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Peak Oil: The Threat of Resource Nationalism
Last year on this day, oil was selling for
about $115
per barrel, having fallen from a peak price of $147 a month
earlier and on its way to around $35 per
barrel in December, 2008. The price has been bouncing around
$70 per barrel for the last few months. Earlier this month, the
International Energy Agency's chief economist, Fatih Birol warned
that global oil production will peak by 2020. As the
Independent
reports:
...the first detailed assessment of more than 800 oil fields in the world, covering three quarters of global reserves, has found that most of the biggest fields have already peaked and that the rate of decline in oil production is now running at nearly twice the pace as calculated just two years ago. On top of this, there is a problem of chronic under-investment by oil-producing countries, a feature that is set to result in an "oil crunch" within the next five years which will jeopardise any hope of a recovery from the present global economic recession, [Birol] said.
Let's focus on "chronic under-investment" which I have previously described as driving what I call "Political Peak Oil." My concern about political peak oil...
....arises because 77 percent of the world’s known oil reserves are in the hands of state-owned oil companies. Such “companies” do not respond with alacrity to market signals and so are under-investing in new production technologies and even in maintaining the production facilities that they currently have. I have earlier pointed out that an “oil crisis,” that is, a steep rapid run up in the price of oil may occur at any time due to government incompetence or maliciousness.
The column then goes on to detail the incompetence and under-investment that is occurring in Iran, Mexico, Venezuela, and Russia. But wait, the situation is possibly worse than I thought. In the current issue of The Futurist, oil analyst Roger Howard's article, "Peak Oil and Strategic Resource Wars," (sub required) points out another looming barrier to boosting oil production, resource nationalism. As Howard notes:
As oil becomes scarcer, producing countries will become increasingly dependent on foreign skills and technology. There are two key respects in which Western companies--oil majors like Total and ExxonMobil, as well as service companies like Halliburton and Schlumberger--are far more skilled than their counterparts elsewhere in the world. One is in making the most of existing sources of oil by using sophisticated methods of enhanced or tertiary recovery to squeeze as much as possible out of existing wells. The other is is offshore work, finding and then exploiting resources in deep waters. ...
In the coming years, many producers will be forced to make a clear choice. Either they must watch their output reach a plateau and then gradually decline, with disastrous economic and political consequences, or they must swallow their pride and accept that they are dependent on foreign assistance to secure their future. Since the late 1960s--even longer in the case of Iran--Middle East producers have tried to go it alone, expelling international oil companies from their soil and establishing their own rival national corporations instead. But to confront the challenge of diminishing output, these countries will need to revert to bygone days and accept the support of Western companies.
But even if such countries did "swallow their pride," why would Western companies risk investing in them? After all, Venezuela recently seized Western oil company assets, and is now producing 25 less oil than it did in 1997. And Russia has also begun taking over Western oil and gas company projects on specious environmental grounds, just as its production begins to decline.
The conclusion is inescapable: if an "oil crisis" occurs, it will be the result of massive government incompetence, not market failure. Sadly, there's nothing new about that.
|8.20.09 @ 1:21PM|#
I'd like to whine about how depressing this is, but I'll skip that for now. Thanks for pulling this stuff together, Ron.
|8.20.09 @ 1:21PM|#
"The conclusion is inescapable: if _______________ it will be
the result of massive government incompetence, not market
failure."
That's a handy fill-in-the-blank sentence.
|8.20.09 @ 1:23PM|#
I do not buy into peak oil. But I am willing to beleive and am starting to think that perhaps the Venezualans, Russians, Mexicans, Iranians and Californians are too retarded to extract their own resources and that retardation could create artifically the same effects of a peak oil scenerio.
|8.20.09 @ 1:24PM|#
I might be concerned about peak oil if it wasn't promoted by the same granola dumbasses that rub their hands together with glee at every "crisis" in the naked hope it will destroy modern life.
|8.20.09 @ 1:29PM|#
The conclusion is inescapable: if an "oil crisis" occurs, it
will be the result of massive government incompetence, not market
failure.
And, just like the mortgage crisis was blamed on "free market
capitalism", the same assholes will blame the "oil crisis" on Peak
Oil, and not political chicanery. Bet on it.
Isn't this fun?
|8.20.09 @ 1:31PM|#
We are not experiencing peak oil. We are experiencing peak socialism. The effects of both are very similiar.
bohica|8.20.09 @ 1:38PM|#
We are experiencing peak socialism
I wish it was the peak and we could expect a decline in socialism
in the years to come. However, just like with oil, I have a feeling
that whenever we think we've maxed out, someone (e.g. The Obama)
will come along and discover some vast new reserves of socialism
yet to be tapped.
Gilbert Martin|8.20.09 @ 1:41PM|#
The Chinese are using the global recession as an opportunity to
lock up future sources of oil and natural gas around the world on
the cheap.
They are making new deals with the Russians and in Brazil and other
places.
Meanwhile, the morons running the show in this country sit on their
ass and blather about "green jobs" and do their best to prevent us
from accessing any of the fossil fuel resources that exist in our
own area.
What a bunch of fucking morons.
|8.20.09 @ 1:45PM|#
The Chinese are using the global recession as an opportunity
to lock up future sources of oil and natural gas around the world
on the cheap.
Very true. Two observations:
(1) They are buying these natural resources (and others, especially
metals) with dollars. Thus do the Chinese escape the
soi-disant dollar trap.
(2) By doing so in countries that are prone to nationalizing
investments, they are taking a considerable risk. I would be
willing to bet, though, that the Hugo Chavezes and Vlad Putins of
the world, who do not hesitate to seize assets held by US
corporations, will be far less likely to seize assets held by the
Chinese.
Gilbert Martin|8.20.09 @ 1:54PM|#
"2) By doing so in countries that are prone to nationalizing
investments, they are taking a considerable risk. I would be
willing to bet, though, that the Hugo Chavezes and Vlad Putins of
the world, who do not hesitate to seize assets held by US
corporations, will be far less likely to seize assets held by the
Chinese."
I agree with that assesment.
Chavez knows that the U.S. govt will basically do nothing more than
jawboning about it.
But they will think twice about messing with the Chinese.
15% of the GDP and Everybody\'|8.20.09 @ 1:56PM|#
"Locking up resources is how wars start. Super."
[citation needed]
|8.20.09 @ 2:06PM|#
Nothing to worry about. Why would western companies bother too invest when they can just lobby the U.S. Gov, a la Cheney's top secret "Energy" meetings, and lobby for War!, err regime change!, err Islamofacists!, err WMD!, err bottle rockets!. Then we can just kill their leaders and convert them to free-market (for them) capitalism. Peak oil postponed thru 2100 at least.
|8.20.09 @ 2:07PM|#
Locking up resources is how wars start.
Then we should be glad that the Chinese are guaranteeing a supply
of the resources their economy will need, and will not feel
compelled to go to war to obtain them.
|8.20.09 @ 2:07PM|#
[citation needed]
Japanese and American relations leading up to the attack on Pearl
Harbor.
Imperialist|8.20.09 @ 2:10PM|#
The solution is simple, just keep expanding south until it all belongs to us.
BlueBook|8.20.09 @ 2:19PM|#
There is no problem that cannot be solved with ignorance, paranoia, and superstition. Start a viral conspiracy theory that crude oil is not a naturally occurring fossil fuel, but a toxic mind-control agent concocted by the Jews and injected underground to silently despoil the precious bodily fluids of God-fearing Muslims. The only way to safely dispose of the vile poison is to pump it out of the soil and ship it to the heathen Occident, where no virtuous person will be harmed by it.
Devious Schemer|8.20.09 @ 2:26PM|#
None of you appreciate the deep plan: the oil offshore of the United States isn't being spudded because of environmental reasons, it's because we are saving it for when the rest of the world runs out. When the millions of Chinese and Indian cars need gasoline, they will have no choice but to buy it from the US. Our debts, our trade deficits, will disappear. The US will have its New American Century at last.
|8.20.09 @ 2:27PM|#
Peak Oil is mostly crap, though I'll grant that oil isn't going
to last forever. However, I'm pretty sure it'll last until a
successor energy source (or sources) is instituted in its
place.
It would be so awesome if fusion or some other game-changing
technology would become feasible on the large scale soon. If I were
president when that happened, I'd send engraved letters to a number
of people with "Fuck You" written in Lucida Blackletter.
|8.20.09 @ 2:50PM|#
All I know is that gasoline is expensive, therefore we are
obviously being ripped off.
Sure, it wasn't as expensive as a year ago, but that was just a
setup so we wouldn't whine so loud about $3 gas.
Anonymous|8.20.09 @ 3:00PM|#
Devious Schemer, the problem with that is by that time we'll be growing diesel trees on the moon, and drilling for oil won't be cost effective.
D.R.M.|8.20.09 @ 3:00PM|#
Oil is irrelevant in the long run.
Large capital investments, coal, and water = $50/bbl equivalent
production of gasoline, diesel, chemical feedstocks, etc.
The reason you don't see huge coal-to-liquid plants being built
today is because the oil companies (you know, the people who have
the best experts in petroleum geology and extraction on their
payrolls?) expect that the long-term sustained price of a barrel of
oil is too low to make such plants pay off.
If and when $75/bbl becomes a permanent fixture for petroleum, coal
will replace oil as the feedstock for motor fuel. (Even if
environmentalists stop the plants from being built in the U.S.,
China and India will go ahead.)
Russ 2000|8.20.09 @ 3:23PM|#
I would be willing to bet, though, that the Hugo Chavezes
and Vlad Putins of the world, who do not hesitate to seize assets
held by US corporations, will be far less likely to seize assets
held by the Chinese.
Why? Because of some socialist brotherhood? The Chinese are much
less of a military risk than the US has been.
|8.20.09 @ 3:37PM|#
"I would be willing to bet, though, that the Hugo Chavezes and
Vlad Putins of the world, who do not hesitate to seize assets held
by US corporations, will be far less likely to seize assets held by
the Chinese."
The Chinese can't project power accross the Formosa Straights. What
chance do they have to project it to Venezuala or Russia? The US is
still the only country in the world that can park an aircraft
carier on your lawn or put three for four armoured divisions in
your backyard.
|8.20.09 @ 3:40PM|#
Word, Pro Libertate. Lucida blackletter is the best "fuck
you" font!
That's just crazy talk. Everyone knows that Goudy Stout is the
preferred font to flip people off with.
If you *really* want to drive them nuts, use Comic Sans.
|8.20.09 @ 3:55PM|#
JW,
I ran across a truly
bizarre font when highlighting a
weird Japanese Doritos package yesterday.
Gilbert Martin|8.20.09 @ 3:59PM|#
"Peak Oil is mostly crap, though I'll grant that oil isn't going
to last forever"
Exxon, which is not known for making foolish or trendy investments,
is developing a process to create oil from algae. And by oil, I
mean a product that is virtually identical to the crude oil that
comes out of the ground.
That means it can be handled by the same refining and distribution
infrastructure that is currently in place and will contain the same
energy content as gasoline refined from the crude that comes out of
the ground.
Unlike ethanol - which is a less efficient store of energy and has
properties that requires alternative transportation means.
Gilbert Martin|8.20.09 @ 4:03PM|#
"Large capital investments, coal, and water = $50/bbl equivalent
production of gasoline, diesel, chemical feedstocks, etc."
That is indeed a larg potential source of gasoline - even more so
if we replace a bunch of coal fired power plants with new nuclear
plants and divert that coal stream to making synthetic
gasoline.
|8.20.09 @ 4:17PM|#
Glibert,
I have heard of that. I hope it works. I can't wait for the day
that oil becomes renewable energy. The Leftitard greens will have a
stroke.
|8.20.09 @ 4:52PM|#
I ran across a truly bizarre font when highlighting a weird
Japanese Doritos package yesterday.
That is excellent.
The Japanese really aren't like anyone else, for that matter, and I
am eternally grateful for that (and I'm not just talking about
tittering schoolgirl porn). They're about as close to alien culture
as I think we puny Earthlings will ever come.
"The problem with aliens is that they're so....alien."
jasno|8.20.09 @ 5:03PM|#
I think Devious Schemer hit the nail on the head. Sure, the
value of money is related to the time at which it is available -
the basis of all investing. But if you think the rising price of
your commodity will benefit you more than selling it now and
investing the profits, what incentive do you have to sell
now?
I think a lot of countries may be using some game theory to direct
their decisionmaking. They'll continue to sit on their oil until
they can reap a substantial profit in the future.
Also, while the west possesses superior oil extraction efficiency
now, what's to say that will remain the case in the future?
Nothing. There's nothing stopping foreign corporations from buying
our expertise, or growing it at home. If, in 20 years, the price of
oil shoots through the roof, these countries will have the
collateral to raise capital to buy all of the oil extraction
technology they want.
It's all a gamble though - with the rise of green power and all
that. Oil is still the basis for most(all?) commercial plastics,
fertilizers, etc. I wonder what the price would be if it were no
longer used as fuel.
|8.20.09 @ 5:04PM|#
They are quite unique. What's really interesting about the
Japanese to me is how incredibly different from us they are and,
simultaneously, how much of our culture they've adopted.
Love that sushi!
|8.20.09 @ 5:04PM|#
What I'm expecting is a little different. As resources worldwide
start, or in some cases, continue, to decline, more and more oil
producing countries will decide to keep more of their own oil for
domestic use.
Both rising oil prices or decreasing oil revenues harm the economy
of Venezuela, Russia, et. al. Given two bad choices, would you pick
the one that deprived your people of gas for their cars and heat
for their homes? No. You'll hoard your remaining oil (mostly) and
sell what little you can spare at stratospheric prices.
|8.20.09 @ 5:12PM|#
I find it interesting the many people here dismiss peak oil as
"crap." Are any of you geologists? If not, you might review the
following link (Search for "Hatfield"):
http://www.utoledo.edu/as/envsciences/pdfs/NEWSLETTER_Winter-08.pdf
This guy actually *is* a geologist.
D.R.M.|8.20.09 @ 5:16PM|#
There are lots of other possible replacements for oil, too, of
course.
It's just that coal-to-liquids is in actual commercial use in South
Africa (the capital investment was made when apartheid sanctions
denied the country access to imported oil), so there are no
unexpected technical difficulties, costs, engineering hurdles, or
the like to get in the way.
So even if nothing else pans out, we have plenty of coal and a
process that's already proven to be technically feasible at a price
that's economically bearable (though significantly more expensive
and capital intensive than extracting oil from the ground).
Gilbert Martin|8.20.09 @ 5:36PM|#
"It's just that coal-to-liquids is in actual commercial use in
South Africa "
It goes back further than that.
The Germans were doing it in WW2.
Gilbert Martin|8.20.09 @ 5:41PM|#
"I have heard of that. I hope it works. I can't wait for the day
that oil becomes renewable energy. The Leftitard greens will have a
stroke."
Of course they will. What they are always really all about is
attempting to force everyone else to live by their own personal
preferences.
As I said before a good while ago on one of these threads, if
tomorrow morning somebody made a scientific breakthrough on nuclear
fusion energy that would enable us all to have virtually limitless
cheap energy, the eco-socialist wackos would be denouncing by
tomorrow afternoon.
Cheap energy enables more consumption of everything - bigger
houses, more consumer goods, more roads, etc, etc.
They would be squealing like stuck pigs at the prospect of it.
|8.20.09 @ 5:58PM|#
It's easy to blame things on incompetant Governments of type
(insert Socialist, Capitalist, etc.) But let's not forget two
words:
"Non" and "Renewable"...
Nick.
|8.20.09 @ 6:02PM|#
I suppose water is non-renewable, too, in some sense. But we're not running out of it tomorrow. Whether we'll run out of oil soon is debatable, though it seems unlikely. Whether we'll run out of it before we have a substitute or total replacement in place seems highly unlikely.
|8.20.09 @ 6:20PM|#
Why? Because of some socialist brotherhood? The Chinese are
much less of a military risk than the US has been.
Any wealthy and powerful nation has numerous ways to put the hurt
on another nation that fall short of military force.
The US, regardless of its capabilities, has shown absolutely no
willingness to defend the rights of its citizens against the
depredations of of crypto-socialist kleptocrats.
The Chinese, I suspect will not be so unwilling. Especially since
it will be some combination of the Chinese government and powerful
members of that government who would be dispossessed by a Putin or
a Chavez.
Paul|8.20.09 @ 7:10PM|#
As oil becomes scarcer
Could someone shoot an email over to Tim Cavanaugh and ask him if
this should be "...oil becomes more scarce..." or if it's ok in its
current form?
|8.20.09 @ 7:13PM|#
The Chineese didn't bat an eye when it came to forcing down one
of our spy planes in early 2001--and holding the crew for some
time. IIRC, most people were more than a little nervous with the
Chineese--due to their unpredictability.
The US has a long record of not responding to provocation. Recent
examples of Iraq (twice) and Afghanistan are just
that--exceptions.
|8.20.09 @ 8:40PM|#
I wish I had been able to get to this thread earlier. Most
likely now I'm too late and will probably be the last post.
To those of you that claim peak oil is "crap", look at this
chart
and this
one.
Now check out the production charts
here.
I grant that political factors do effect the rate at which oil can
be produced as we all know, but that doesn't stop the fact that all
over the world, countries hungriest for oil cash are seeing
production drop and the oil left in the ground is more expensive
with less availability. What we'll see is a peak in rate (which may
have occured or may occur soon with the recovery) as the big
producers become many smaller producers and the overall rate drops
as price increases. That is what we're seing right now. People are
beginning to realize that rate CAN'T climb much more above our
current level and long term outlook is LESS at greater cost.
I work in a gas field and I see everyday what's happening on a
small scale and I talk to geologists struggling to find the next
elephant. Even if the government released all public lands to
drill, more expensive wells with more complex recovery systems
would still be required and it would only be profitable at higher
costs. Simply put, we're finally gaining a practical understanding
that oil is a limited resource.
You may see talk about reserves of oil shale and oil sands. Well
oil sands require alot of energy to extract crude and oil shale
still doesn't have a technology that is net energy positive (amount
of oil BTU's retrieved are greater than the amount of energy BTU's
put into the ground to retrieve the oil). Those technologies may be
improved, but the amount of research and equipment is likely to
still be very costly.
My greatest hope is that governments acknowledge this and remove
the restrictions placed on true replacements like nuclear, which in
current form are clean and safe and cheap and allow industries to
make up the difference with a combination of gas and gassified
coal. Oil is reaching the limitations of economic feasibility and
we need to allow the nation to prepare for the transition. Obama is
telling us a fairy tale of wind and solar (both of which are
limited in placement and scale) and ignoring what really needs to
be done.
A combination of pushing nuclear and allowing oil and gas companies
to start accessing the last of the major oil reserves would put the
US in a stronger position to both recover from recession and fuel
growth on the rebound. To keep feeding us the line about "green"
and doing nothing to prepare will put us just in the wrong position
when we're ready to start expending again.
Anonymous|8.20.09 @ 9:23PM|#
LIT, I can't argue with anything you said, except "do effect" should be "do affect".
Michael Ejercito|8.20.09 @ 9:33PM|#
Exxon, which is not known for making foolish or trendy investments, is developing a process to create oil from algae. And by oil, I mean a product that is virtually identical to the crude oil that comes out of the ground.
Cool.
How much would production costs per barrel be?
geolog|8.20.09 @ 10:31PM|#
About: " The other is offshore work, finding and then exploiting
resources in deep waters. ..."
There is a new technology for oil/gas detection providing above
three discoveries in four wildcats instead of one. See:
http://www.binaryseismoem.weebly.com
A. Berg, Ph.D
|8.20.09 @ 11:31PM|#
geolog,
Finding more oil is only one part, if we're finding small reserves
that are still hard to produce, it still won't contribute enough to
overall production to raise overall output.
|8.21.09 @ 3:42AM|#
Didn't the Muslim oil-producing states get their oil fields by tearing up the leases and seizing Western oil company assets? Who's to say they won't repeat the performance?
|8.21.09 @ 3:11PM|#
Lousy article.
The author forgot to mention state companies in Saudi Arabia and
Brazil, to mention a few, that have seen massive increases in
investments and upstream projects coming online.
Furhermore, private 'Western' companies have reduced investments by
an awful lot when the price of oil started dropping below $50 and
many projects were cancelled. Rig count was reduced to half its
peak. All this will come back to haunt us when demand picks up
again. Of course, their only motive is profit and not energy
security, unlike national state oil companies. The price of oil
will get above $100 again and those oil champions, Exxon and Shell,
etc. will be able to make those same absurd profits as they did
before, satisfying shareholders rather than the regular folks at
home, cursing the fact that gas hits $5 a gallon.
|8.21.09 @ 8:51PM|#
The coming oil crunch will be interesting. It will be the first time we go into an energy crunch with alternative energy ready for utility scale use. Electric cars are ready, solar and wind are ready, at this point its just $$$ to ramp up.
|8.22.09 @ 1:56AM|#
The article deals with this topic far too simplistically. I expected more from this publication. There are geological limits too not just political limits. I suggest you look at the data for yourselves before making motor home purchases, for example.
Peter|8.22.09 @ 9:18AM|#
Also of concern is the fact that demand for oil in oil exporting countries is rising very fast. This mean that their is less oil available for export. Look up Export Land Model for more info.
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