, none of this takes, "peak oil" into account.  That's why i'm here.  I find Mathew Simmons' arguments, and the arguments of many TOD posters to be incredibly convincing.  I'm trying to figure out who's arguments will trump who, and when.  IMOHO, I think we will see oil decline to around $57 by November 15th, which also happens to be my birthday.  On the other hand, "peak oil," may, at some point, lead to what traders will call, "an unexpected upside breakout."  Even if oil peaks, though, I think we will witness an epic battle as far as oil prices are concerned.  The housing market is a behemoth.


I was just reading an article last night, predicting that we were in a commodities boom that would last another ten years.  

This is what I struggle with:  I understand that recession has historically brought about a softening of demand for commodities, oil included.  However, I would reason -- and this is pure speculation, as my background is in agronomy not economics -- that if we are about to descend the back side of Hubbert's Peak, there might be no softening of demand for oil (or nat gas), even while economic growth stagnated or declined.  Limits to petroleum and gas supplies would presumably make essential commodities more difficult to obtain and, thus, have the effect of bouying commodity prices.

So, I continue to struggle with trying to understand what's to come...???

PeakOil Tarzan,

I'm struggling with exactly the same thing.  Everything I normally focus on is screaming, "sell oil!", yet the Simmons book, and the arguments he lays out, give me pause.  A few threads back, I wondered if, at the time of peak oil, we will see a discrepancy in the behavior of oil and other commodities, with oil rising far more than other commodities, which won't be peaking at the same time.  Simmons seems to suggest this when he says that, "only self-aggrandized traders" think that oil is, "just another commodity."  So far, oil and other commodities have followed exactly the same pattern.  This suggests to me that oil has yet to peak.      

BTW, I think the commodities boom will last at least another ten years, i'm just predicting a short term pullback.  

I don't understand what you mean that "oil and other commodities have followed exactly the same pattern".

Copper went to 3900 in may, then dropped to 2900 in june and is now back at 3600. Gold followed a similar pattern, up to 730, down to 570 and now at 650. Oil however kept trading in 70-75 and now seems to be in 75-80.

How is this following the same pattern?

You're right to point that out.  There's an exception to every rule.  But as I note in a lower post, the same head and shoulders pattern is visible with both HUI and OSX, with only minor variations.  And i'm one to believe that the shares lead the commodities lower.  

I'm watching closely, though, to see if more examples of what you noted begin to appear in the future.  I think that would be very telling.

I still think it's fair to say, at this point, that oil has behaved like, "just another commodity."

This is a very tricky situation. The reduced liquidity and foreseeable slowdown in economic growth in the US (if not recession) are obviously bearish.

But the general commodities-cycle argument is very convincing and I don't see much weakening.

For instance, copper has come back up not on speculative excess, but because the Chinese are still using it at an amazing rate and stocks are low. Copper is plentiful in the ground but my sense is that the supply situation isn't going to change much for the medium term at least. (With zinc and nickel the long-term situation is much more bullish than copper).

Gold and silver demand is quite strong. The new etf has eaten up a sizeable percentage of available physical silver.

Grain stocks are low, particularly for wheat. More and more it's reasonable to think that there will correlation with energy prices. Sugar especially.

The fundamentals are intact, as they say. I'm reluctant to take off much exposure for short-term expectations.

Could the June pullback and sideways action into fall be the correction you're looking for?

POT and SAT - at some point in the future - probably post 2012 - you need to consider a vital commodity that is running out faster than demand destruction.
"So, I continue to struggle with trying to understand what's to come...???"

Take a look at the Seventies, and assume that they never ended.

In the early Eighties, we saw a decline in oil demand--because of the high prices and because of a recession--and we saw a supply increase.

This time, we will not see a net supply response.  Vast amounts of money will be spent on energy projects, but IMO all of the efforts will only serve to slow and not reverse the decline in the total energy supply.

What!?! The 70's ended!?!?
Take a look at the Seventies, and assume that they never ended.

Why I think it will be worse: In the Seventies, US labor still had some pricing power and could demand wage increases to offset higher energy costs.

This time around, US workers have little leverage to demand higher wages.  Additionally, US personal savings rates have declined from upwards of 10 percent in the seventies to effectively zero in 2006.  So, increases in the cost of energy can only be offset by reductions in consumption or an increase in borrowing.

Often, inflation and deflation are presented as "either/or" scenarios, but could we be entering a period where both will be significant?  Increasing costs of energy production will drive up prices of everything from oil to toilet tissue.  Simultaneously, people will be pressed to liquidate assets (houses, cars, jewelry, etc.), in order to meet household expenses (they can't, after all, expect wage increases or to draw on savings). Unsold inventories will create more deflationary pressure as unsold goods will have to be sold off at "sale" prices in order to get them off the floor. These things I would expect to have some deflationary effects.

The latest figures from the BLS actually show a negative savings rate, for over a year now.
My god do you have the wrong end of the stick on that one! I'm not trying to be rude, but we are now in a pre 1914 situation, where the US is a net debtor and a balace of payments crisis can appreciably increase wages overnight.
We don't just import cars, we import the labor to make those cars. No imported cars, happy days for the UAW. Also the UMW, the USW, the OCAW, etc.
People assume that oil demand must lessen if the US economy goes into recession (or worse). I am not so sure. Right now much of China's production is sold to the US. In the early 20th century much of the US production was being exported too. But this also built up a large middle class who was able to begin buying for themselves.

Thus I wonder if we are on the verge of a transition in currencies where the dollar fades as the international currency of choice. However, I don't expect the Euro to move in. No, in that scenario I would expect the Chinese yuan to do to the dollar what the dollar did to the British pound.

Thus, if China takes less of a hit during a downturn than the US, demand could remain constant or continue growing even though the US was floundering. If that happens, I wonder if the yuan could become the new currency of choice?

I suspect that the Chinese economy is much less resilient than the U.S. economy. First and most important, it appears growth in China is being primarily driven by exports. Should those exports fall, the rest of the economy will suffer. Second, the pace at which China has been growing has exposed some real basic infrastructure problems. I've read reports that the agricultural system is in midst of a collapse, in part due to pollution and in part because people are abandoning the farms for the industrial sector. This latter issue is so bad that there are villages selling their farm land to industrial concerns in exchange for job guarantees. Then there is the general pollution problems they are having. In addition, while they have been building transportation infrastructure at a breakneck speed, the industrial miracle is still primarily confined to the coast and Beijing. A dramatic spike in oil prices or a drop in supply would impact their ability to continue this build out   and that would limit opportunities for growth.
GreyZone, if the Yuan rises does that not also lead to inflation - all these very cheap goods getting more expensive?  So you would have higher interest rates, higher energy prices, higher prices for manufactured goods and probably higher taxes offset on the inflation tapestry by falling property prices?
Trader, doesn't your scenario of moving into treasuries depend on the Fed to stop raising interest rates and begin to roll them back?  Yet the markets have been waiting for the Fed to stop raising interest rates for 6 months now, but every time it looks like they will stop raising them the inflation figures come out and they need to keep raising them.  In short, we have a slowing economy and raising inflation due to high energy prices (which may stay high), i.e., stagflation.  Will the treasuries be a place to hide in such an environment?
People are already moving into bonds, take a look at TLT over the last month or so, which has been rising steadily, to see what I mean, and this has been accompanied, as should be expected, by fallling equities.  The Fed is typically the last to catch on, but they'll catch on soon enough and start lowering rates.  The media has made inflation out to be far more of a threat than it really is.  Once the market starts to collapse (and keep in mind that SMH and QQQ, both of which are great leading indicators, are already down more than 15% in the last three months) and then the economy begins to move closer to recession, you won't here anyone talking about inflation, and rates will be falling like a rock.


A lot of economists are beginning to talk about stagflation as our future.

So it IS the Seventies!

I agree with you about the primary threat being deflation - this has been my position for the duration of my posting history at TOD, in fact this issue is what initially prompted me to register and post. I share your interest in how a deflationary depression and peak oil will interact. As you say, there are various countercurrents involved.

I am concerned about the prospect of a liquidity crunch, in which money denominated only in electronic blips may inconveniently 'evaporate' at some point, leaving a relatively small amount of actual paper money which could then be very valuable (until the powers-that-be fired up the printing presses in earnest, which I would expect them to do in desperation after deflation has largely run its course and borrowing from overseas has ceased to be an option).

My thoughts are that a depression would drop the price of almost everything, although the purchasing power of the majority would fall even more quickly which would result in things becoming generally less affordable despite being nominally cheaper. There would probably be a temporary oil surplus, although capital-intensive oil exploration and tertiary production techniques would be very difficult to fund during a deflationary credit collapse, hence lower nominal prices would be temporary as production could decline dramatically.

A significant concern of mine is that the perception of a peak by governments will cause them to act in extremely counterproductive ways, and it is these actions which I would expect to have the most negative effects. If governments were prepared to be reasonable about a strategic resource in short supply (pigs will fly first IMO), then the global market for oil would continue to operate, with oil (at least initially) cheaper in nominal terms due to economic pullback and supplies going to the highest bidder.

However, governments are likely to respond to the perception of a peak by behaving like motorists who have heard a rumour that there might be a petrol shortage. In other words, I expect them to panic - to try to secure supplies through bilateral contracts (ie take oil off the market) and, where that fails to ensure security of supply, to engage in entirely counter-productive resource wars.

The global market for oil would probably be a casualty under such a scenario, which would make obtaining supplies far more difficult and expensive than it need have been. It would make extracting oil and transporting it far more difficult as well, as resources would have to be devoted to protecting very expensive infrastructure. With money in short supply, that would not be easy. The net result IMO would be tremendous price volatility, with considerable spatial as well as temporal variability in both price and supply. Supply interruptions, perhaps prolonged, would probably be commonplace, hence reducing structural dependency on fossil fuels now is highly advisable IMO.

Stoned, have to share your concerns about deflation.  Whilst I'm not an economist I understand that deflation in a debt overburdened economy is suicidal - the value of the debt goes up relative to earnings and there is no way to repay.  So may tend to agree with S.A.T. that governements may quickly start to lower interest rates and let inflation take hold.  That way you end up with an inflationary bust instead of a deflationary bust.  In my book it says to sell governemnt bonds in an inflationary bust - like to comment S.A.T?
Well, I disagree with you that after the Fed starts to lower rates, "inflation will take hold."  I think the Fed will have to lower rates to fight off recession and deflation.  I think the threat of inflation has been grossly overstated.
I think the Fed will have to lower rates to fight off recession and deflation.

I agree, but I don't think it will work. Even a nominal short-term rate of zero won't be low enough as real interest rates (nominal rate minus negative inflation) will still be high enough to deter borrowing and lending. I would expect a tidal wave of involuntary debt-liquidation.

OK, so in a deflationary bust you buy bonds.  If we have deflation now then the whole economy is fekked as I understand it as the value of debt goes up relative to sallaries and cannot be repaid - what happened in Japan I believe.  Is inflation not polarised between indigenous goods and services and property that are going up and imported goods that are going down?  With lower interest rates and falling currencies (against what?), higher energy costs and manufacturing capacity erosion in China (bankruptcies) would inflation not take hold?  An inflationary bust at least gets rid of debt.
What happens when the bottom falls out and there are millions of us with mortgages? Will we be kicked out of our homes? Will banks just evaporate? This has been a question on my mind for a while. Anyone have any theories? What happened in 1929?
Lots and lots of foreclosures. The Dust Bowl. Massive migrations of penniless and homeless people turned into migrant workers. Banks evicting people by force. Prosperous farmers burning excess crops they couldn't sell to avoid having them taken by the starving masses.

It wasn't pretty, and it might be worse this time around.

In the Great Depression, they did kick people out of their homes, auction their possessions, etc.  The neighbors sometimes turned out as an angry mob and "discouraged" would-be bidders.  Sometimes they would pool their money, buy the property, and give it back to the family being evicted.
I think this time, should such an event take hold, Americans will be far less likely to adopt such "peaceful" methods. Those most vulnerable will suffer in the earliest stages. But given there are far more guns and much more ammo in circulation today than then, I would think you would see "armed and angry mobs" pooling their weaponry and forming militias to prevent such evictions. I think you'll then start seeing the rise of the private security firms as never before.
especially with the decline in social capital that we have talked about vis-a-vis Putnam's work.
In this case, I think the act of forming closer knit groups will reverse the social capital decline on the order of weeks or months. Whether the new arrangements will be to everyones liking I would hesitate to confirm. But an economic event on the order of the Great Depression will tear a rent in the fabric of what the United States has become that will, in my opinion, destroy the US as we know it. In much the same way as the FSU. This would take several years and be the source of great hardship and much death. In the early stages the Armed Forces will be deployed aginst its citizens and multinationals will engage private security firms. The extremely wealthy will move into private security operated gated complexes. John Robb has a far more complete version of this and I have to say it seems to be happening already.

The shear volume of weapons and the propensity towards violence in the US scares me shitless. While I don't live there I do have immediate family there and have resigned myself to this fate as much as it pains me to even acknowledge it.

The 'propensity towards violence' exists mostly in the Deep South, Texas, and the lower Midwest. Those area will go to hell in an handbag, and quickly too. So will the U.S.-Mexico border. (Reference the Minuteman, who will probably take out their anger by scapegoating Hispanic immigrants before turning to others -gays, African Americans, Jews, anyone who dissents.) I'm also worried about the rise of a potential theoracy(ies) in these areas, though I don't think they could hold together very long due to internal competition among factions. I live in the Deep South, and right now I am seriously considering a post grad school move to an old New England farmhouse on several acres. (Not necessarily because of PO, because that has been my dream for several years.)
I'm reminded of the time when IBM was forced to lay off thousands of workers.  The local gun shop closed for the day.  Just in case.  
Have faith in Helicopter Ben.

The Fed and other central banks have the power to create more money without limit. I see no plausible reason to think that they will not expand money supplies HOWEVER MUCH IS NECESSARY to prevent deflation.

As a last resort, Helicopter Ben was not kidding: Before we would see a rerun of the Great Depression the helicopters will be loading chunks of cash from the roofs of the twelve District Federal Reserve banks and dropping the cash wherever people congregate. Indeed this scenario of helicopters literally dropping cash from the sky goes back to the nineteen fifties when there was concern about a deflation that would tend to result after a thermonuclear war with the Soviet Union. About a two year supply of cash (if memory serves) was stashed away at the district banks in sub sub basements behind a couple of feet of hardened steel and under who knows how many dozens of yards of reinforced concrete.

Wonder if all that lovely green stuff is still there . . . .

ah, but by loosening up the money supply again, aren't you in turn sending the dollar lower, therefore making it even hard on the petroleum consumption...?  
They call it the inflation tax.

It hits some harder than others, especially if filling a gas tank is an important expense in your life.

Inflationary collapses can be just as painful--see post WWI Germany...
The demand for money will never drop to zero, but
the supply may rise towards infinity...
I used to be upset that the M3 values were not published anymore, but I've come to the conclusion that I really don't want to know anymore.

I'm sure it is obscene.

wouldn't this green stuff falling from the sky just amount to free toilet paper for an already spoiled populous. thus encouraging left handers more in their sinister plot to take over the usa. I've carrots coming out of my garden right now that could, if dropped from the correct height and appropriate bushel to velocity ratio wipe out all alpha types demonstrating/congregating in conspicuous areas complaining about food prices. I've sent this proposal off to DARPA under the tittle "Give The People What They Want" and have asked for a modest 750,000,000/ bushel. : )
peace love and carrots
Don, tend to agree with other comments.  Is this not what just happened?

Maybe you can explain what is going on inside Bernanke's head.  A few months back he signalled that he was going to bear down on inflation.  A quarter point later and he seems to be done.

Ben paused with the rate increases, but I think they will resume later this year. IMO, the Fed will not allow the rate of inflation as measured by the CPI to get much higher than it is now during this year.

Only after huge increases in unemployment do I expect to see the monetary floodgates opened--along with Government deficits in the multitrillion dollar range. In other words, so long as the real GDP perks along as it has been doing for the past few years, there is no reason to do any easing of the money supply--and the case for much tightening is also weak.

Thus for now, the Fed is calling out to us all: "Steady as we go!"

If unemployment does not get well above ten percent, then we may avoid hyperinflation; this scenario could very well happen. Note that while the Fed cannot (directly) control the rate of growth of employment, it can monetize the debt and turn dollars into minidollars (or "pesos" as I put it) whenever The Powers that Be decide to do so.

Thanks Don, it sounds like they are going to try and stear the ship up the line between inflationary bust and deflationary bust.  I struggle to see real growth emerging from mega debt, rising energy costs and rising interest rates, and ultimately energy shortages.  By "steady as you go" do you mean "keep borrowing and spending"?
When the Chief Engineer of the Titanic begged the Captain of that ship one memorable night to reduce revolutions to save the brand new engines, and the radio shack sent messages of ice bergs in the vicinity, and the lookouts reported reduced visibility what did the Captain say?

"Shhhteady ashhh you go. Full shhhshhteam ahead!"

And the rest is history.

The Titanic reference reminds me of this nice little slideshow:

By the way, I'm new to TOD (as a logged in user anyway) and wanted to ask if I'm the first one anywhere who teaches a college class (Oregon) on Peak Oil in political science(!?)

(hope it's not too off-topic)

Nice slide show.

Two questions back:

  • What was the reaction of the students?
  • What was the reaction of fellow teachers?

(IIRC, some of the people at Post Carbon Institute teach and I think the author of Resource Insights also teaches.)
step back,

so far, the reaction of the students is great. The ones who are vocal seem to be totally buying into it and have for example slammed Greg Palast's infantile recent Anti-Hubbert article (I assigned that as a homework). I have one more  week to go in a 4 week intensive summer class. I am right now thinking of making them post on TOD or (if they don't wanna log on) write comments on TOD topics to me.

The faculty? Well, among some I sense an evolution, from "Huh?" over "What, do YOU believe in THAT?" (meaning PO) to "There may be something there. Ok, go ahead with teaching this!" (I am a graduate student), even to "Yeah, PO may be true, but don't kill your career with it"
Then there are others who think of PO as a sort of cult. And that's before they've seen TOD! ;-)

ps. I'll have two guys linked to the Postcarbon Institute explaining permaculture to my class (and myself, ha ha) next week!


My personal belief is that young minds are more flexible.
You start up with an old fart (like myself) whose mind is cemented into a very rigid belief system and it very difficult to get them (i.e. your older & esteemed faculty colleugues) to entertain the idea that perhaps (1% chance) some foundational part of their belief system (i.e. human "progress" is forever) is deeply flawed.

Many of us older folk (baby boomers) were raised (a polite word for programmed) on the image of mankind emerging from the caves and constantly growing in capability thanks to the "ingenuity" of the human mind. We baby boomers witnessed the Landing on the Moon in real time. It seemed to validate once and for all that notion of: "Why if man can land on the moon, he can do anything!" A US President had made a wish upon a star (JFK: "By the end of this decade, we will ...") and lo and behold it happened just as foretold.

Perhaps your students (I assume born in the 1980's) grew up in post-Vietnam, post-Iran times when the American psychology was no longer immersed so much in delusions of grandeur. Maybe that is why they can accept the notion that "we" (America, or mankind) are not so oh powerful and that there are limits to everything? I guess that is yet another topic that can be explored in poly sci classes.

Thanks for sharing with us.

Tone, are you assuming that the deflationary bust will be preceded by inflationary (energy cost led) spikes and dollar devaluation as a consequence perhaps of countries dumping their dollar holding on the market?
Helo S.A.T., I missed some of your earlier posts but picked up on your forecast of $57 oil by 15 Nov (which is also the birthday of my younger son).  I tend to agree with most of what you say here.  The thing that caught my attention about the bear market that resumed at around 12:30 pm (GMT) on 12 May was that everything went down apart from oil.  Equities, gold, copper and other metals all cracked but oil barely wobbled at all - despite many market commentaries to the contrary.  It quickly became aparent that the reason behind the wobble was inflation fears stemming from high energy prices.  High energy prices are taking a while to work their way through the system - was it you that mentioned contarct prices versus spot prices (?) - cos this is a very important point.  It looks like central banks are going to try and keep a lid on inflation which will be hard going with forever rising energy prices.  

So as I see it.  The World economy got bailed out in 2003 with a free money policy resulting in mega debt run up by consumers and governments.  Companies have thrived on this borrowed money but this is about to come to an abrupt halt.  Consumers are now being hit with high energy costs and higher interest rates and governments, still waiting for a genuine boom to boost tax receipts are now more likely to get a slow down that must inevitably lead to higher taxes and spending cuts.

My response to working this out (right or wrong) was to sell all equities.  Have since bought Brent Futures at $74 - on a chart break out that has not happened yet, gold bullion, U mining stocks and oil stocks.  Watching oil closely.  No doubt that some momentum has been lost.  We have demand destruction going on in some developing countries (India's oil consumption fell last year), capacity erosion running apace with new capacity coming on line.  This leaves demand destruction in OECD to be balanced against unexpected capacity erosion - such as Prudoe Bay.

Big picture-wise, I see the population growth, energy growth and stock market growth of the 20th Century all correlated.  Energy decline in the 21st century will inevitably lead to population and stock market decline.  The get out of jail free card has to be fusion, but that is probably 50 years away and by then the climate may be totally knackered.

So where is the chart technical evidence for $57?  I like technical analysis but feel it is best done in conjunction with real world events.

Take a look at a twelve month chart of HUI.  The head and shoulders peak is obvious.  Now take a look at a chart of OSX.  It's almost a reproduction.  Left shoulders in Feb/Mar, peak in May, right shoulders in Jul/Aug.  In both cases, insider selling is high, and media coverage is ridiculously bullish.

Also note that mutual funds and hedge funds are contributing a historically disproportionate amount of money to holding up the values of oil and other commodities shares.  As I've noted before, more people have plowed their money into commodities mutual funds in the last three years than in the previous twenty.  That's why it's so important to keep an eye on bond funds like TLT.  As more and more money flows into bonds, it will inevitably flow out of the mutual and hedge funds propping up commodities.  

Stoneleigh, Cynus, PeakOilTarzan, CryWolf,

Looking at what we've all posted on this thread, it seems to me that the main difference between the four of you and myself is that I am far less convinced than you all are that, "peak oil" will have an immenent effect on the issues we've been discussing.  I am far more convinced of the immenent impact of a declining housing market and declining global liquidity than I am of an immenent effect from, "peak oil."  That's why i'm not at all anticipating the runaway inflation that some of you are describing, quite the contrary.  And wouldn't the four of you agree that, taking, "peak oil" out of the equation, you would probably be talking deflation too?

It will be interesting to see what happens with oil prices over the course of the next three or four weeks.  Sometimes when an event like this happens (Prudhoe Bay), which, people assume, will drive oil skyward, it actually serves as a catalyst for falling prices.  Once people see that even something like this can't drive prices further, they realize that there is nowhere to go but down.


Also, I would think that anyone buying oil or other commodities today would be at least a little worried knowing that they are following the investment strategy of the completely uninformed.  Peak oil believers, of course, aren't uninformed, they tend to be, if anything, overinformed, but you are still piling into the same investments that the uninformed masses have decided to pile into in the last year or two (without any knowledge of peak oil), meanwhile the insiders are selling.


I guess there is no way for us to agree on this. We'll just have to wait a couple of months to see who's right.

Keep in mind though that the "insiders" are not always the smart ones. Remember "Long-Term Capital Management".

Yeah, I've been told that last year's strategy won't work next year for four years now.  My contrarian approach is to dod the same again for a fifth year. Comapny directors are still buying stock (on PE multiples of 8 - who wouldn't) but I do agree that risk factors of falling oil price, falling production, unsuccessful exploration and nationalisation all pose a threat to company valuations.  Offset by prospects of higher prices, growing production (in the right companies), exploration success and take over premiums.
Gotta hand it to S.A.T., right on schedule the Fed stops raising interest rates.
So down goes the $ and up goes inflation?
S.A.T. - I'm only 50% convinced that we're at peak, but 90% convinced that there is no new major supply coming down the pipe and that capacity erosion will balance new supply to the year end.  Oil price may then be controlled more by demand - which is a bit of a wild card.

Won't buy your argument that falling supply from Prudhoe may spark a price collapse - though I'll watch the oil price very closely as ever.  Will need to watch US inventories and wait for that sea breeze to blow down Texas way.

I agree with you that the effects of a deflationary crash are likely to be felt before the effects of peak oil, perhaps quite a long time before. Political actions such as those I described above could have a significant lag time, especially in light of the temporary oil glut and relatively low nominal prices that could initially result from deflation. I should have made my timelines clearer. I believe that the next few years will be remembered in developed countries primarily as a time of financial crisis. Personally I think hyperinflation is probably twenty years away on the other side of a long deflationary depression.
Stoneleigh, I'm sorry but I must have missed something?  Where did the oil glut come from?  My view on high stock levels is hoarding.  And this hoarding has contributed to sending prices higher.  If there was a glut then the US should just sit back and let stock levels fall.  Any crisis would then be met by world surplus capacity and stock tanks could be filled at $57 / bbl in November.
Deflation would be expected to cause prices to fall across the board - stocks, real estate, commodities etc - as people sell anything that isn't nailed down in order to pay their debts. For most people, purchasing power would fall off a cliff. Economic activity would fall substantially as well over time, hence a much reduced quantity of oil demanded. At that point (and we won't be there for a while yet IMO), there could appear to be an oil glut as stocks are high and production is geared up to supply our current quantity demanded rather than a much lower level. Oil would appear cheap in nominal terms for a while, until production was curtailed (voluntarily or involuntarily). At least, that is what one would expect in the absence of confounding political effects, which I would expect to happen but not for a while as there should be a time lag for economic hardship to lead to pathological politics.
"declining housing market and declining global liquidity"

If I understand what you're saying, you believe that we'll see an asset-class (housing) led deflation (just as the dot com bubble was). This will lead to a contraction of both money and (more of) credit (within the US at least). As housing prices fall and inventories rise these assets will continue to devalue. As this price deflation leads to a further reduction in at least credit, the squeeze will continue. With fewer dollars in circulation to chase more assets, prices will fall further. Those needing to get out will do so as fast as possible. Those hunting bargains will do so regardless of interest rates, because cheap asset prices offset the costs of borrowing (unless, of course, the canny little mortals had the foresight to move into cash). Of course, not all of the debt will be repayed, leading to significant write-offs. The overall money and debt position will be much less as a result.

The only response the Fed has is to "print" more money. At some point this becomes counter productive (if the Fed wants to survive (As I understand it, Zimbabwe is a recent example).

Now, I would expect this to take several years. So, it is possible we're in a deflationary period now (possibly for some time), only we haven't enough evidence quite yet to support that position.

This leaves the global dollar position, I think. The question is what will the Foreign holders of dollars do? What do you expect they'll do? What can they do? If all they've got is dollars I can see them going like mad in to Treasuries. The US has yet to default.

S.A.T. - I think there is a real miss match between oil company valuations and the oil price.  A correction in oil price is already in the company valuations that have PE's that vary from 7 to 12 - very cheap for companies that hold vital strategic resources.  I'm based in the UK and have focussed on small to medium sized oil stocks that had growing production over the past 4 years.  As part of risk reduction I've moved more funds into larger companies - Statoil (Norway), BG Group (UK) and Encana (Canada) - all of whom have growing production and mainly reserves secured in the OECD.  At current oil prices all three look very cheap.

Some of the smaller stocks I own have pretty scary looking head and shoulders charts - but that's where you have to look at fundamentals - growing production, higher prices and exploration potential all feed into higher valuations.  The main threats are nationalisation and falling prices.

One thing to note though is that many comapnies that have had strongly growing production for 4 years now see production flattening out - peak oil I believe - so this is a positive feed back loop on price.  Right now though, many comapnies are depending on higher oil price to advance earnings - so any sign of a collapse and its time to run for the hills (again - danger of those hills getting worn out).

As long as you're prepared to run for the hills, I don't disagree with your strategy (as long as you're sitting on big gains right now, these things do tend to move pretty fast once they decide to move).  I would definitely keep an eye on those head and shoulders patterns, though, and watch for that rightside dropoff.  
Patterns like that fascinate me. Do you follow Prechter's work by any chance?
 I'd like to throw my thoughts out to ellicit the opinion of others.
  For those fortunate enough to have a long term investment horizon.  The key to the kingdom, in my mind, is real interest rates. The Real Interest Rate = The Fed Funds Rate - inflation .
   When real interest rates are negative,, assets are where you want your money. Equities, real estate and commodities. The future cost of these items is increasing as the value of money declines.
   When real interest rates are positive and rising you want to be liquid to take advantage of the fact that your money is gaining value at a rate faster than the prices of goods is rising.
   Using real interest rates as a framework you can look at the supply/ demand fundamentals of specific sectors. US real estate does not look good to me, US equities don't look great either based on historical P/E's.
     The Fed paused an hour ago at 5.25%.  I argue that despite the CPI being less than 5.25%, real interest rates are 0 with a bias to the downside.  I believe the US gov't understates true inflation with the posted CPI numbers.
    So where are we? In my mind, real interest rates are 0 or negative with a bias to the downside which leads me to real assets , however, many US asset based plays don't look good. Commodities , however, are a great anti dollar play. As the US$ declines in value the cost of the stuff you buy with a US$ trends up. Having minimal faith in the US gov'ts ability to manage our countries currency,,I move US$ into commodities as I can. And if the supply/ demand fundamentals of oil are as many  believe,,oil is the best commodity play.  
  The possibilitie of a declining US economy is real. But, for commodities to be hurt, the economy must decline   at a rate greater than the rate at which the US  gov't devalues the US$ for real assets to be a loser.
  The government typically devalues the currency at an increasing rate as the economy weakens.
  All of the above should be ignored by those that are in debt. Debt should be payed off and the most expensive debt, that with highest interest rates , should be payed off first.  Debt with interest makes the debtor a slave to the debt holder.
In my mind, real interest rates are 0 or negative with a bias to the downside which leads me to real assets , however, many US asset based plays don't look good.

I agree that real interest rates have been low to negative in recent years, leading investors into assets. However, I think it is a trap, not in the sense of being a conspiracy, but as an unintended consequence of trying desperately to stave off deflation after 2002. Interest rate manipulation by the Fed has, IMO, caused a substantial misallocation of resources, thereby making a bad situation worse. If deflation lies dead ahead, as I believe it does, then cash is king. Since the Fed cannot lower nominal rates below zero, real rates will be high under a deflationary scenario and liquidity will be very important.

 I appreciate you sharing your thoughts. I agree with you that during deflationary times, cash is king. That is the crux I balance on, is the future more likely to be inflationary or deflationary?
 The economy seems likely to slow which is obviously deflationary but at the same time the Federal gov't has tremendous future obligations to pay which is inflationary.
 Stagflation- a stagnant economy with the cost of necessities inflating in price???
The Fed can and has lowered REAL interest rates way below zero (during the stagflation of the seventies, for example) and would not hesitate to do so again.

In terms of the real economy, though nominal interest rates are of some significance, real interest rates (that is, interest rates corrected for expected inflation rate) are far more important.

I agree that real rates were negative in the seventies, when nominal rates were high but so was inflation. The difference between the two was relatively small. Real rates have been low to negative recently as well, but the Fed can only control nominal rates and those cannot go below zero. If inflation is negative (ie the money supply is shrinking due to debt repayment, a dearth of new lending/borrowing and involuntary debt liquidation), real rates will be high.

You would say, I imagine, that the Fed can prevent the money supply from shrinking, which it can in theory - at the cost of destroying the value of its own reserves and causing the US to be cut off from international credit. Personally I can't see the Fed throwing away its own power while making the debt-addicted US go cold turkey. I also can't see the Fed being able to encourage companies, individuals and banks to lend/borrow, which is how the Fed typically increases the money supply, when the chances of repayment are very low.

The Fed would be left with actually having to physically print money, and I can't see them resorting to that until the damage has already been done, given the inertia characteristic of all large institutions. After deflation has run its course, then I can see them printing money (ie locking the barn door after the horse has bolted), at which point it would result in hyperinflation. This would lead to us seeing the worst of both worlds over a span of perhaps twenty years. I have sufficient 'faith' in global financial institutions to believe that they will manage to achieve this sort of disasterous outcome. I have no faith in their ability to actually solve the problem, only in their ability to make it worse.

Mnay have predicted that the economic effects of PO would be raising oil prices and inflation, which cause a recession and falling oil prices and deflation.  The economic recovery that follows would be to a level not as high as the previous high, but with even higher oil prices, leading to another and worse recession and crash in the price of oil.  Repeat over and over with each economic recovery not attaining the level of the previous period of growth, and each recession dropping us lower.  If we are headed to a recession this fall, it would seem to correlate with this theory, and we might call it the first PO recession.  
The Second Law - you need net energy pumping through the system for growth.  With dwindling energy you have to get really efficient and smart how you use it.  Going on vacation on a plane would be top of my list of not-smart.  What you describe is exactly what I envisage of declining markets - three year rallies punctuated by sharp 6 month declines that wipe everything out that went before.  I think this is called a Depression.
I think a lot of the hedge fund funds flowed out in May and June.  That's why the oil stocks got slammed when the oil price was high.  Hedge funds in periods are forced to behave illogically.  That's why I don't believe the oil stocks will lead the oil price down - tail wagging the dog.  Folks are selling oil stocks partly to take profits and partly cos they don't believe a 5 year party can continue.  The Party is Over in my mind - for everything apart from oil stocks and gold.
I've had the same thoughts, re the head and shoulders developing, particularly in the OIH (or OSX, if you prefer).  But the XLE head and shoulders looks like it's on it's way to failing, and, if the equities tend to lead the commodity price, that suggests there is not a fall to $57 or so in store in the near future.

Am also keeping an eye on the TLT, btw.

HUI (gold shares) peaked over 390 about 3 months ago.  It's now around 340.  I won't touch it on the long side until it goes below 260 sometime in October or November (by purchasing GLD).  That's not to say that I'll plow all my money into GLD immediately as soon as HUI hits 260, but I'll start picking it up little by little, probably using a ladder.  It may well bottom out around 250 or 240, and by that point, by the way, the media will be screaming that the commodities bull market has ended and there's no point in buying commodities ever again.

OIH (oil) peaked at 166 about three months ago.  It's now around 140.  I won't touch it on the long side (by purchasing USO), until it goes below 110 sometime in October or November.

Keep watching HUI and OIH, and if they hit the values mentioned above sometime around my birthday, think about me and call your broker.

Hello TODers,

Panamax tankers are limited to 65,000 tons to fit through the Panama locks.

Among oil tankers, supertankers were designed for carrying oil around the Horn of Africa from the Middle East; the supertanker Knock Nevis being the largest vessel in the world.

Tankers used for liquid fuels are classified according to their capacity.

VLCC stands for "Very Large Crude Carrier", typically measuring between 200,000 dwt tons and 320,000 dwt tons.
ULCC stands for "Ultra Large Crude Carrier", typically measuring over 320,000 dwt tons.
The following designations are not exclusive to tankers and are applied to a broad range of cargo vessels, however some were developed initially for tankers.

Suezmax - a vessel that can transit the Suez Canal, typically measuring 120,000 - 200,000 deadweight.
Aframax - an acronym for the Average Freight Rate Assesment, with vessels typically measuring 80,000 - 120,000 deadweight.
Panamax - a vessel that can transit the Panama Canal, typically measuring 50,000 - 79,000 deadweight.

More than 14,000 ships used the canal in 2005.  The Canal is capable of accommodating about 50 ships per day (the maximum has been 65 transits per day).

Seems like there is not much extra room or time to squeeze more tanker ships through the Panama Canal.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

The PC has been having problems for years. Most of today's ships, believe it or not, are now too big to transit the locks, and so they are going around the Horn of Africa. Even with those taken out of the mix, there is so much commercial traffic that they are working at full capacity much of the year. Panama is trying desperately to find a way to enlarge the canal, but is running into problems: geology, the need to make even bigger locks and dams, diminshing rainfall, and the need to displace hundreds of people and flood parts of their forest. Plus, the construction of the original canal was horribly expensive, terribly long, and cost thousands of lives. The first attempt (by a French company, btw, not the American company that finished it) alone killed upwards of 40,000 people. Mostly do to Malaria.

Incidentally, the first design for the Panama Canal was created by Gustav Eiffel, the engineering genius who created both the Statue of Liberty and the Eiffel Tower.

I did one of my senior reports as an undergraduate on the Panama Canal, thus I know way too much about it. If you're interested a good (but unfortunately out of print) book on its construction is The Path Between The Seas.

optimist -

You would probably know better than I, but I vaguely recall that during 1950s - when there were all sorts of hair-brained schemes for the peaceful use of atomic energy - that there was a plan given some serious consideration for using a series of nuclear explosions to excavate another Panama Canal parallel to the existing one.  

Needless to say, the idea didn't get too far.

Does that ring a bell?

No it doesn't, but that doesn't surprise me -there have been all sorts of crazy, hairbrained schemes to enlarage the canal. When I studied it in depth a couple of years ago, they were looking at digging it the same way as the original, only with bigger equipment. Huge bulldozers, dump trucks, explosives, etc. And of course, no one had worked out how to replenish the water the original lake is losing, much less how to feel up an even bigger lake!
The plan was studied in some detail; if memory serves the nuclear excavations were to create a sea-level canal in Nicaragua. Apparently the U.S. government killed the plans to save the economy of Panama, which essentially is financed through canal tolls.
totonelia -

That maximum deadweight tonnage limit for the Panama Canal sounds just about right and is consistent with a bit of Naval history trivia.

During the 1930s when Japan was gearing up for a possible naval confrontation with the US, a cornerstone of their plan was to build a squandron of super battleships far superior in fire power and armor protection than anything the US could fit through the Panama Canal.

They planned to build 4, but the outbreak of war cut that short, and only two were built, the Yamato and the Musashi, with a third being completed as an aircraft carrier (Shinano).  

The full-load displacement of the Yamato class has been variously reported at between 68,000 and 72,000 tons. Huge for a battleship, but tiny compared to a modern super tanker (the largest of which I think is something like 460,000 tons full-load displacement).

EIA says Prudhoe Bay back to normal after January!

On August 6, 2006, BP oil company announced the shutdown of about 400 bbl/d of crude oil production from the Alaskan Prudhoe Bay field because of corrosion discovered in the pipelines that gather crude oil from the producing wells for delivery to the Trans-Alaskan pipeline.  While complete estimates of the volume and duration of reduced crude oil production are not yet available and will not likely be for several days, this Outlook assumes that Alaskan crude oil production is reduced by 300 thousand bbl/d from the original expected level in August, 400 thousand bbl/d in September and October, 300 thousand bbl/d in November, 200 thousand bbl/d in December, and 100 thousand bbl/d in January, then returning to full production. This production outage forecast is based on BP's initial estimate that the shutdown would last "several" months. Our forecast could change as new information becomes available.

Bodman speaks:

Energy Secretary Samuel Bodman says it will take months to resume normal oil shipments from Alaska, but added there are adequate supplies to make up the shortage.
Oil's aging pipelines

What took BP so long to realize its Alaskan pipelines were corroding? A 'warning' to the rest of the industry.

NEW YORK ( -- As BP shuts down its corroding pipelines in Alaska's North Slope, some analysts are wondering why the problem wasn't caught sooner and say that the company's problems foreshadow a larger mess with the world's aging oil infrastructure.

"It was almost guaranteed to happen," said Charles Clusen, director of the Alaska project for the Natural Resources Defense Council. "These companies have not been putting the money into infrastructure up there."

Fadel Gheit, an oil analyst with Oppenheimer & Co., said it is well known that oil companies in general haven't been spending enough on maintaining their pipelines, wells, platforms and other equipment.

You  can pay me now, or pay me later ..."
Leanan -

This latest pipeline problem just confirms what many of us already know, in the oil industry preventive maintenance often takes a back seat to the maximization of profit.

If  one of the earlier linked articles is correct, the last time the stretch of pipeline in question was internally inspected was 1992. 14 years between inspections!  It also appears that later they weren't even able to get an inspection pig down the pipeline due to residue build-up.  This is almost like not lifting the hood of your car for 14 years because everything is rusted shut.

A local example. There is a 48-year-old refinery in Delaware City now owned by Valero. About six years and two owners ago, a large waste sulfuric acid tank gave way, instantly killing at least one worker. It was later found out in legal proceedings that on-site tank inspections had repeatedly shown the tank wall was dangerously thin in many places, but the owner took no heed and continued to fill the tank with sulfuric acid.

Pure and simple, there has been a lot of  skimping on maintenance in order to keep operating cost down and profits up.  Like the attitude of someone with a crappy old car: Run it into the ground and let the next owner fix it.


"California may have problems," Standard & Poor's Chief Economist David Wyss said. "The entire West Coast could be in trouble."
Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

Sorry TODers,

I just realized this link was posted earlier, and even commented earlier by me too--I am getting tired after being up all night!  But I am also getting upset: the fossil fuel industry should not shovel so many profits to stockholders unless they can prove their infrastructure is well-maintained.  The Alaska Pipeline is relatively young compared to many other US pipelines--how many other corrosion/bacterial problems are going to crop up causing leaks, 'unforeseen' shutdowns, maybe even deaths?

Bob Shaw in Phx,Az  Are Humans Smarter than Yeast?

There is much doom out there. How can you expect any one man to keep track of it all?
Pipeline maintenance companies know all about what pipelines are wearing our, and when. Wonder what their P/Es are?
Union of Concerned Scientists is taking advantage of the Prudhoe Bay news by encouraging simple fuel efficiency measures for cars.

"The pipeline shutdown reminds us that we need to start kicking our oil habit," said David Friedman, Research Director of UCS's Clean Vehicles Program. "If all our cars and trucks on the road today got just one extra mile per gallon, we would not even need the 400,000 barrels per day BP has shut down. The U.S. would spend $50 million dollars a day less on gasoline priced at $3 a gallon. Over the course of a year, that would be $18 billion that could be spent strengthening our economy and creating jobs across the country."

It's EASY to get that extra MPG by driving like more of a "featherfoot" instead of a "leadfoot". You can get a difference of a few MPG in fact. So, all the gov't needs to do is put some ads on radio and TV telling people to take it easy on the gas pedal.

Yeah, like that will happen.

From Rigzone:

Mexican Oil Giant, Union Deny Talks on Mass Layoffs

Why do they need mass layoffs - unless the handwriting is on the wall?

Alaska Pipeline Insulation

One thing that was left hanging from yesterday that needs to be corrected. Fallout wrote:

The oil is heated at pumping stations along the length of the pipe.
The pipe itself is not insulated.....impossible in a 800 mile pipe.

This is simply not correct. See:

,,h Elevated pipeline, thickness-3.75 in.
,,h Refrigerated below-ground pipeline, thickness-3.2 in.
,,h Under gravel workpad or road-2 in. to 4 in. (limited areas only)

Also notice the diagram at the very bottom of the page. It clearly shows the insulation. When I worked in Saudi Arabia I worked with several guys that helped build the pipeline. They talked about someone who tried to blow up the pipeline but only succeeded in blowing some of the insulation off.

Not so much to contradict you, but the quoted insulation (from the link I provided, in fact) is the amount used on the mooring piers and the connections around them, to prevent thermal conduction with the ground/permafrost.
The pipeline itelf is uninsulated, as you can clearly see here:
Not so much to contridict you either Fallout, but the page says nothing about the insulation being used only around the mooring piers.  The page says:


Elevated pipeline, thickness-3.75 in.
Refrigerated below-ground pipeline, thickness-3.2 in.
Under gravel workpad or road-2 in. to 4 in. (limited areas only)

The insulation is in fact along the entire length of the pipeline. The pipeline comes from the manufacturer with the insulation already installed on the pipe. I have witnessed such pipe being installed, though not in Alaska. And the illustration clearly shows the insulation on the pipeline, as well as another insulation module on the mooring pier.

Check it out and get back to me. But if you have information that shows otherwise, please cut and paste the defining quote, along with the URL. And yes, I know you orginally provided the above URL. Thanks, now we know that the entire pipeline is insulated. We also know, from the page that the buried pipeline has different insulation from the elevated pipeline.

Another point. What you see in the picture you provided is the thin shiney aluminum jacket around the insulation. The actual pipeline is steel and almost black.

Ah, very well, I stand corrected.
Quick Question (Newbie here so bear with me)...

Is there anywhere online a compilation of the larger 50-80 oil fields (I thought I saw a thread but can't remember where)... their URR & production data (BOE/yr, or Month)?  


gah.  we tried that once, and now I can't find the link.  we were going to compile a list.  Can anyone find it?
This one, maybe?
Yes, thats it.


someone remind me to highlight that at some point in the future and put out a call for more data input so we can fill some of those blanks...
Anyone know why Cantarell and Burgan often share second place, when some sources list Burgan as having twice the oil as Cantarell?
Also available as a sortable online table at Rubyesque. Link to downloadable CSV is at the end of the top line. HTH.

[Greyzone, if you have any updates I will update this table].

CERA strikes back!!!!!

The CERA report suggests that global energy production could eventually experience a series of ``plateaus,'' instead of a production peak, ``most likely well past 2030,'' Jackson told reporters.

Stuart, westexas it looks like we are wrong again. No peak but a series of plateaus. What the hell are a series of plateaus?

If you mess with the data enough, anything can look like a plateau -especially if you reduce the time period over which you are doing the looking.
Yeah but still what the hell is a "series of plateaus" ? Are these higher and higher plateaus? and 2030? OMG when will these guys wake up.
We have 3 disruptions recently.
Saudi Arabia has responded to the first 2 by cutting production. I hope they do not cut production now that BP's field is going to be shut.
Daniel Yergin will go down in history as the man who brought down a civilization. Maybe he will share honors with Mr Lynch and Mr Naimi.
"This is the fifth time we are running out of oil" he says.
How about tellling everyone when was the first time he got production targets or oil prices for a given year right.
A series of plateaus.

August 2006 - plateau
Sept 2006 - slightly lower plateau
Oct 2006 - slightly lower plateau

Repeat each month until the plateau reaches sea level or until we are back to living in caves.

I heard an interview tonight on NPR with the Deputy Inspector for Inspection in Iraq. She said definitively that it will be a 'couple more years' before Iraqi oil production returns to pre war levels. So much for the 'disruptions' being resolved quickly, and taking us to that mythical 88.7 mbd mark.

BTW, on the front page under Peak Oil Primers, there is a 'defcon' # next to the name of each link. Does anyone have any idea what those mean? I don't have a clue and I'm curious. Thanks.

I believe it is a play on DefCon (Defense Condition).

DEFCON 5 Normal peacetime readiness

DEFCON 4 Normal, increased intelligence and strengthened security measures

DEFCON 3 Increase in force readiness above normal readiness

DEFCON 2 Further Increase in force readiness, but less than maximum readiness

DEFCON 1 Maximum force readiness.


  • Defcon 5: Life goes on as usual; no crisis on the horizon.
  • Defcon 4: Some economic unrest as society adapts to diminishing petroleum supplies; the market will correct and continue.
  • Defcon 3: Serious disruption as life-as-we-know-it grinds to a halt and we have to scratch out a living subsistence farming.
  • Defcon 2: Famine. Greenhouse gases have changed the climate and this ol' planet ain't a-gonna support 6 billion nasty medium-large primates no more.
  • Defcon 1: Mass extinctions as everything runs out at once. A handful of survivors manages to eke out a stone-age existence.
  • Defcon 0: Roaches and blue-green algae. The climate and energy picture does not allow anything large to make it; reset back to primordial earth.

Well I kinda added that last one myself.
Yergin is on Kudlow and Cramer

  • Gov. of Alaska was on- said that if ANWR passed we wouldn't have a problem, wants to drill everything in sight

  • Yergin- said that 10 year outlook is very very rosy - 25% increase in capacity BUT - says there is a lot of geopolitical risk.  Says the next problem is Iran.  Says this is only a short term problem.
Yergin on oil prices- said prices could go well into the 80s
---- then says maybe price may drop $25 in 2 years

  • Robert Reich was on - called for conservation, less drilling-  alled for cut backs on oil subsidies - for a "true" free market solution

  • Gov. Schweitzer was on - trumpeted CTL, ethanol, oil shale (whoops), also CONSERVATION

Nothing too special, but good to see some public discourse.
Whiskey & Gunpowder
August 8, 2006
by Byron W. King
Pittsburgh, U.S.A

Anything But Time
The U.S., and the West in general, has focused its attention on other people as the source of trouble in the oil markets, with countless hours devoted to worrying about whether or not the Iranians or the Saudis or the Venezuelans will cause trouble. And here we are, an utterly and shamelessly oil-dependent culture, waking up to the fact that rust in the pipelines of Prudhoe Bay has taken down 400,000 barrels of oil in one fell swoop.

It reminds me of the words of Matthew 10:36. "And a man's foes shall be they of his own household."

Was that Matthew Simmons? "And lo, the bacteria shall eat thy pipes and the republic will perish."
I just had to laugh out loud at that one.


(in best Monty Python "the number is Three voice")

and the Prophet Matthew, in Ghawar Chapter 3, Verse 27, said, "Yea, the House of Saud is a lying house, and a house that lies shall wreak havoc upon all of the other houses of the Earth, for they know not that House of Saud lyeth like a rug."

for those of you who don't know where that bad pop culture reference comes from:

Cleric: And the Lord spake, saying, "First shalt thou take out the Holy Pin. Then shalt thou count to three, no more, no less. Three shall be the number thou shalt count, and the number of the counting shall be three. Four shalt thou not count, neither count thou two, excepting that thou then proceed to three. Five is right out. Once the number three, being the third number, be reached, then lobbest thou thy Holy Hand Grenade of Antioch towards thy foe, who, being naughty in my sight, shall snuff it.

As the dreaded PO beast lunged forward, escape for Capitalism seemed impossible, when suddenly the animator suffered a fatal heart attack. [cuts to the animator, keeling over with a "hreek"] The cartoon peril was no more. The quest for the Holy Grail of Infinite Growth could continue.