[sustran] Oil depletion 2 (fwd)

[Eric Bruun]

---------- Forwarded message ----------
Date: Tue, 21 Jul 1998 17:10:10 -0700
From: Charlie Richardson <sydtrans at enternet.com.au>
To: ebruun at rci.rutgers.edu
Subject: Re: Oil depletion 2
> 
> Charlie Richardson wrote:
> 
> > Whenever military conflict looms in the Persian Gulf, there are always
> > those who speak darkly of the influence on events of the industrialised
> > world, and particularly the USA, and its unquenchable thirst for oil.
> > They are not mistaken in doing so.  But what are the present dynamics
> > driving the world's major economies as they jockey for influence in the
> > region?  Why is it so particularly crisis ridden NOW?
> >
> > All of the economies of the industrialised world have now become
> > completely dependent upon oil.  Cheap oil permits the development of the
> > 'global economy', since that cannot exist without cheap transport, and
> > cheap transport is dependent on cheap oil.  The world's military machine
> > cannot operate without oil, and it uses a great deal of it.  Ever since
> > the commander of the French military in Paris sent his soldiers to the
> > front line in taxis (giving each of them the fare!) in the First World
> > War, warfare has been mechanised.  You just can't project global power
> > without oil, so even the threat of an oil embargo is enough to CAUSE a
> > war.
> >
> > As W.J. George of the 'Petroleum Economist', London, said recently in
> > his review of Dr. Colin Campbell's 'The Coming Oil Crisis', "The whole
> > character of society in the 20th Century, and of its history, economics
> > and politics is more a product of oil than of any other factor".
> >
> > Since the first oil well was drilled in Titus, Pennsylvania in 1859 by
> > the bogus 'Colonel' Drake, oil has provided the energy which has driven
> > economic growth worldwide.  Just as 'King' Coal had driven Britain's
> > industrial revolution, so oil became America's ticket to prosperity and
> > global power.
> >
> > It isn't going to go on this way.  Most of us have been living in a
> > fools paradise regarding how we view our future access to oil.  We,
> > including many people in the industry and people with an academic
> > interest, have been looking at the pattern of production in quite the
> > wrong way.
> >
> > The usual way to try to assess how we stand in regard to our future
> > access to oil is by use of the 'Reserves/Production Ratio'.  This is
> > simply taking the estimate of remaining economically producible oil and
> > dividing that figure by the world's annual consumption, building in a
> > likely percentage of growth.  On the surface, that seems reasonable
> > enough, and most people's calculations end up giving us about 42 years
> > before we 'run out'.
> >
> > > But is this method any more useful to us than, say, knowing that the
> > > amount of producible oil left would fill a cubic container approximately
> > > 6.5 Km on each side?  Or that if spread evenly over the Earth's surface,
> > > land and sea, it would be about half as thick as the gap in a spark
> > > plug?  The truth is that all three ways of looking at it are as useless
> > > as each other.
> > >
> > > To seek to find out when we will 'run out' implies that we also think
> > > that up until a certain date we will not have a problem, and then wake
> > > up and find that there is no more oil left, just as though someone had
> > > turned off a tap.  How likely is this?  Is the oil sitting in some vast
> > > underground cavern from which we can simply pump oil at a constant rate
> > > until it is all gone?
> > >
> > > There are literally thousands of oil fields around the world.  They
> > > contain vastly differing quantities of oil, trapped in the pores of the
> > > undergound rock.  They began being exploited at times decades apart.
> > > They contain oils of differing viscosities under differing pressures.
> > > The porosity of the rock which contains it differs from field to field.
> > > They are certainly not all going to 'run out' at the same time.  What
> > > this means is that instead of the world's oil suddenly 'running out',
> > > production will go into a long slow decline.  That sounds easier for the
> > > world to handle.  It aint necessarily so.
> > >
> > > The crucial question is not 'when will we run out', but 'when will oil
> > > supply fail to meet demand'.  The answer is 'frighteningly soon'.  In
> > > the closing months of 1995 a report called 'The World's Oil Supply 1930
> > > - 2050', co-authored by Dr. Colin Campbell and Jean Lahererre, was
> > > released by Petroconsultants of Geneva.  It is important to understand
> > > the status of this report and of Petroconsultants.
> > >
> > > Petroconsultants is in a very special position.  Since the 1950s they
> > > have been fed data on oil exploration and production by just about all
> > > of the major oil companies and a network of about 2000 oil industry
> > > consultants around the world.  They use this data to produce reports on
> > > various matters pertinent to the oil industry which they sell back to
> > > the industry.  No other company, or government for that matter, has such
> > > a comprehensive database.  'The World's Oil Supply 1930 2050' amounts to
> > > an audit of the world's oil supply, and projects production from each
> > > field, region and country into the future years.  It is a very major
> > > piece of work, and the costs of maintaining the database and the
> > > detailed analyses of it are reflected in the price of the three volume
> > > report.  It costs US$32,000.00 per copy.  It is, in effect, investment
> > > advice for banks, other large financial institutions and governments
> > > trying to ascertain our future oil prospects.  Only a few dozen copies
> > > of the report have been sold around the world.
> > >
> > > The upshot of the report is that the world is close to peak production
> > > of oil.  While it is very difficult to say exactly when production will
> > > fail to meet demand because of the varying factors influencing demand
> > > (economic circumstances, the weather in North America for instance), it
> > > will not be more than about five years away for the world as a whole.
> > > The Gulf region has the best potential for continued supply, with Iraq
> > > following Saudi Arabia in having the best flow of oil during each of the
> > > years of the next couple of decades.
> > >
> > > Remember the 1970s?  In 1973, in reaction to the west's perceived bias
> > > towards Israel, the Arab members of OPEC (Organisation of Petroleum
> > > Exporting Countries) supported price hikes and embargoes on oil.  Again,
> > > in 1979, the price of oil shot up as a result of turbulence in Iran as
> > > the Shah fled Khomeini and his supporters.  These events demonstrated to
> > > the OPEC member countries that when the percentage of world oil supply
> > > coming from their fields reached a certain point, the world had no
> > > choice but to buy from them, no matter what the price.  It demonstrated
> > > to the industrialised world how dependent on oil their economies had
> > > become, and the inflationary effects of the price rises was disastrous.
> > > The 'oil shocks' and the inflation they caused led to widespread
> > > unemployment around the world, and the flow of capital was grossly
> > > distorted from what had been the norm.
> > >
> > > These oil shortages were overcome through the development of fields
> > > discovered in the previous decade in the North Sea and Alaska and
> > > elsewhere.  There were also some new discoveries.  Strenuous diplomatic
> > > efforts also played their part, helped along by agreement to sell more
> > > hi-tech western weaponry to the Gulf States.  As well, the
> > > industrialised world went on a frenzy of oil conservation measures, even
> > > extending to the fitting of sails on oil tankers to reduce their fuel
> > > consumption.  Western governments forced car manufacturers to produced
> > > more fuel efficient vehicles.
> > >
> > > As demand for oil fell because of these measures and more oil became
> > > available from outside the OPEC countries, oil prices tumbled and those
> > > countries began to squabble among themselves and exceed their quota of
> > > sales in order to make up in bulk sales what they lost in price per
> > > barrel.  This led to the oil glut of the 80s, which in turn undermined
> > > the Soviet economy and hastened its downfall, because oil sales were the
> > > Soviet Union's main source of hard currency.
> > >
> > The glut continued into the '90s, and would have been one of the
> > influences which drove Iraq into war with Kuwait.  Kuwait had earned the
> > wrath of Iraq in two ways, first by selling more than its OPEC quota of
> > oil, thus depressing the world price per barrel and hurting Iraq, and
> > secondly by vigorously pumping oil out of a field which straddled the
> > Iraq/Kuwait border.  The bulk of that oil field lies under Iraq, and
> > from the Iraqi perspective Kuwait was 'stealing' it.  As a country in
> > desperate financial straits following the long war with Iran, these
> > actions of Kuwait had a serious impact on Iraq.
> >
> > Iraq moved its troops threateningly to the border.  Signals from the USA
> > intimated that the USA considered the action an 'inter-Arab' affair that
> > was not the concern of the United States.  This alleged attitude changed
> > dramatically when Iraq entered Kuwait, and the USA professed to be
> > concerned that Iraq might push on into Saudi Arabia.  Operation 'Desert
> > Shield' was launched by the USA and an unprecedented coalition of
> > western and Arab forces to protect Saudi Arabia.
> >
> > The purpose of the coalition quickly changed from 'Desert Shield' to
> > 'Desert Storm', with the purpose of 'liberating' Kuwait from Iraq.  The
> > results of the operation are well known.  Saudi Arabia and Kuwait both
> > expended a great deal of money during the war, much of it being payments
> > to the United States for the expenses it had ncurred in its military
> > operation.  More was spent on purchasing even more armaments from the
> > USA and other western countries.  After the Gulf War, oil prices quickly
> > came down again and the income of Saudi Arabia and Kuwait was not good,
> > and they were struggling a bit to make the payments to the USA and
> > others.
> >
> > One of the effects of the embargo on Iraqi oil was to take a percentage
> > of oil out of the market, preventing further falls in price which would
> > damage Saudi Arbaia and Kuwait and make it even more difficult to make
> > their payments to the USA.  The price rose considerably during 1996 as a
> > result of Iraqi oil being off the market, and the Saudi and Kuwaiti
> > coffers started to fill again, facilitating their payments to the USA.
> >
> > The price rise was bad timing for the Clinton Administration, however.
> > He was facing re-election, and high (by American standards) fuel prices
> > are not a good thing to go into an election with.  The winter of 1996
> > was a bit of a cold snap, and since Americans use a great deal of oil
> > for heating, there was heavy demand.  Added to the shortages, it was not
> > looking good for Mr. Clinton's re-election, with high prices at the fuel
> > pumps, airlines warning of fare rises and the possibility of media
> > stories about granny dying at home in the cold.
> >
> > Mr. Clinton wanted to send a message to the market not to exploit the
> > situation and keep prices at what the Americans would think of as a
> > 'reasonable' level.  To this end, he released onto the market a small
> > part of the 'strategic oil reserve'.  This is kept by the USA and most
> > other countries in case of war or other disruption, and the use of it
> > for this purpose was a pretty serious step.  The implication of the move
> > was that Clinton could do it again and hurt the oil companies if they
> > did not play ball.
> >
> > The cold winter ended, the Iraqis were allowed to sell a limited
> > quantity of oil and the price came back down.  The last two American
> > winters have been quite mild.  Since then, the economic crash in Asia
> > has reduced demand, exacerbating the price drop.  A complete lifting of
> > sanctions on Iraqi oil now would be very negative for the incomes of
> > Saudi Arabia and Kuwait, and, interestingly enough, for the incomes of
> > some very influential Americans with investments in overseas and
> > domestic oil companies.
> >
> > > It is difficult now, part of the way through 1998, while we are awash
> > > with cheap oil, to imagine that we shall soon find ourselves back in a
> > > situation similar to that of the 70s but PERMANENT.  But the percentage
> > > of oil coming from the Gulf countries is again rising to the levels of
> > > those earlier crises.  The penny will drop soon and, realising the
> > > opportunity, OPEC is likely to rise again as a dominant force in
> > > politics and economics. The results are difficult to predict, and we
> > > cannot comfort ourselves with the idea that we can just go out and find
> > > some more non-OPEC oil.
> > >
> > > All the world has, just about, now been extensively searched for major
> > > new oil fields using technologies undreamed of even only a few decades
> > > ago.  75% of all oil has been found in giant fields
> > > (greater than 500 million barrels - a barrel equals about 160 litres),
> > > and we virtually stopped finding giants since the 80s.  We are consuming
> > > oil at about 23 billion barrels per year and rising, and discovering it
> > > at about seven billion barrels per year and falling.  This is not
> > > looking good.
> > >
> > > The constraint on oil production is caused by geology.  We cannot fix
> > > this situation with diplomacy or weapons sales any more than we could
> > > use weapons sales or diplomacy to stop continental drift.  It is more
> > > than time for the world to understand the predicament it is about to
> > > find itself in, and to understand that it is going to need to either
> > > find other ways to support economic growth or else to find some
> > > principle other than growth upon which to base its economies.
> > >
> > > The knee-jerk reaction to OPEC, the Gulf states alone or even a single
> > > oil rich country exploiting its position at a time of permanently
> > > dwindling supply will be a military response, justified by some event or
> > > other.  That military response would be caused, as much as anything
> > > else, by the extreme vulnerability of the military itself to oil
> > > shortages.  Wars are not remotely fuel efficient.  But we must bear in
> > > mind that this will give only short term gains, and also bear in mind
> > > that in the three months of the Gulf war the allied forces used more oil
> > > than Kuwait, which was the prize, produces in a year.  It wouldn't hurt
> > > either to remember that the production of each body bag a dead soldier
> > > is sent home in uses about three cups of oil in its production.
> > >
> > > The potential for conflict between nations with a thirst for oil is also
> > > high.  Already we have seen the USA and UK at loggerheads with France
> > > and Russia over the embargoes against supplying Iraq or the purchase of
> > > Iraqi oil.  It is said, and confirmed in a recent report to the US
> > > president on funding for research and development for energy, that 25%
> > > of the vast US military budget (largest in the world, and six times
> > > greater than its nearest rival) is directly related to maintaining
> > > America's ability to 'protect' the Gulf.
> > >
> > The USA has accused France of being more interested in getting something
> > for the $15 billion it has invested in oil concessions in Iraq than
> > searching for peace, but it is not just the $15 billion.  It's the oil
> > and price it will be worth when the crunch comes that matters, as well
> > as its strategic importance.
> >
> > After Saudi Arabia, Iraq is the country with the best longer term
> > prospects for supplying oil, especially over the next crucial couple of
> > decades as the world tries to adjust to living with less and less oil
> > each year.  The supply of oil is likely to reduce each year by about 3%,
> > which does not sound too bad until you work out that means it will halve
> > each 25 years - and this against a background of rising demand.
> >
> > > The world's deposits of oil, which the Shah of Iran described as a
> > > 'noble substance' too precious to waste indiscriminately, are soon to
> > > fail us through our own short sightedness.  A person in their fifties
> > > today will, by the time they die, have lived through virtually the
> > > entire period of the benefits that cheap oil has given us, and that
> > > person's retirement, and the working lives of younger people, are
> > > unlikely to be what they thought it would be at all.
> > >
> > > In the 1960s, the world's population was around 3.5 billion.  The
> > > world's agriculture was not up to feeding them, so many were starving.
> > > Now, we have about 6 billion people, and other than famine occurring as
> > > a result of warfare, they are mostly better fed than during the '60s.
> > > The lives of hundreds of millions of people around the world are owed to
> > > oil, because oil is one of the main inputs into the 'green revolution',
> > > which boosted agricultural production since the 1960s.  It is present in
> > > the pesticides and fertilisers which are spread on the land, vital to
> > > the mechanisation of agriculture and the distribution of foodstuffs.  Do
> > > we want to drive our cars or feed ourselves?
> > >
> > > The situation is not entirely hopeless, but depends upon developing an
> > > understanding of the situation and finding ways of reaching consensus
> > > about what to do about it.  We may find that equity becomes more
> > > important than wealth to both the 'haves' and the 'have nots' of
> > > individuals and countries.  Without wishing to sound hopelessly naive,
> > > there is in this whole scenario the potential for a better world as we
> > > realise that we are reaching the first and probably most major
> > > limitation to economic growth.  On the other hand, we can just follow
> > > tradition and tear ourselves to pieces competing over the messy, smelly,
> > > slimy stuff that is - oil.
> > >
> > > Charlie Richardson, sydtrans at enternet.com.au
> > > Sydney, Australia.
> > >