Implications of declining oil production(?)

[nmap]

I came across the following material about oil supplies that may be of general interest.

Briefly:

1. World total liquids production (Fig 1) remains on a peak plateau since 2006 and is forecast to fall off this peak plateau in 2009. According to the IEA, the current peak production of 86.13 mbd occurred on July 2006 and only one year later, June 2007 total liquids production fell to an unexpectedly low 84.28 mbd. As long as demand continues increasing then prices will also continue increasing.

2. Forecast world crude oil and lease condensate (C&C) production retains its 2005 peak (Fig 2). The forecast to 2100 shows declining C&C production, using a bottom up forecast to 2012 (Fig 3). The forecast to 2012 shows a 1%/yr decline rate to 2009, followed by a 4%/yr decline rate to 2012.

(Much more at: This Link )

The numbers suggest a developing imbalance between oil supply and demand, with the implication that prices will advance significantly. With the existing issues in the mortgage and debt markets, the implications for the U.S. and global economies are unpleasant.

I suspect the impact on global politics will be even sharper. China and India have expanded their usage, the U.S. needs considerable fuel to supply our domestic needs, and as supply is constrained, the potential for conflict seems likely to increase. The Middle East seems poised to get more attention, as will other producing areas such as Mexico and Venezuela.

My background in securities brokerage has given me some comfort with considering results in the markets and the overall economy – but I’m not qualified to speculate about the impact on diplomacy and possible military implications. I would guess that Saudi Arabia, Iran, Venezuela, and Mexico would all face greater instability; but it would be an uninformed guess.

Assuming such speculation wouldn't violate any security considerations, I’d very much appreciate any thoughts on the matter.

[GratefulCitizen]

Petroleum economics can get complicated.


First, what constitutes "reserves" needs to be carefully defined.

There are many sources of hydrocarbons on the planet.
The sources where product can be extracted and sold for a profit are the ones everyone is concerned about.

Here's part of where it gets complicated: when the price of oil goes up, more of the sources are now profitable, which means there is now more "oil" available.
It isn't quite like a gas tank which has a specific, finite capacity.


Second, the consequences of the changing price of oil might not be entirely intuitive.

When the price of oil increases, the US spends more to get it.
China and India also spend more.
If the US economy is competing with those of India and China, who has a relative advantage when paying for more expensive oil?

There are cries about the US "dependence" on foreign oil.
It is a two-way street.
Those foreign sources of oil are also "dependent" on US dollars. Would we rather have them dependent on the Chinese yuan and the Indian rupee?


Global economics are complicated.
Many of the views pushed in the American media are narrow and oversimplified.

[nmap]

All your points are well taken. The lack of transparency of the fundamental data - such as the condition of major oil fields - is a further complication.

The sheer size of the oil market suggests to me that changes will be slow due to scalability issues. So even if something (whatever that something might be) is an offsetting factor, it will take time to have any notable impact.

Still, despite the challenges in coming up with conclusions based on partial data, it seems a worthwhile effort.

[GratefulCitizen]

Originally Posted by nmap

All your points are well taken. The lack of transparency of the fundamental data - such as the condition of major oil fields - is a further complication.

The sheer size of the oil market suggests to me that changes will be slow due to scalability issues. So even if something (whatever that something might be) is an offsetting factor, it will take time to have any notable impact.

Still, despite the challenges in coming up with conclusions based on partial data, it seems a worthwhile effort.

I'm curious what your opinions on the Russian/Ukrainian (abiotic) theory of oil are.
Given the massive increase in oil production in the former USSR since WW2, they seem to be onto something.

[82ndtrooper]

Originally Posted by nmap

I came across the following material about oil supplies that may be of general interest.

Briefly:

1. World total liquids production (Fig 1) remains on a peak plateau since 2006 and is forecast to fall off this peak plateau in 2009. According to the IEA, the current peak production of 86.13 mbd occurred on July 2006 and only one year later, June 2007 total liquids production fell to an unexpectedly low 84.28 mbd. As long as demand continues increasing then prices will also continue increasing.

2. Forecast world crude oil and lease condensate (C&C) production retains its 2005 peak (Fig 2). The forecast to 2100 shows declining C&C production, using a bottom up forecast to 2012 (Fig 3). The forecast to 2012 shows a 1%/yr decline rate to 2009, followed by a 4%/yr decline rate to 2012.

(Much more at: This Link )

The numbers suggest a developing imbalance between oil supply and demand, with the implication that prices will advance significantly. With the existing issues in the mortgage and debt markets, the implications for the U.S. and global economies are unpleasant.

I suspect the impact on global politics will be even sharper. China and India have expanded their usage, the U.S. needs considerable fuel to supply our domestic needs, and as supply is constrained, the potential for conflict seems likely to increase. The Middle East seems poised to get more attention, as will other producing areas such as Mexico and Venezuela.

My background in securities brokerage has given me some comfort with considering results in the markets and the overall economy – but I’m not qualified to speculate about the impact on diplomacy and possible military implications. I would guess that Saudi Arabia, Iran, Venezuela, and Mexico would all face greater instability; but it would be an uninformed guess.

Assuming such speculation wouldn't violate any security considerations, I’d very much appreciate any thoughts on the matter.

Personally speaking I did not have a clue about the oil markets, their economic impact, infrastucture, or any of the foreign policy matters concerning oil during my 17 years in the financial services industry, especially being on the retail side of Morgan Stanley and Merrell Lynch to name two firms that worked under.

It was not until I recieved an MBA and aquired my CFA that I had some understanding of analysis of any given industry. But, in order to be in the oil analysis side of any firm it has to be the only industry that you cover and you'd better speak the languge of the region. With any decent firm your going to visit not only the HQ's of the major oil company's but the House of Saud as well. Ok, enough about that. The oill industry is especially complex to cover given the foreign relations and geographic emphasis on maintaining solid national and international housekeeping efforts both from policy and military perspective. Why do you think we went to Kuwait in 1991 ?

From a terrorist perspective their are some studies that have been done over the years, mostly those that Presidential administrations had the NSA, CIA and other intel agencies and think tanks conger up as dooms day scenarios.

From the mid 1930's to the 1960's Saudi Arabia was a branch office of America's oil giants.................a Republican internationalist fantasy. The United States remained secure in the knowledge that Saudi oil would alway's be there for us, under the sand, and as safe as if it were locked away at Ft. Knox. We built Saudi Arabia's oil business and , for our efforts, got full and easy access to it's crude. Has that changed ? and how has this administration's efforts afffected that relationship ?

The fist OPEC oil embargo took the petal off that rose, but anxiety turned into full panic in the early 1980's during the Iran-Iraq war, especially when it looked as if Iran might take the war to the Arab side of the gulf, including Saudi Arabia. With the nightmare of an Islamic praire fiire taking down the worlds economy, disaster planners in and out of government began to ask some uncomfortable questions. What points of the Saudi oil infrastructure were most vulnerable to terrorist attact ? And, by what means ? What sorts of disruptions to the flow of oil, short term and long term would be the result of such attacks? What are the real economic consequences ?

The Abqaiq extra light crude complex is both the most vunlnerable and the most spectacular target for Islamic radicals. Abqaig is the Godzilla of oil refinerys. The storage tanks and the large spheroids used to reduce pressure on oil during the refining process, and moderate damage to the stabilizing towers where the petroleum is purged of sulfar. Anybody heard of "hydrosulfurization" ? It takes place in ten tall towers, still to this day, where hydrogen is introduced into the oil in sufficient quantities to convert sulfur into hydrogen sulfide gas. This rises to the top of the tower.

Anybody wanna take a guess at what hydrogen sulfide can do to humans if let loose from ten big towers before it's rendered harmless, envirenmentally safe and usable sulfar ?

Here's three questions from Robert Baer that we should be asking.

1. Can the Wahhabis, the Shi'as, the Muslim Brothers and everyone else in Saudi Arabia who wants to bring down the Al Sa'ud lay their hands on enough firepower to do so ? it may sound easy, but believe it's not.

2. Is the House of Sa'ud beyond redemption or protection as a ruling authority ?

3. Does Washington have the capacity to see the Saudi kingdom for what it is ? Or does it have it's hand so deep in the Saudi wallet that it won't see and won't act ?

[82ndtrooper]

Originally Posted by GratefulCitizen

I'm curious what your opinions on the Russian/Ukrainian (abiotic) theory of oil are.
Given the massive increase in oil production in the former USSR since WW2, they seem to be onto something.

Russia is now posing like a super power because of this issue. Is Putin ready and willing to dow it out in the open markets in a more ample suppy ?

At the moment, they are using this as a cosmetic front.

[nmap]

Originally Posted by GratefulCitizen

I'm curious what your opinions on the Russian/Ukrainian (abiotic) theory of oil are.
Given the massive increase in oil production in the former USSR since WW2, they seem to be onto something.

As nearly as I can tell, the consensus among petroleum geologists dismisses abiotic oil.

For a more complete discussion of abiotic oil, along with footnoted references, you might wish to go to THIS LINK. Mr. Heinberg addresses the issue in far more depth than I could.

[nmap]

Originally Posted by 82ndtrooper

It was not until I received an MBA and acquired my CFA

Thank you, Sir! If I may say so, I'm impressed - both by the credentials and the analysis.

Originally Posted by 82ndtrooper

Does Washington have the capacity to see the Saudi kingdom for what it is ? Or does it have it's hand so deep in the Saudi wallet that it won't see and won't act ?

Or could it be that the immediate cost of acting is so great that it is politically impractical?

Still worse - Saudi Arabia has a young, fast-growing population. Domestic consumption of crude oil is increasing at the same time production is rumored to be stagnating (or maybe in decline?). If the foregoing is true, revenues from oil will come under pressure, perhaps exacerbating the issues you mentioned.

[82ndtrooper]

Originally Posted by nmap

Thank you, Sir! If I may say so, I'm impressed - both by the credentials and the analysis.



Or could it be that the immediate cost of acting is so great that it is politically impractical?

Still worse - Saudi Arabia has a young, fast-growing population. Domestic consumption of crude oil is increasing at the same time production is rumored to be stagnating (or maybe in decline?). If the foregoing is true, revenues from oil will come under pressure, perhaps exacerbating the issues you mentioned.

I believe you hit the point. It is simply politically and economically impractical until at which time the U.S. is entirely independent of foreign oil supply. I do not see this happening anytime soon.

If the Sau'ds were willing to run oil through and not around the triangle, then the supply could reach Europe faster and much cheaper. Until another Sa'ud holding the kingdom in his hands without the lust for fancy cars, expensive nights with prostitutes, palaces and golden shower handles, it's likely the person pulling the levers on how many barrels of oil spill out of Arabia is being done by the rulers wife not him. After all, the current is now shitting the palace pool from old age. Who's making the decisions now ?

IIRC we did have Bin Ladin in our sights during the Clinton Administration but were pulled off the last moment due to the fact that a C-130 holding the tail numbers of the Sa'ud family was present at that meeting. Don't wanna ruffle any feathers with the house of Sa'ud or the Bin Ladin Group Inc.

BTW: Dont be impressed by my credentials. I merely sat through a few more courses and scrubbed through a few more tests than my counterparts. Their just paper on the wall at this point. I do thank you none the less for the compliment.

[nmap]

An interesting little development...

Saudi Arabia has begun setting up a 35,000-strong security force to protect its oil infrastructure from potential attacks.

The move underlines the kingdom’s growing concern about its oil installations after threats from al-Qaeda to attack facilities in the Gulf, as well as rising tensions between Iran and the US.

The force already numbers about 5,000 personnel, a Saudi adviser said on Sunday. They are being trained in the use of new surveillance equipment, countermeasures and crisis management under a programme managed by US defence group Lockheed Martin, according to the Middle East Economic Survey in Nicosia.

The recruits are learning about laser security and satellite imaging from Lockheed on behalf of the Sandia National Laboratories’ Defense Systems and Assessments Unit – a US government run unit in New Mexico, said MEES.



LINK

[incommin]

My grand kids will be talking about the same stuff when they are grown and have kids...... When I was in high school in the early 60's the teachers were saying that we would start running out of oil by 1980 and that we were headed for another mini ice age......

THE SKY IS ALWAYS FALLING SOMEWHERE!

Jim

[Team Sergeant]

Originally Posted by nmap

An interesting little development...

Saudi Arabia has begun setting up a 35,000-strong security force to protect its oil infrastructure from potential attacks.

The move underlines the kingdom’s growing concern about its oil installations after threats from al-Qaeda to attack facilities in the Gulf, as well as rising tensions between Iran and the US.

The force already numbers about 5,000 personnel, a Saudi adviser said on Sunday. They are being trained in the use of new surveillance equipment, countermeasures and crisis management under a programme managed by US defence group Lockheed Martin, according to the Middle East Economic Survey in Nicosia.

The recruits are learning about laser security and satellite imaging from Lockheed on behalf of the Sandia National Laboratories’ Defense Systems and Assessments Unit – a US government run unit in New Mexico, said MEES.



LINK

I read that today. I'm sure they have intelligence that place their oil fields in danger. 5000 to 35,000 that's a division plus guarding their future.

While the world trade towers might have been an ideological target, those oil fields are far more than a symbol.

TS

[nmap]

Originally Posted by incommin

...When I was in high school in the early 60's the teachers were saying that we would start running out of oil by 1980 and that we were headed for another mini ice age......

THE SKY IS ALWAYS FALLING SOMEWHERE!

Jim

Sir, we come from the same era - I graduated from high school in 1970. A popular book of the time was Ehrlich's "Population Bomb", which forecast imminent doom. So, you've got a point.

It's also quite true that people have been advancing the argument for limitations since Malthus in 1798 - and, so far, the results haven't come to pass.

All of that said, North American crude did in fact peak in 1970, and our balance of payments hasn't been the same since. I find it interesting that we built the interstate highway system, but now we seem to have difficulty maintaining it.

The purpose of my posts, however, is not to persuade anyone that the sky is falling. Rather, I seek a better, deeper understanding of the dynamics of a situation that seems to loom large. And the reason I care? Because there is money to be made from correctly placed investments. So you see, I'm not guilty of running about the barnyard squawking about the sky falling. But I'm eager to gather more than my share of chicken feed. So far, it seems to be working.

A parallel situation exists in the mortgage market. Some people are experiencing personal distress because of some poor decisions. I, on the other hand, expect to gain quite a lot due to the Fed's choices. I mean no disrespect or offense by this display of raw avarice; but I thought it might put my explorations into better context.

Thus, the applicable graphic is not: but rather

Care for a pistachio? They're quite tasty.

[Pete]

Originally Posted by nmap

..... I find it interesting that we built the interstate highway system, but now we seem to have difficulty maintaining it......

It is interesting that NC lifted $190,000,000 from the highway trust funds this year. The state government does it every year. They do it to pass slush funds around so they get reelected.

There is plenty of money available without raising taxes - if it was spent on what it was collected for.

[nmap]

Originally Posted by Team Sergeant

I read that today. I'm sure they have intelligence that place their oil fields in danger. 5000 to 35,000 that's a division plus guarding their future.

While the world trade towers might have been an ideological target, those oil fields are far more than a symbol.

TS

The numbers seemed significant; thank you, Sir, for the confirmation.

The oil fields could well be the linchpin for both the Saudi royal family and the western economies; as you say, far more than a symbol.