Friday, July 14, 2006

Oil Tremors: The Global Oil Tremors Before the big Oil Quake

Peak Oil is The Big One!! The oil crises of the 1970s and 1980s were minor foreshocks. The warning tremors for the big one have been building for over a year now. The time for denial and complacence is over. It's time to make plans to save yourself!
Just like seismologists constantly trying to find ways to accurately forecast the most dangerous earthquakes and volcanic eruptions, peak oil experts and analysts are trying to find ways to forecast when we will reach global peak oil and begin the inevitable decline in availability leading inevitably to effective depletion and the end of man's energy age. Seismologists are working with hard data from increasingly sensitive, accurate and sophisticated electronic sensors. They only have to deal with political manipulation of the data after it has been gathered and modelled. Peak oil modellers must rely, unfortunately, on human generated data even the production of which is highly frought with political agendas and economic gamesmanship. When you can control the data going into the forecast models it is politically easy to discredit predictions built on even slight deviations from that "official" data.
There was a time, not that long ago, when seismologists enjoyed the same type of reputation peak oil experts do today. They had to privately fund their own research, were constantly under a microscope where every hint of being incorrect was treated as proof that they didn't know what the hell they were talking about, that they were crackpots and doom-and-gloomers trying to panic the population. The press loved to overstate their probability estimates, call them predictions then watch the experts squirm when that "prediction" was wrong. Every past inaccurate prediction was considered proof that the next one would be wrong as well or that any accurate "guess" would be strictly accidental. That same press always wanted to know the worst case scenario then characterized the seismologists as doom-and-gloomers wishing for a catastrophe so they could say "I told you so."
But that has been the stock and trade of big business and even governments toward any system established to try to provide forewarning of problems, of catastrophes, of disasters. Bad news is bad business. Denial makes the world go round. In big business there are no problems, only opportunities. Anything that threatens the foundations of corporate faith and denial must be met with force and quashed. Any attempt to bring to light a problem without a related solution cannot be tolerated.
Every warning system that has been established, whether for earthquakes, volcanic eruptions, hurricanes, tornadoes, tsunamis, blizzards, cyclones, global warming, flooding, droughts, all rely on an analysis of past patterns in an attempt to identify future patterns. The more data there is from past events the better will be the ability to identify the patterns that will signal the next event. There is, largely thanks to the improvement in available technology over the past few decades, a building pattern of reliability in the forecasting of hurricanes and cyclones and other potential disasters, and people have become far more ready to accept a margin of fallibility in such forecasts. Hurricane forecasters use a cone of uncertainty to forecast a hurricane's landfall that generally narrows as the hurricane gets ever closer to land. It is becoming increasingly common that people anywhere in that cone of uncertainty will begin evacuating well ahead of the hurricane's landfall.
Earthquake prediction, on the other hand, though steadilly improving, is not yet as accurate and not yet sufficiently believable to most people that they will evacuate an area on the basis of a warning. The difficulty with earthquake and volcanic eruption predictions, as with forecasting systems for any natural event, is nailing down the timing of such an event. Unlike hurricanes and other storms, the build-up to an earthquake is generally not visible, occuring, as it does, many miles underground. Seismologists can, based on what data they do have, be one hundred percent certain that a major earthquake is imminent or that a volcano is on the verge of blowing its top and yet still have to allow for a time variability of weeks, months, even years. The success in calling the eruption of Mount Pinetubo in the Phillipines in 1993 is still very rare. Because of this inability to declare a provable timing on the event the government, business and industrial vested interests in keeping the populace calm turns into a process of keeping them ignorant and depriving them of the information on which they can make their own decisions.
Like seismologists pouring over readings of tremors from their sensors, peak oil analysts know with absolute certainty today that the peak in global oil production is imminent. What they do not know is exactly when that most important event in world economic history will occur. It may be later this year, next year, five years from now. Or it may, as many believe, have already happened. The pattern we see, again like those seismologists do as the event horizon approaches, is that the frequency and severity of the oil tremors is increasing dramatically. Just as that is an indicator to seismologists and vulcanologists that a major earthquake is due or that there is about to be a major volcanic eruption, these tremors indicate that the peak is nigh. Unlike that earthquake and volcanic eruption, peak oil is not a physical event, not something you can film, not something you can see or feel. A constant in peak oil analysis is the belief that we will only know we have reached peak oil well after the event, probably five years or more.
Like with siesmology there are many hot spots that must be watched. There are numerous fault lines running through the peak oil story from which tremors are emanating. There is the infamous SA fault line: that's not San Andreas but rather Saudi Arabia. There's west Africa, OPEC, the Gulf of Mexico, Iraq, Iran, the South China Sea, the Caspian Sea, Russia, Venezuela and Bolivia, China, India, the U.S., and more.
Watching the price of oil alone tells much of the story. Like the sharp signatures on the seismograph paper, the swings in the price of oil on a day to day basis have been getting more extreme and more frequent over these past two years. Just in this past year alone the signs of peak oil have been getting increasingly difficult to ignore. Only a couple of brave peak oil experts however, like Ken Defeyres, have publically stated they believe we are already there. It is difficult to disagree with that view when one looks at all the details.
Like the spastic needle on a seismograph as the event horizon approaches, the price of oil can gain or lose as much as five percent on any given day only to reverse itself on the next. World events which would hardly have caused a midday ripple on the markets just three years ago can now throw the price into wild fluctuations for days on end. Peak oil, which wasn't even on the mainstream news radar three years ago, is now part of the everyday lexicon of mainstream news media. Every day items and articles appear in mainstream news and information journals that two years ago would have been restricted to oil insider magazines. Every day there are news quotes from OPEC officials or insiders in the Saudi Royal family or a senior executive of Saudi Aramco, the Saudi government owned oil company, that would have gone completely ignored and unreported two years ago. At least once a month some Saudi official repeats the promise that Saudi Arabia can produce as much oil as the market needs while at the same time another official is saying Saudi Arabia will no longer be able to meet the world's demand for oil. Every few days some television network in North America runs a half hour, one hour or longer piece on the oil crisis that even a year ago they would not even concede existed. Every day the number of online internet links about peak oil grows by thousands.
The U.S. SPR (Strategic Petroleum Reserve), which was required to be established by all participating countries by the IEA following the oil scare in the 1970s as a hedge against extreme supply disruptions, was then quickly forgotten by all but the most observant insiders. It is now being watched closely on a weekly basis by not just oil insiders but commodity analysts, stock traders, peak oil analysts and any other casual observers concerned about our energy future. China has just recently announced plans to go ahead with building their Strategic Petroleum Reserve, despite record high prices, in anticipation of a near term decline in global oil availability and anticipation of increased competition and even higher prices. Draws by several nations on their SPR reserves made last year to assist the U.S. following Hurricane Katrina have not been replaced. George Bush has committed to temporarilly suspend additions to the U.S. SPR in a vain attempt to control oil prices. Increased demand has removed any buffer there was in the world oil supply and has seen a general shrinking in the Strategic Petroleum Reserves below the levels required of the signatories to the IEA agreement governing those reserves.
Alternative energy options which were always treated as laughable science fiction curiosities are now being thrown about as the panacea for the nation's energy predicament. The US military have drawn up major plans for powering the military with bio-fuels in preparation for the decline in oil availability. Though there hasn't been a new nuclear power plant built in North America in thirty years nuclear is now being advanced as a necessity for answering our future energy needs. Shunned for decades because of its high production of Greenhouse Gases, coal is now being strongly looked at throughout the industrialized world, and particularly in the U.S. and Canada, as a critical part of future energy security. Natural Gas, on which the nation and the continent have become increasingly dependent over the last two decades, is in rapid decline in the US and now heading into decline in Canada. Governments at several levels are now rushing to construct expensive and dangerous LNG import terminals in an attempt to make up the shortfall in supply. The potential demand by countries worldwide that are building energy plans on LNG imports far exceeds the current global supply capability. It could take more than a decade to build the LNG infrastructure and transport ships to satisfy that demand. Almost half of the OPEC countries, such as Dubai, Kuwait, UAE and Bahrain are increasingly over the past year shifting their focus to natural gas, building LNG export terminals and other facilities to offset the expected decline in future oil revenues and to capitalize on the growing demand for LNG as natural gas reserves in industrialized countries slip into rapid decline. The Canadian tar sands, of which the average American was not even vaguely aware and most of whom could never locate Alberta, let alone the tar sands, on a map, are now cavalierly touted by a large share of the American citizenry and most of its politicians as the answer to America's oil woes. Even the optimists do not believe that tar sands production will ever exceed three million barrels a day. The anticipated increases in production for the forseeable future will not even keep pace with the increase in US import demand.
Government owned oil companies in China, India and several other countries are bypassing the oil markets in the past year and locking in long-term supply contracts with oil producing countries such as Venezuela, Bolivia, Canada, Chad, and Russia. In the past year the U.S. has passed legislation to allow drilling in the ANWR, have moved toward softening the environmental legislation that precludes drilling in the eastern Gulf of Mexico and off the U.S. east coast, softened environmental restrictions on coal usage and extraction, and on potential oil shale production in the midwest. Though woefully inadequate the White House has introduced multiple measures in the past year to increase the gas efficiency standards in light trucks, SUVs and vans, bringing those fuel efficiency standards up to what was the average vehicle fuel efficiency in 1970. A large proportion of the US Gulf of Mexico production is still offline after recent hurricanes and as much as 25% of that production will probably be perpetually offline due to the increasing incidence and severity of tropical storms and hurricanes. In his most recent State of the Union address president Bush finally openly declared that "America is addicted to oil" and indicated America needed to get off that addiction.
Late last year Mathew Simmons, CEO of the major oil industry investment firm of Simmons and Company, came out with his landmark book, Twilight In The Desert which warned that the Saudi oil reserve data is badly overstated and that their production is on the verge of going into rapid decline. Saudi Arabia has the largest oil field in the world, Ghawar, which is now delivering ten barrels of water for every barrel of oil indicating it is about to go into steep decline. Already this year the world's second largest oil field, Burgan in Kuwait, and the third largest, Cantarell in Mexico, have gone into sharp decline. These two fields and the Saudi Ghawar field produce nearly 20% of the world's oil. The majority of non-OPEC oil producing nations are now past their peak in oil production with nearly half in steep decline. Three of the OPEC nations have, in the past year, become net importers of oil, several others likely to become so in the next year. There have been serious riots, protests and civil disobedience in several OPEC nations as they have tried to raise the local price of gasoline to slow the draw of precious and dwindling oil resources for local usage. Every few weeks another OPEC country announces plans to construct a new oil refinery, not because of high profits in the value added products they could produce but because the only way they can sell their heavy sour crude is to refine it themselves. The majority of the refineries in the industrialized world are constructed for light and intermediate grades of oil.
Global oil production, despite rapidly increasing demand from the U.S., China, and India, has remained roughly constant at 84mbpd the past two years. Recent reports indicate that, despite record expenditures on exploration and development, we are now consuming nearly ten barrels of oil for every new barrel found. There has not been a super-giant field (over 500 million barrels) found in decades. Those oil fields being discovered are smaller each year and soon the finds may not be sufficient to even bother developing them or the infrastructure to get such small quantities of oil to market. Major oil consuming nations are increasingly looking at politically unstable nations such as Nigeria, Sudan, Chad, Azerbaijan, Lybia, Uzbekistan, Turkmenistan, Venezuela, Colombia, Bolivia and Iran, for both future and current supplies of oil. One of the most telling and salient facts is that no new refineries have been built in the U.S. in the past thirty years and the oil majors are not committing to increasing their refining capacity because we are already well past a global peak in the production of the light sweet and intermediate grades of crude oil and they believe they could not get environmental approval for new refineries designed to process sour crude, the grade that will soon be all there is left.
Does all of this add up to proof that we have reached peak oil? In a court of law it would represent an overwhelming weight of circumstantial evidence on which most juries would bring in a guilty verdict. If you were considering a long term investment in an industry with this sort of current track record you would run the other way. But how much of this reaches the average person? How much does the average politician know, or corporate executive? These are, after all, the people who make the major decisions that affect your life and the lives of your children and grandchildren. They hold the lives of six and a half billion people in their hands. Shouldn't they be aware of something so important? They are! The unfortunate reality is, however, just as with warnings for earthquakes and serious volcanic eruptions, the political and business interests in keeping the population calm and productive far outweigh the feeling of a need to issue a clear warning about a pending energy crisis when there is still so much admitted uncertainty as to the timing of such a crisis. The perceived political liability of a false alarm, especially when the uncertainty in the timing extends beyond the next election cycle, is just far too great. Letting the build up of soft warnings happen through unofficial means and focussing official attention on both denial and creating scapegoats to blame and to continue to point to alternatives that will never be able to replace oil are all seen as far more productive. Even allowing the odd politician, like Representative Bartlett, to sound alarm bells which the administration can ignore is acceptable, as long as there are scapegoats to fall back on when the time comes.
Ignoring the clear warning represented by the oil tremors that have been building globally over these past few years, and particularly in this last year, does not just put one city at risk, or one region or coast or even one country or continent. This is not something that can be handled with a mandatory evacuation of a city. Boarding up your windows won't help. Laying in a four or five day store of food is not the answer. When this one hits it will, like the Christmas Tsunami, spread around the entire world, will sweep away the global economy, though whether quickly or slowly is hotly debated, will gradually or quickly lead to a global depression and truly massive global unemployment, will critically affect our global ability to produce and distribute the food needed by those 6.5 billion people. This is not something that will be limited to poor third world countries in its effect. In fact it will probably have a more devastating effect on the rich, soft, industrialized world. The current generations, save but an aging few, have had no experience with the hunger, poverty and violence that is a way of life in the third world and which is going to build in the industrialized world in the years and decades following peak oil. If you are lucky to have grandparents who lived through the Great Depression ask them what it was like and listen very carefully. The tales they will tell will give you a foretaste of the future you can tell your grandchildren about, if you live through it.

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