PRODUCTION

Oil industry guru Jan Lundberg - who seems to be getting a lot less air time than he used to - recently wrote the following brilliant assessment for (ironically of all places) Electric Vehicle (EV) Magazine. Lundberg got it right.

The end of abundant, affordable oil is in sight, and the implications are colossal. About now in our hydrocarbon phase of human history, we have pulled out of the Earth approximately half of the available petroleum (crude oil and natural gas). The other half still in the ground is harder to extract and may not - as assumed - fuel the global economy or even provide a transition to another phase…

This means that the next tough oil shortage, even if it is not acknowledged as a post-peak oil extraction phenomenon of diminishing supply, will cripple the globalized economy. Understanding of both the economics and social dynamics of collapse is rare, and even when it is present there is an absence of taking into account the "market factor" in ushering in collapse…

Despite the need to be prepared for imminent, final energy shortage - which could happen now or in several years at the latest - people persist in focusing too much on the likely date of the passing of the peak. It is already clear that the oil industry and OPEC numbers on oil reserves are suspect.


The scenario I foresee is that market-based panic will, within a few days, drive prices up skyward. And as supplies can no longer slake daily world demand of over 80 million barrels a day, the market will become paralyzed at prices too high for the wheels of commerce and even daily living in "advanced" societies. There may be an event that appears to trigger this final energy crash, but the overall cause will be the huge consumption on a finite planet.

The trucks will no longer pull into Wal-Mart. Or Safeway or other food stores. The freighters bringing packaged techno-toys and whatnot from China will have no fuel. There will be fuel in many places, but hoarding and uncertainty will trigger outages, violence and chaos. For only a short time will the police and military be able to maintain order, if at all. The damage that several days' oil shortage and outage will do will soon wreak permanent damage that starts with companies and consumers not paying their bills and not going to work.

After an almost instant depression seizes the modern industrialized world, and nation-states break down, the frantic attempts of people to feed themselves, stay warm and obtain fresh water (pumped presently via petroleum to a great extent), there will be no rescue. Die-off begins. The least petroleum-dependent communities will survive best. These "backward" nations will be emulated by the scrounging survivors of the U.S. and the rest of the "developed" world, as far as local food production will be tried - in a paved-over, toxic landscape by people who have lost touch with the land...

The prospects of mitigating peak oil or avoiding collapse are almost nil. U.S. petroleum demand in 2004 grew at its strongest rate in five years. In December the daily consumption of refined oil was 21 million barrels in the U.S, a quarter of world use. The U.S. leads the industrialized world in population growth, part of a domestic policy to assure more car and oil sales…

… The Earth cannot, as of the world oil peak in extraction, give up ever greater quantities of black gold. Most of the world exporting companies are now reducing extraction rates due to fewer discoveries and depleted fields. Oil production in 18 producer countries has passed its peak and is declining faster than previously thought: at about 1.14 million barrels a day.

"International Energy Agency figures put the total spare capacity of all 11 countries in OPEC at just 330,000 bpd (down from 6 million bpd in 2002). Conventional Saudi spare capacity is zero... An IEA report from August 2004 indicates Saudi Arabia needs up to 800,000 bpd of newly discovered oil each year just to offset declining fields and maintain its current production level." [Al-jazeera] - This can't happen, so watch for the ensuing energy crisis.

The world needs to produce another 2,723,530.2 barrels per day by the end of 2005 just in order to stand still…

Petroleum is the Great Leveler, in the sense of "leveling" or flattening oil civilization. But petroleum will also be the Great Leveler in terms of equalizing everyone: People will go through a final, grasping petroleum grab with whatever funds and connections they have, before the attempt fails for good. Then all people will have no choice but to work together or perish. Until then, we have skewed values: for example, when a kindly old lady drives to a shop and has her charitable concerns, the use of oil makes her a killer of the planet and she is not pursuing a sustainable form of transportation. Meanwhile, a mean old man who scowls at little children who walks to the shop might be a much more valuable citizen in a practical fashion that matters to the world.3

THE MOST EVIL STATEMENT I HAVE EVER HEARD

Detroit News columnist Thomas Bray recently described an interview with two "experts"; authors who come from the corporate/industrial/Neocon camp. The aberration of his thinking is symptomatic of the guilt we all share and the consequences we all seem to be begging for.

"We will never stop craving more," say Huber and Mills, "nor should we ever wish to. Energy is what brings light out of dark, civilization out of disorder, prosperity out of poverty."4

What was the title of the book that Bray was so jazzed about? The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy.

Contrast all of the above with the following February 28 quotation from China's Xinhuanet news agency:

Global demand may average 84 million barrels a day in 2005, while daily production in January was only 83.6 million barrels, according to the International Energy Agency. Oil prices have risen 11 per cent in the past three weeks in New York on growing concern that OPEC and other exporters will fail to keep up with demand this year.5

That all of these factors are forming a perfect storm is now clear.

Marshall Auerback, a brilliant economist (www.prudentbear.com) who dares to see the world whole, notes:

"At the time of the 1929 stock market crash, total US credit was 176 percent of Gross Domestic Product. In 1933 with GDP imploding and the real value of debt rising even faster, total credit rose to 287 percent of what was left of GDP…In 2000 at the top of the late bull market, total credit was 269 of GDP. An extraordinary statistic to be sure but dwarfed by today's figure, in which total credit stands at a whopping 304 percent of GDP, according to a recent study by fund manager Trey Reik of Clapboard Hill Partners.

The title of Auerback's essay was, "Last Orders for the US Dollar."6

Auerback opened his treatise with a recent quote from former Federal Reserve Chair Paul Volcker that should have sent politicians (all of us) feverishly to work on a survival plan.

Below the favorable surface [of the economy], there are as dangerous and intractable circumstances as I can remember…. Nothing in our experience is comparable… But no one is willing to understand this and do anything about it… We are consuming… about six per cent more than we are producing. What holds the world together is a massive flow of capital from abroad… it's what feeds our consumption binge… the United States economy is growing on the savings of the poor… A big adjustment will inevitably become necessary, long before the social security surpluses disappear and the deficit explodes… We are skating on increasingly thin ice."7

SOME DOTS - ENERGY

The world's network of crude oil pipelines also is now operating at virtually 100% capacity. For almost all of 2004, the world's tanker system operated at full capacity too. This sparked an unprecedented rise in taker rates, which added up to $5 to $6 per barrel to the wellhead price of oil in some key long-haul export routes. - Matthew Simmons. Why are no more tankers being built? Because soon there won't be enough oil to ship to cover what it would cost to build them.

Also from Simmons: [In the oil industry] A lack of qualified manpower is looming high on the list of capacity problems. In addition, the many layoffs and downsizing events that our industry has endured… As a consequence, we now have an aging workforce at a time when the technical intensity of the industry is increasing each year. - Why? Because the industry knows it is going to collapse and no replacements are being trained to fill short-term, dead-end careers.

Officials of Mexico's state-owned oil company PEMEX have announced that Mexico's largest oil field, Cantarell, will enter permanent decline this year. - Bloomberg, March 1, 2005.

ExxonMobil is selling its 19 percent stake in China's Petroleum and Chemical Corporation - Forbes, March 2, 2005. This is a likely move to cut losses in the event of war.

Ukraine and Georgia have agreed to reverse the flow of oil in a strategic pipeline from the Black Sea thus effectively reducing Russia's control over some Caspian basin exports. - BusinessWeek, Feb. 28, 2005. A Ukrainian alliance with NATO would deprive the Russian Navy of access to its Black Sea ports.

In a move to bypass US-led efforts to reduce her influence in the world's oil supply chain and access to markets, Russia approved the rush construction of three new oil terminals on the Gulf of Finland to supply Europe. - Moscow News, March 1, 2005. (Three days after the above pipeline decision? Surely these power blocks had been making contingency plans for these events for years).

Saudi Arabia may have already peaked in production as a result of over-producing its fields. Overproduction by water (and gas) injection destroys a reservoir's geologic structure. It is an undisputed certainty that if Saudi Arabia has peaked, the world has peaked. - Al Jazeera, February 20, 2005.

Oil has been rising steadily in terms of dollars, but now it has begun to increase in price relative to the Euro - James Turk, GATA.

Petro Canada has decided to invest $3 billion in the development of Alberta's tar sands in spite of high costs, enormous environmental destruction and dwindling supplies of natural gas needed to make steam to wash the sands. - The Globe and Mail, March 2, 2005.

Royal Dutch Shell, which has downgraded its reserves four times in the last two years (as a result of fraudulent bookkeeping), has announced it may experience a 5% production decline this year. - Forbes, March 2, 2005. The truth comes out.

Iran and Mexico have signed an MOU for mutual assistance in developing oil and gas projects. - Tehran Times, Feb. 20, 2005.

End Part II