Energy Security

[Rick M]

Hi, Steve

As usual, I agree with some but not all of your observations.

Your central point seems to be the shortfall that we are looking at is due primarily to underinvestment in the two decades between the mid-80s and 2006, and that once we get serious about investing, supply will meet demand.

For close to two decades - effectively about 86 through 06 - investment in exploration, production, new technologies, and both conventional and renewable alternatives virtually stopped

I don’t know what you base that statement on.
There was considerable investment in all the sectors you mention during that period:
Exploration: GOM deep-water, Santos Basin, Gulf of Guinea, etc.
Production: North Sea, the second half of Quebec’s James Bay hydro-electric, surge at Cantarell, Gulf of Guinea, Bakken shale, Danish & German wind, BTC pipeline, tar sands expansion & pipelines, LNG, etc.
New tech: deep-sea drilling rigs, shale gas fracking, tar sands in-situ (SAGD, THAI & CSS), nitrogen injection at Cantarell, improvements in 3D & 4D seismic, thin-film PV, hybrid Prius, LNG, tidal, etc.

So I would argue that there was a great deal of investment (and payoffs from it) throughout this period.
Although Matt Simmons warns of the “rust factor” (our aging oil infra: pipelines, refineries, storage tanks, drilling platforms, tanker fleet) I think he views this more as one of age rather than deliberate risk-taking & neglect.
His main point is that (just like our farm fences) eventually the stuff is too old & rusty and must be replaced, not patched.
In the case of oil infra, the costs can be in billions, and we can’t count on timely investment of that magnitude (for many reasons).

You are right about not knowing the future pay-off and that this stuff does not happen overnight.
I also agree that we have a bit of breathing room and that oil (but not gas) is at a sweet spot.

OPEC is below max, true, but global output has now returned to 86.5 plus, so I will be surprised if there is much spare capacity out there.
Furthermore, the warnings about a near-term supply crunch (due to recessionary under-investment and accelerating depletion) in the 2011-2015 time-frame are increasing, not going away.

You’re more optimistic than I am, Steve.

[Rick M]

We had this warning from the Joint Operating Environment posted three weeks ago (#128) but the Guardian only posted it today (usually they are pretty quick off the mark):
http://www.guardian.co.uk/business/2...duction-supply

The Guardian does raise one interesting question:
Why is DOD warning about a fairly imminent oil supply crunch (possibly of considerable magnitude) while DOE is not?

[Rick M]

Oil Supply Crunch: 2011-2015

Concerns are mounting about peak oil, and there continues to be much debate over when the peak will be reached, whether a plateau can be sustained or whether the onset of decline would occur quickly, whether we will hit peak demand before we hit peak supply, etc.

There is convincing evidence that conventional oil production has already peaked, since we have been stuck at around 74 mbpd for over half a decade (despite the incentive of record high prices).
There also seems to be growing consensus that global liquids production (currently around 86 mbpd) is likely to peak within the next decade and almost certainly at less than 95 mbpd.
(Mainstream opinion a few years ago predicted no peak before 2030, with output at 130 mbpd.)

However, there are increasing warnings about an “oil supply crunch” within the next few years, not because of geological constraints, but because of under-investment.
These warnings began just over two years ago, yet the mainstream media have rarely mentioned them, so the public remains largely unaware.

Listed below is a chronology of some of these warnings, with URL links to the original sources.

One of the first warnings came from the chief economist of the International Energy Agency, Fatih Birol in the summer of 2007 and then reiterated in Nov. 2007, cited here:
http://www.davidstrahan.com/blog/?p=73

In May 2008 the Wall Street Journal ran an article entitled, Energy Watchdog Warns of Oil Supply Crunch:
http://online.wsj.com/article/SB121139527250011387.html

This was followed by a study from Chatham House, a highly regarded think-tank in the UK. In August 2008, it published a paper entitled The Coming Oil Supply Crunch in which author Paul Stevens predicted a shortage within the next 5-10 years. His 40-page study (which includes a May 09 reaffirmation of his 08 prediction) is available here:
http://www.chathamhouse.org.uk/publi...view/-/id/652/

On Nov. 15, 2008 the International Energy Agency released its annual World Energy Outlook, which was something of a bombshell. The IEA, which had been quite dismissive of peak oil, suddenly warned, “What is needed is nothing short of an energy revolution… the era of cheap oil is over… time is running out….”
It further warned, “Some 30 mb/d of new capacity is needed by 2015. There remains a real risk that under-investment will cause an oil-supply crunch in that timeframe” (WEO, Executive Summary, p. 7).
The Executive Summary of the 2008 WEO is available here:
http://www.worldenergyoutlook.org/do...es_english.pdf

The release of the 2008 WEO was quickly followed by George Monbiot’s recorded interview with Mr. Birol and this article in The Guardian (Dec. 08):
http://www.guardian.co.uk/business/2...eak-energy-iea

In August 2009 the IEA’s chiel economist again mentioned the likelihood of an oil supply crunch, this time indicating that it could occur any time after 2010:
http://www.independent.co.uk/news/sc...t-1766585.html

In October 2009 Global Witness in the UK released its Heads in the Sand study which addressed government inaction on peak oil. This study also warns of a potential 7 mbpd gap between supply and demand by 2015 (p. 7 & 36):
http://www.globalwitness.org/media_l..._the_oil_suppl

In Dec 2009 the CEO of Petrobras made a presentation in which he predicted an oil supply crunch for 2012 and 2013 (see figure 6 here):
http://canada.theoildrum.com/pdf/theoildrum_6169.pdf

In Feb. 2010 the UK Industry Task Force on Peak Oil & Energy Security (ITPOES) released its second report. ITPOES analyst Chris Skrebowski predicts a loss of spare capacity and a price spike “as early as 2012/2013 and certainly no later than 2014/2015” (p. 15).
http://peakoiltaskforce.net/

On Feb. 18, 2010, the US Joint Forces Command issued its Joint Operating Environment (JOE) which warned that “ By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD” (p. 29). A review of the 2010 JOE (with link to the original) is available here: http://www.energybulletin.net/node/52029

In March 2010 the Financial Times mentioned a crunch “in the middle of this decade” and blamed it on uncertainties caused by biofuels policies:
http://www.ft.com/cms/s/0/ea030306-2...44feabdc0.html

Also in March we had the chief scientist for the UK quoted as saying, “We’re talking supply not meeting demand in 2014-2015”:
http://www.telegraph.co.uk/finance/n...one-third.html

In April 2010 the Guardian (UK) cited the US JOE report and raised an interesting question: why are warnings over near-term oil supply (in the 2012- 2015 time-frame) being issued by the US Department of Defense, while the civilian Department of Energy has issued no such warning?
http://www.guardian.co.uk/business/2...duction-supply

As the above information indicates, these warnings are numerous, consistent in their time-frame, and from highly credible sources.

[Rick M]

Former CIA director Jim Woolsey has created a bit of a stir with his recent WSJ article.
He talks about moving quickly "to strike a blow at oil and OPEC's dominance" and then draws a parallel with Teddy Roosevelt's "taking on Standard Oil's cartel and breaking it into 30 parts.
President Obama, meet your cartel...."

This is strong language.

It's a bit inconsistent of him to express concern about the high price of oil, the transfer of wealth to the Middle East, complain that "we now are financing both sides in our war with radical Islam," but then turn around and claim that "it was too easy for OPEC to drive prices down and crush [alt-energy] competition."

That said, there are many other points that he made which I agree with.

Woolsey's WSJ article is here:
http://online.wsj.com/article/SB1000...469848598.html

A response in today's Arab News is here:
http://arabnews.com/economy/article44491.ece

[Dayuhan]

There is convincing evidence that conventional oil production has already peaked, since we have been stuck at around 74 mbpd for over half a decade (despite the incentive of record high prices).

As I've said before, "the incentive of record high prices" is completely meaningless. The record spike was too sudden and too brief to have any real impact on output. High prices will drive increased output, but to have an impact they have to be sustained, probably for several years. There are some saying that conventional production must have peaked because the price spike was unable to call up new production, but it's a non-argument, as it fails to consider the nbecessary time lag between investment decisions and investment outcome.

However, there are increasing warnings about an “oil supply crunch” within the next few years, not because of geological constraints, but because of under-investment.

With this I agree completely, been shouting about it for years. Again, the only way to drive the needed investments - in new oil, in more effective access to old oil, in alternative energy, and in efficiency/conservation - is to keep prices high, no matter how unpopular high prices are.

Former CIA director Jim Woolsey has created a bit of a stir with his recent WSJ article.

The most charitable explanation I can think of for this is that Woolsey is insane. This piece is so far off base on so many grounds that it's pointless to even start a catalogue... starting with the notion that OPEC sets oil prices. Has he never heard of demand? Of what happens when supply exceeds demand (20 years of low prices) or when demand spikes to exceed supply? Of course his comments will resonate with the Arabophibic OPEC-is-the-enemy crowd, ever impervious to logic, but I doubt that they will find much mainstream traction. The idea of investing heavily in alternatives and conservation makes perfect sense, of course, but the idea that the volatility of oil prices is the fault of OPEC manipulation, rather than a consequence of fundamental shifts in the supply-demand equation, is just ridiculous.

[Rick M]

Hi, Steve

Thanks for your observations.
I disagree with your first point... I think that oil prices have been both high and sustained since 2005 or so... volatile, I agree, but apart from that sudden drop to $37 which didn't last long (and in the oil business a few months is a mere hiccup), the incentives have been there and are still there, with little reason to expect otherwise... the trend must be upward.

I must admit that I agree with your other observations, blunt as they are.
I wouldn't call him nuts, but perhaps self-defeating (and the two are often equated).
For a guy who has just started his own consulting firm, he can come across as rather undiplomatic.
Most people don't need to pay a consultant if the result is going to be inflammatory & undiplomatic... many people are pretty good at doing that on their own, without paying a penny.

[Dayuhan]

I disagree with your first point... I think that oil prices have been both high and sustained since 2005 or so... volatile, I agree, but apart from that sudden drop to $37 which didn't last long (and in the oil business a few months is a mere hiccup), the incentives have been there and are still there, with little reason to expect otherwise... the trend must be upward.

If you look at a chart in retrospect, it certainly looks that way. What the chart won't tell you is how the price increase was interpreted at that time. When prices began rising in 03/04 the increase was seen not as a supply/demand imbalance, but as a risk premium associated with the Iraq war. The first Iraq war created a similar price spike, which very quickly deflated when the war concluded. That seemed to be happening again when prices sagged back to the $50 mark in early 07. That period between 03 and 06 saw prices going up, but as long as industry players perceived the increase as a transient spike driven by political events, there was no real incentive to invest in boosting production capacity.

It was only in 07/08 that the price spike was broadly recognized as evidence of a fundamental change in the supply/demand equation that required major new investments. At that point some producers, notably in the GCC, did begin serious investment in new production. We really don't know what came out of those investments, because by mid 08 prices were plummeting and producers were actively cutting back.

In retrospect, the transition from extended glut to shortage can be said to have begun in 03/04. However, because of the tradition of price spikes associated with political instability and/or military action in the Gulf region, it was not recognized for what it was until much later. That has to be factored in when we look at the question of why higher prices didn't call up increased production. The answer to that question is that high prices can and will call up increased production, but only up to the capacity of the installed infrastructure. Going beyond that capacity requires the planning, financing, and construction of new infrastructure, which requires substantial investment and substantial time.

[Rick M]

Steve, this time I agree with everything you said.

--Rick

[Dayuhan]

... I must be losing my edge

Gotta think of something contentious to say, quick!

[Rick M]

Steve, you ARE a contentious fellow.

But that is what I asked for.
When this Energy Security thread was first started, I invited people to point out errors in my info & analyses.
You, above all, have done that.

We have some fundamental agreements: you are more optimistic than I am and have more faith in market forces than I do.
But I greatly appreciate the respectful manner with which you disagree (a rare thing on internet forums where people routinely abuse each other anonymously) and your consistent provision of data & details to back up your position.

Again, we seem to disagree as often as not, but that can be an enlightening exercise for both of us.
Many thanks for your observations over the months, including the contentious ones.

-- Rick

[Surferbeetle]

Hmmm....how benign are cartels really, how do they impact pricing of products, and are there some case studies concerning to cartels to consider?

Cartel from Wikipedia

A cartel is a formal (explicit) agreement among competing firms. It is a formal organization of producers that agree to coordinate prices,.[1] Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion (also called the cartel agreement) is to increase individual members' profits by reducing competition.

OPEC as described by Wikipedia

The Organization of the Petroleum Exporting Countries (OPEC, pronounced /ˈoʊpɛk/ OH-pek) is a cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965,[2] and hosts regular meetings among the oil ministers of its Member Countries. Indonesia withdrew in 2008 after it became a net importer of oil, but stated it would likely return if it became a net exporter in the world again.[3]

According to its statutes, one of the principal goals is the determination of the best means for safeguarding the cartel's interests, individually and collectively. It also pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry.[4]

OPEC's website.

Striving for Stability in Global Energy Markets

OPEC from EIA (accessed 4/21/2010)

Based on projections from the EIA April 2010 Short-Term Energy Outlook (STEO), members of the Organization of the Petroleum Exporting Countries (OPEC) could earn $769 billion of net oil export revenues in 2010 and $828 billion in 2011. Last year, OPEC earned $573 billion in net oil export revenues, a 41 percent decrease from 2008. Saudi Arabia earned the largest share of these earnings, $154 billion, representing 27 percent of total OPEC revenues. On a per-capita basis, OPEC net oil export earning reached $1,554 in 2009, a 42 percent decrease from 2008.

Standard Oil from Wikipedia

Standard Oil was a predominant American integrated oil producing, transporting, refining, and marketing company. Established in 1870 as an Ohio corporation, it was the largest oil refiner in the world[3] and operated as a major company trust and was one of the world's first and largest multinational corporations until it was broken up by the United States Supreme Court in 1911. John D. Rockefeller was a founder, chairman and major shareholder, and the company made him the richest man in modern history.

In response to state laws trying to limit the scale of companies, Rockefeller and his associates developed innovative ways of organizing, to effectively manage their fast growing enterprise. In 1882, they combined their disparate companies, spread across dozens of states, under a single group of trustees. By a secret agreement, the existing thirty-seven stockholders conveyed their shares "in trust" to nine Trustees: John and William Rockefeller, Oliver H. Payne, Charles Pratt, Henry Flagler, John D. Archbold, William G. Warden, Jabez Bostwick, and Benjamin Brewster.[7] This organization proved so successful that other giant enterprises adopted this "trust" form.

In one example of Standard's aggressive practices, a rival oil association tried to build an oil pipeline to overcome Standard's virtual boycott of its competitors. In response, the railroad company at Rockefeller's direction denied the association permission to run the pipeline across railway land,[citation needed] forcing consortium staff to laboriously decant the oil into barrels, carry them over the railway crossing in carts, and pump the oil manually into the pipeline on the other side. When Rockefeller learned of this tactic, he instructed the railway company to park empty rail cars across the line, thereby preventing the carts from crossing his property.[citation needed]

Standard's actions and secret[citation needed] transport deals helped its kerosene price to drop from 58 to 26 cents from 1865 to 1870. Competitors disliked the company's business practices, but consumers liked the lower prices. Standard Oil, being formed well before the discovery of the Spindletop oil field and a demand for oil other than for heat and light, was well placed to control the growth of the oil business. The company was perceived to own and control all aspects of the trade. Oil could not leave the oil field unless Standard Oil agreed to move it:[citation needed] the "posted price" for oil was the price that Standard Oil agents printed on flyers that were nailed to posts in oil producing areas, and producers had no power to negotiate those prices.[citation needed]

Sherman Anti-Trust Act from Wikipedia

The Sherman Antitrust Act (Sherman Act,[1] July 2, 1890, ch. 647, 26 Stat. 209, 15 U.S.C. § 1–7) requires the United States Federal government to investigate and pursue trusts, companies and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by the United States federal government.

[Dayuhan]

Hi Steve, been a while... you been out on a wave?

Certainly OPEC is a cartel, but how effective they are is open to question. If the goal is "stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations", one glance at a recent price chart would suggest that they are not effective at all. OPEC was unable to support prices effectively during the glut, they were unable to control the 2007-2008 price spike, and they were unable to prevent the subsequent plunge.

In theory downside fluctuations can be controlled by production cuts, though in practice (as we saw during the glut) the cuts are hard to enforce and generally can't be maintained for very long. In theory the upside fluctuations can be constrained by pumping more, but that assumes surplus capacity, which as we saw in 07/08 is very questionable, though the GCC subset of OPEC is investing very heavily in trying to get it back.

Of course it's difficult to control speculative price swings by manipulating production. The difference in actual physical demand for oil at $147/bbl and at the subsequent plunge to just over $30 was not that large.

I wouldn't say OPEC is inherently benign, or that it's inherently malevolent. In the 70s they took a fairly aggressive political position and caused us trouble. Things have changed: the balance of power in OPEC is with conservative status quo powers whose interests, at least when it comes to oil pricing, align quite closely with ours. High oil prices are painful, but low ones are catastrophic, as they derail desperately needed investment in improved oil production, alternative energy, and conservation. Both we and OPEC have a strong vested interest in trying to maintain oil prices in a high but stable band. We may or may not be able to achieve this goal, but given that we share it we're better served by cooperating with OPEC to achieve the goal than by a confrontational stance. We've neither the ability nor any special reason to break up OPEC, so frothing about it in the Woolsey mode hardly seems sensible.

I'm not sure the Sherman anti-trust act is relevant, as neither OPEC nor its constituent states are subject to US law.

[Rick M]

Thanks for that, Surfer

Not being a lawyer, and not having thought too much about the differences between OPEC and the SO history, I would offer these initial observations.
OPEC members are blessed with something that most of the world does not have. OPEC members know that it's a one-shot deal, so I don't blame them for collaborating to ensure that they obtain a fair (or even maximum) value for their irreplaceable product.

On the other hand, SO had gained control of a natural resource which (as a good Canadian socialist) I would argue belongs (to some degree) to the public, to the nation.
The company which makes the investment to turn a public resource into a useable product deserves to be rewarded (and must be, if it is to survive).

However, when a company tries to eliminate competition and place unwarranted prices between the purchasing public and a resource to which they have some collective claim, then I think that government (ie. the public interest) needs to step in.

Those are my thoughts... more political philosophy than anything useful....

[Rick M]

Michael Economides (great name for a guy who follows economic issues) continues to do excellent work on oil supply.

This (below) was posted yesterday and is well worth the read.
I had not seen it and only know of it thanks to Lisa Wright at the office of Rep. Roscoe Bartlett, who heads your Congressional Peak Oil Caucus.
Dedicated people, both of them... in their case, your tax dollars do produce good work.

http://www.maritime-executive.com/article/op-ed/

[Surferbeetle]

Hi Steve, been a while... you been out on a wave?

Demanding break + frequent sets = How's the river and streams? As a quick sidebar Tom Ricks has a recent and interesting post on chaos and whitewater

I wouldn't say OPEC is inherently benign, or that it's inherently malevolent.

I would argue that cartels, to include OPEC, result in a long-term decrease in competition which negatively impact investment, exploration, associated (energy in this case) infrastructure, and jobs. At best, we see undesirable consequences with a worldwide impact resulting from a 'neutral' organization. When certain trigger-points/rivers are crossed, however, cartel's historically act to defend their interests, and these actions are not necessarily in the interest of the greater good as you point out.

In the 70s they took a fairly aggressive political position and caused us trouble.

not sure the Sherman anti-trust act is relevant, as neither OPEC nor its constituent states are subject to US law.

The Sherman anti-trust act is interesting from the standpoint that even in the home of no-holds barred capitalism there are some rivers that are marked do not cross.

Is this viewpoint a dated or a geographically isolated one?

European Union Competition Law from Wikipedia

European Union competition law is one of the areas of authority of the European Union. Competition law, or antitrust as it is known in the United States, regulates the exercise of market power by large companies, governments or other economic entities. In the EU, it is an important part of ensuring the completion of the internal market, meaning the free flow of working people, goods, services and capital in a borderless Europe.

EU vs. Microsoft by Wikipedia

The European Union Microsoft competition case is a case brought by the European Commission of the European Union (EU) against Microsoft for abuse of its dominant position in the market (according to competition law). It started as a complaint from Novell over Microsoft's licensing practices in 1993, and eventually resulted in the EU ordering Microsoft to divulge certain information about its server products and release a version of Microsoft Windows without Windows Media Player.

Korean Fair Trade Commission by Wikipedia

The Korea Fair Trade Commission (KFTC) is South Korea's regulatory authority for economic competition. It was established in 1981 within the Economic Planning Board. The establishing law was the Monopoly Regulation and Fair Trade Act (MRFTA), Law No. 3320, December 31, 1980

Steve, I greatly appreciate the time you spent on your many other eloquent and well argued point's on OPEC in this particular post......I will chase some quantitative rebuttals as time permits.

Rick, ditto.

It's always a quality Socratic education here at SWJ...that's why I keep coming back.

[Dayuhan]

Demanding break + frequent sets = How's the river and streams? As a quick sidebar Tom Ricks has a recent and interesting post on chaos and whitewater

Dead dry here... this is dry season to begin with and the El Nino cycle is keeping it dryer. Hoping for rain by June and a river to paddle by July; meanwhile I ride the mt bike a few hours a day and dream of rain. To me we have 2 seasons, river season and bike season; they overlap from Oct-Jan and I don't get much work done!

If Ricks paddles Great Falls he's good, and he does have a point about chaos... you could probably describe chaos as a system with rules we don't understand or can't manipulate. Of course of an abstract scientific level there's probably something that represents pure chaos... on a practical level I'm not sure how much difference it makes; the knowledge that white water has its own order and rules is small consolation if you're trying to swim a class 5 rapid. The logical response to that knowledge, of course, is not to jump into class 5 rapids, but that would mean the application of the ever uncommon virtue of common sense!

But back to OPEC...

I would argue that cartels, to include OPEC, result in a long-term decrease in competition which negatively impact investment, exploration, associated (energy in this case) infrastructure, and jobs.

Competition in primary commodity production is a bit different than it is on the retail end. For example... Brazil and Australia both export iron ore, but they don't "compete" in the pricing sense; there isn't a Brazilian price and an Australian price, and they aren't trying to gain market share by undercutting each other. Even among non-OPEC producers, oil works the same way. The prices aren't dictated by producers, they're set on international commodity exchanges where contracts are sold on a bid/ask system. That system has its own risks, notably vulnerability to speculation, but overall it works and we'd want to think several times before trying to scrap it. That system wasn't created by OPEC and is not limited to oil.

OPEC's only real way to control prices is to increase or reduce production, and as we've seen, their ability to control price fluctuation is quite limited.

I don't really see any mechanism by which OPEC would "negatively impact investment, exploration, associated (energy in this case) infrastructure, and jobs." The primary constraints on all of these in the oil industry over the last 30 years have not been caused by OPEC, but by the extended period of low oil prices caused by the glut and by poor investment climates and poor decision-making by governments in countries with large oil reserves.

OPEC and the industrial nations have a common interest in trying to maintain relatively stable and relatively high oil prices. OPEC's rock-the-boat days are long past, and the organization has settled into a fairly conservative approach that we can work with. If that changes at some point in the future, we may want to change our approach, but at present cooperation serves us better than confrontation. The Woolsies of the world may froth about a need to break up OPEC, but we've no means to do that anyway, and any attempt to do it would have... well, let's delicately say abundant potential for unintended adverse consequences.

This (below) was posted yesterday and is well worth the read.

Worth the read, yes, but I can't help thinking the read on Chinese investments is a bit on the panicked side, and that some key information gets left out. For example:

Sinopec paid ConocoPhillips $4.65 billion to acquire its share in a Canadian tar sands project.

That sounds scary, the heathen Chinee walking into North America, buying up the oil, and presumably shipping it off to China.

It sounds a little less scary when you note that Sinopec bought a 9% interest in the project, a figure that was curiously omitted.

It's commonly assumed that all oil developments that China invests in will ship the oil produced back to China. That assumption isn't valid. Just as US oil companies operate many projects that do not ship oil to the US, Chinese companies get involved in many projects that will never ship oil to China.

Chinese investment in high-risk areas where US companies fear to tread is actually a very good thing for the US, and there's no point in seeing it as a threat, though some prefer to see threats wherever possible. If China wants to put a few billion into Angolan offshore reserves, great. They aren't displacing US companies; we don't want to go there. Even if all the oil goes to China, that reduces the pressure Chinese demand puts on other resources. Any new oil coming into the global market pool reduces upside pressure on prices, and that benefits all consumers. Essentially the Chinese are taking the very real political and financial risks and we are sharing the benefits... I don't see that as something we should be afraid of.

[flagg]

Here's a snippet from Eric Janszen over at the iTulip.com forum:

But Peak Cheap Oil is unique in history. A cheap source of energy for transportation is in decline and there is no cheap substitute. Market failures will multiply like rabbits.

Here's one. Oil reserves are depleted globally, production declines, oil exports from oil producing to oil consuming countries falls, and oil prices rise; oil export income rises in places like Iran and Venezuela, increasing per capita income, increasing domestic demand, reducing exports further, further tightening global supply. Now there's a feedback loop.

[Rick M]

Thanks for your observations, Steve & Steve.
And welcome, Flagg... thanks for jumping in.
That "feedback loop" is exactly what Robert Hirsch, Jeff Rubin, Jeff Brown and the other 'export decline' analysts have been warning about.

I participated at an energy security conference in Ottawa on Friday, geared primarily to defence analysts and emergency planners.
Canada's foremost peak oil/fossil fuel depletion analyst, Dave Hughes, was the keynote speaker.
He showed a very striking graph which lists the many oil producers which have peaked, when they peaked, and how much their current production is below their peak production.
The number of countries continues to grow, and their percentage of peak production continues to decline.

We can't all be importers....

Meanwhile, Johns Hopkins University and the Centre for Naval Analyses recently put together a two-day symposium on Climate and Energy.

A review of three of three presentations on energy has been posted here:
http://www.energybulletin.net/node/52558

All three of these presentations indicate that their authors view peak oil as a legitimate near-term concern.
Unfortunately, the EIA presentation to this conference completely overlooked the matter.
This omission adds further evidence to the recent debate over the apparent disjuncture between military and civilian views of future oil supply.

One obvious question is this:
Why do we have increasing expressions of concern from the military/security research community, while civilian authorities cannot bring themselves to acknowledge even the possibility of a near-term peak and the problems which that could present to an unprepared world?

[Dayuhan]

He showed a very striking graph which lists the many oil producers which have peaked, when they peaked, and how much their current production is below their peak production.

I'm curious... was the effort made to distinguish between peaks caused by absolute depletion, peaks caused by underinvestment, and peaks caused by political factors (e.g. sanctions in Iraq and Iran)?

[Rick M]

Hi, Steve

I have written to Dave Hughes to ask if we can post his graph.
I believe that the only countries to which your distinction between geological, under-investment and geopolitical constraints might apply would be the most recent situations (ie within the last few years).

I do not expect that anyone would try to argue that countries which peaked over a decade ago (eg. USA, Venezuela, Libya, Kuwait, Rumania, Indonesia, Peru, UK, Norway, etc) did so for other than geological reasons.

There is always the possibility that some of the countries whose production has suffered a recent decline may in fact revive and surpass their previous peak.
But for many of these countries so much time has elapsed and the recent economic incentives have been so great that it seems implausible that circumstances somehow conspired to prevent a resurgence in production which was (and is) within their capability.