Special Report: Peak Oil

BP and the Petro-Apocalypse

The 2010 BP disaster is also a disaster for oil apologists and cornucopians, because it finally opened the public's eyes to the extreme risk that offshore drilling really entails.

By Andrew McKillop
Published June 16, 2010

I want my life back.

--Tony Hayward, CEO, BP

A key argument against Peak Oil is that deep offshore oil is so abundant and easy to produce, by responsible and environment conscious oil corporations like BP, that we should not listen to foolish claims of coming shortage.

Since 2009, Peak Oil alarm has been heavily but inexpertly talked down from its mid-year 2008 high point, when oil prices on the NYMEX briefly attained $147 a barrel.

Keeping prices below "psychological ceilings", notably $100 a barrel is very important. This is because high oil prices are bad for confidence in the economy, and bad for consumer spending, and the hoped-for economic recovery needs more oil.

Unfortunately and sad to say, there is not enough supply, and prices will soon burst through the magic $100 glass ceiling again, but this simple forecast is rarely heard in the media, business or other.

Speaking at the Aug 2009 Jackson Hole meeting of leading central bankers, US Federal Reserve chair Ben Bernanke set his own glass ceiling for oil, at $90 a barrel, after which he hinted interest rates would have to move up. In today's global economy, with fantastic and massive national debts and budget deficits to finance, any serious raising of interest rates would be devastating.

Oil is needed to power economic recovery: to power real-world airplane flights, and real-world cars bought by real-world consumers - not oil-saving electric vehicles of the ecological fantasy future.

Saving the airline industry and cranking out more cars have been two of the rare signs of economic recovery in OECD countries, following the subprime belly-up for the finance sector, recourse to massive government borrowing by political leaders, and "injections" of these borrowed funds into the economy - notably to encourage car buying.

Confidence is all, and cheap oil keeps consumers confident - the story says. What is real is that cheap oil keeps careless and greedy consumers wasteful, but that is not a consumer-friendly message.

The world economy relies on oil. The economic crash of 2008-2009 saw some countries, for example Japan and a string of European countries plunging at a rate of 5% to 15% in their GDP output over one year. World trade contracted at more than 12% a year, but this only managed to dent world oil demand by about 3.5%. By midyear 2009, world oil demand contraction had ceased.

From late 2009-early 2010 demand growth returned, and oil prices bounced back, as the giant emerging economies of China and India power ahead - using oil - in a totally classic model of economic expansion.

This notably includes their car industries producing cars 98% fueled by oil, with output growing at 15% to 20% a year, like the number of airplane passengers their national fleet operators carry. Both have a capital surplus and manageable national budgets, making their strategy easy to defend. Imagining that Chinese and Indian economic growth might be possible without oil is like Tony Hayward imagining he can keep his job.

Finding the Oil

Finding the oil is what pushed and incited BP, with partners and rivals from across the oil industry and around the world, to make their reckless lemming rush into deep water oil exploration and development. The real reason is simple: onshore and shallow offshore oil reserves are depleting.

To be sure, press statements and news releases from the Big-5 International Oil Corporations (IOCs) BP, Exxon Mobil, Chevron, Total and Shell vaunt their high-tech cutting edge, their corporate respect for the environment, and their supposedly high efficiency extraction of the precious oil needed to power the consumer herd.

In fact their deep water production is necessarily high risk and high waste, with typical loss rates often 1 or 2 percent of "nameplate capacity" in very deep water, leaving pollution that will take decades - or centuries - to disappear in the ice cold waters 1 or 2 miles straight down from the surface.

Apologists for this last gasp, last hope, reckless extraction of deep offshore oil have a string of one-liners to defend this losing gamble. They point to big finds of oil in place. They make a point of not saying that even the biggest and best finds are only pockets of ultra hot oil and gas under fantastic pressure, rarely yielding more than 25 to 30 percent of the oil in place.

For the biggest finds, that is about a couple hundred million barrels, equivalent to around 30 - 60 hours consumption by the world consumer herd.

In their raptures, the Apologists like to show their erudition, calling this techno-prowess a defeat for Malthusian thinking. The "Malthus principle", applied to oil, suggests it is running out. The faster we use it, the faster it runs out.

Apologists of deep offshore oil, and its onshore lookalike for destruction of the environment - Canadian tarsand oil extraction - quickly shift their pitch to describing this last chance scraping of the barrel as stirring proofs that Necessity is the Mother of Invention. When the oil based, oil fired society starts seriously running out of oil, today, producers phagocyte the environment. They rip harder, destroy more and waste more, but keep the party going a short while longer. One More Day is their sole credo.

Hippy Dreams

Apologists have a hippy dreamer fringe, which not only loves photo shots of gaunt offshore rigs pumping oil in pristine cleanliness under a balmy setting sun, but their Cornucopian brothers proclaim that in a Biblical or maybe Scientological revelation, they have learned that Oil is Unlimited.

A 2003 version of this semi-religious vision with ET trimmings was worked to death by none other than the gang of war criminals around George W Bush. With the help of august bodies like the American Institute of Petroleum, they let it be known that vast quantities of ultra light, sweet crude oil were located just a few feet deep, under each and every one of Saddam Hussein's palaces.

All "we" had to do was to invade Iraq, kill 200 000 persons, force 2 million to flee, leave behind huge quantities of Depleted Uranium ordnance, destroy the country's economy and infrastructures - and hey presto! "we" will be rewarded with Unlimited Supplies of cheap oil. What could be nicer and more rewarding than that for innocent, peace loving, environment conscious oil consumers of the "mature democracies"?

The gung-ho killing went on but sadly enough, the cheap sweet crude under Saddam palaces wasn't there. To date, the war crimes tribunals for this oil war crime have yet to be set up, arraign, put on trial and sentence the well known and easily identified perpetrators.

A very recent version of this story, helping explain why Afghanistan had to be invaded, 200,000 persons had to be killed and two million forced to flee their homes, moves on from the fairy story of the bearded Man in a Cave sending an invisible airplane to strike the Pentagon. The new story is vast quantities of lithium, to make electric car batteries (to save oil!), lying just a few centimetres under the Afghan soil.

It would therefore be very foolish to give up the heroic fight, or killing spree in Afghanistan since "we" could or might get lithium war booty, along with heroin war booty from our Afghan war crimes. Hippy Dreamers, we can conclude, have a Charles Manson edge when it comes to satisfying their oil greed.

The Cornucopians are a related race to the Apologists, saying the world has such vast quantities of oil left to pump out, that deep offshore oil and tarsand oil are merely stopgaps. Logically speaking, the same would apply to lithium batteries for electric cars - but logic is not a strong point of hippy dreamers and congenital liars.

The Cornucopians inform us that when we get to the real pay dirt, which will be onshore and unsurprisingly in OPEC states and Russia, all prospect of oil shortage will be banished forever. Oil prices will fall to any nice, low number the greediest and most wasteful oil consumer would care to name.

Cornucopians will normally chime and whine, in response to any question as to why the IOCs are foraging and recklessly grappling oil from ultra deep water, and from Athabasca tarsands, that getting oil from "tight formations" and from "hostile environments" is a splendid example of man's ingenuity.

This heroic technology, they go on, will only be needed in the interval before our IOCs get access the incredible bounty of cheap oil that remains, onshore, in OPEC states and Russia, and in smaller amounts but more easily pillaged, in Africa.

Like the false prophets, charlatans and soothsayers of every age, their derisory analyses start vacuous, and end up forgotten, but they skirt criticism by claiming that only their prophetic timing was wrong. Both the Apologists of high risk, environment destroying oil production, and the Cornucopians who preach there is no possibility of shortage, if we invade the world's oil exporter countries, make sure they keep the dating and details of their dodgy predictions 'fluid'. Credible denial is their way of life.

How Do We Liberate OPEC's Oil?

Liberating Russia's oil by military invasion, to be sure, is out of the question: the country has a lot of nuclear weapons, can defend itself, and would massively react to oil-greed motivated "liberation". Another problem is that Russia's remaining oil reserves, like its gas reserves are both over-estimated and depleting.

Getting what remains of Russia's oil reserves needs more devious and diplomatic methods, than outright invasion, for example by long-term sapping of the country's already super-corrupt economy, society and politics.

This leaves the OPEC states, and the gaggle of smaller, but collectively interesting new oil producers of Black Africa as better targets for a quick hit, that is Afghan-style and Iraq-style "liberation", or at the least political intimidation and oil-fired Gunboat Diplomacy.

For the Black African oil producers there is one detail: to keep them exporting a high percent of their small production, they have to stay dirt poor and undeveloped, not using too much oil at home, to generate the oil export surplus that feeds the "mature democracies".

This helps to explain the rush to force Green Energy down throat of Africans, most recently by the IMF's thwarted attempt at creating a $ 100 billion facility for green energy in low income countries "by 2020". Burning sticks or twigs and dancing round a solar collector may be very good for Africans, if it levers a little more oil for the average "postindustrial" consumer.

Dependence on OPEC and Russia, in a world supposedly "brimful" with oil, is however depressingly easy to demonstrate. Saudi Arabia and other GCC country members of the OAPEC group, plus non-OPEC Russia, that is a total 7 countries, currently supply around 28 million barrels a day (Mbd) or about 55% of world total traded and transported oil.

This export surplus from seven countries covers the oil needs of more than 150 countries.

The dreamers who like to whistle childish tunes of No Peak Oil are of course obliged to pretend that OPEC is "not what it used to be". Whatever that was, dependence on OPEC and Russian real world oil supply is stronger than ever.

The fantasy claim is that OPEC can no longer "manipulate market prices". These are now manipulated by American private bankers, notably Goldman Sachs and other "big players" on world oil markets.

As shown by their antics of 2008, oil trading yuppies can gouge prices every bit as high as Arab despots or Russian mafiosi, but the permanent shadow play and rumor circus of traders is a casino where 80 to 100 paper barrels are traded for every one real barrel. It has no relation at all to real-world oil production, by OPEC states or anybody else.

Supposed "key fundamentals", feeding the rumor mill, include OPEC's claimed surplus, or under-utilized oil pumping capacity at any one point in time. The organization's excess capacity is claimed to have dropped from around 10 Mbd, in the 1990s, when the oil trader fraternity had only to chant "Structural oversupply - too much capacity", and prices would obediently shrink to almost nothing. This story stopped working by at latest 2005.

Today's OPEC overcapacity number is now a deep sea monster, like something dark and shimmering in BP's gushing seafloor well a mile below the surface. It could be almost nothing; it might be 2 Mbd at best. The only thing people agree about is that the number is dropping.

The media and press in the consumer democracies say this is due to OPEC's hostility and cynicism, its refusal to invest in producing more oil to supply more and keep the price low for consumers countries, and its evil diversion of oil revenues from the sacred quest of increasing oil output and depleting national reserves faster, to aiding terror.

OPEC is run by terror-aiding political despots intent on harming innocent drivers of 4WDs on their way to shop for plastics-and-pesticides in the Universal Supermarket. With only 2 Mbd "behind the valve," oil supply they can turn on and off at will, we are evidently held to ransom. Oh, calamity!

Apologists and Cornucopians, never short of a loony tune, have more snake oil to throw at the microphone. They tell us, hand on heart, that deep offshore provinces of civilized countries, like the USA, are simply gorged with oil, in the same way that Russia and the OPEC states are gorged with onshore oil, awaiting liberation for our high-tech, environment-conscious IOCs, like BP, to grub out the oil in record time.

Despite oil being so fantastically abundant, we presently depend on a bunch of Arab despots and Russian mafiosi for the oil we surprisingly seem to go on needing. To be sure, this is even more unacceptable than BP wasting 40 000 barrels day in its somber ecological overkill experiment in the Gulf.

Global Non-Investment

How can supply be so short when our Cornucopian dreamers gurgle that so much oil is still available in the ground? The answer is under-investment. A favoured estimate of world oil reserves by truth-loving and reliable Tony Hayward of BP is that we have "at least 150 years supply", about 4500 billion barrels, in reserve.

The basic problem is that it costs a lot of dosh, not slick Powerpoint slide shows at business get-togethers, to produce smaller percentages of oil in place from depleting and smaller-sized reserves in more and more remote geological basins, including the deep ocean floor.

Through the 1985-1999 period - the Cheap Oil Interval - global oil industry investment was a no-no. There was too much supply capacity, due to Saudi Arabia caning its reserves to keep the USA happy, and Russia caning its reserves to pay off its debt. But all good things - for greedy oil consumers - come to an end.

Oil sector investment has climbed the same steep curve as oil prices since around 2004, but to no avail because every year it costs more to add or replace the same unit of extra pumping capacity. Capital spending needed for each extra barrel-day of capacity, or for preventing the same capacity from being lost, has been rising at typical rates of 20% more expensive every year.

Deep offshore and Canadian tarsand oil are two of the most expensive possible methods of extracting oil. There is no possibility of this production being sustained without what average consumers, and their average political leaders call "high" oil prices.

Cornucopians wax realistic, from time to time. For instance, they say it takes huge and costly investment to maintain capacity, and massive exploration, drilling and production budgets to sustain and replace lost and declining production. The Deepwater Horizon rig, which blew up in April 2010 and killed 11 workers, is an example: this supposed jewel of high-tech had a price tag of $365 million. Shallow offshore and onshore rigs cost a fraction of this.

OPEC states that do not invest huge amounts each year to maintain output, and export supply volumes are therefore natural targets of greedy consumer ire - but the unsurprising facts is they have other things to invest in, such as regular economic development, education, health, housing and transport - exactly like the oil consumer countries.

Venezuela is a favoured non-Arab target for American oil whining and jealousy, with the Hugo Chavez government accused of mismanaging a stagnant output oil industry, committing the lese majeste of not always increasing output to satisfy American oil wasters.

Venezuela's national oil company, PDVSA, which continues to employ many Americans in strategic posts, faces plenty of challenges - including geological depletion of its cheaper and easier produced reserves, which have been extracted for over 75 years. The claim is that Venezuela "could double its production", especially if it was invaded, that is "liberated" Iraq-style.

For Chavez, however, like his ally Evo Morales of Bolivia sitting on a stash of lithium (but now menaced by Afghan warlords recycled to Eco-Friendly!), high prices for his oil commodity export - say $ 100 a barrel - buys plenty of street credibility.

Why Not Use Natural Gas?

T. Boone Pickens asks this question, while brandishing lurid stories of 250-dollar oil. The world gas bubble is in full flood, feeding rational optimism on transition from oil to natural gas as the mainstay transport fuel - if consumer governments had the courage to wave the magic wand, and force mass ownership of gas-powered vehicles.

Not only OPEC states, notably Qatar, Venezuela, Iran and Nigeria have huge amounts of gas, but several smaller but useful exporters have moved up to the world stage. This sets the stage for a de facto OGEC, the gas exporter cartel of countries which, after investing tens of billions of dollars in national cryogenic LNG plants and terminals, will not be amused that greedy importer countries want the stuff at derisory low prices.

World LNG prices, today, at about $9-11 USD per million BTU are around two times the unrealistically low price for natural gas in the USA - meaning this price will rise, rather than world LNG prices will fall.

This will further emphasize OPEC. While cheap gas encourages greedy consumers to imagine they should also have cheap oil to throw away, rational priced gas prevents them thinking that oil also is obligatorily dirt cheap. For the United States and Europe, the world's two biggest gas consumer regions, demand for gas in China and India, which will explosively grow. With competing users and consumers, the trend will be for higher gas prices in the 2010-2015 period.

The simple fact is gas exporters are imagined as good targets for Divide and Rule price bargaining, but oil producers are not. As with oil, this gaily ignores the physics of production and reserves, and imagines that gas exporters are necessarily a soft touch, while oil exporters are an "axis of energy militants".

Called "One Purely Evil Cartel" in a famous Wall Street Journal editorial, OPEC is fondly imagined to have only one desire. The Evil Cartel wants to increase already high oil prices, by creating artificial scarcity and generating instability in energy markets operated by innocent and honest players like Goldman Sachs. Energy crises are due to politically-motivated production cuts by OPEC, not shortage of reserves.

Uppity Oil Exporters

The war agenda goes on to claim that oil exporters get uppity if they are paid too much for their tacky Sunset Fuel. They need periodic smacking down, of the military sort. Venezuela, the Arab exporters, Nigeria and of course Russia are all run by despots and terrorists - if not war criminals using openly false propaganda, for example on Iraqi WMD, of the type used for cooking up the ongoing Afghan and Iraq wars.

Russia was for a short while hailed as a great put down for Peak Oil advocates. The end of the Soviet empire opened the doors for a new breed, or greed of Russian capitalists. Using the best possible asset stripping techniques, these oil producers shifted from the Soviet model, to the US model - and did so much lasting damage to Russian oil reserves, that it is now in accelerated depletion. Following a swan song of an unprecedented surge in oil production, after a precipitous drop in 1991-1995, Russia now has almost zero potential for increasing output and export supply.

The antics of Russian private companies like Yukos and Lukoil, racking up production and investing nothing, went so far that it reached Putin's ears. The Russian oil miracle was terminated for both political reasons, and because of accelerate depletion, with a no choice shift back to the Soviet model of heavy infrastructure spending on Russian oilfields most exposed to depletion, in the Urals and western Siberia. The press and Internet sites in the big consumer nations of course called this re-Sovietization by Vladimir Putin's evil government.

What all this shows, however, is that Russia's oil production surge of the late 1990s was a one-off. Current reserves will set future capacity, not allowing any prospect of another surge.

The Iran oil story is even longer than the Iraq or Russian stories, stretching back more than 100 years during which foreign interference and oil-driven colonialization and destabilization strategies were used, time after time. Even the average Oil Cornucopian will admit that in the 1950s, the Iran of PM Mohammad Mossadegh was the target of US CIA covert action to unlawfully overthrow an elected prime minister, simply to satisfy American oil greed.

Whether or not the Iran of today, under the Islamic Republic, has the second-largest oil and gas reserves in the world is very possibly the same type of exaggeration and propaganda used in the run-up to invasion of Iraq. Being immoral and inhuman monsters, they will slaver with desire to see smart missiles raining in, and of course so-regretfully hitting civilian targets, along with the water pumping and electric power stations.

Talking up the target country's oil reserves encourages oil greedy consumers to imagine they will get some war booty, along with the death and destruction. The scope for ever greater oil production in the victim country must always be waved in front of the nose of the vacuous consumer public.

Unfortunately Iran is a lot bigger than Iraq, has long-range missiles able to strike Israel's Dimona atom bomb making and storage facilities, and will be a hard country to oppress on a long term basis - that is "administer" - for the good of greed. Hopes for the oil greedy therefore re-centres to occupied Iraq, where a whole raft of deals with foreign oil companies creates the mirage of Iraq producing 10 Mbd and exporting 8.5 Mbd "by about 2015".

Occasionally the mask of "our Saudi friends" slips, and we hear that this fundamentalist and feudal despotic country is under-producing oil. It must increase oil investment and "massively increase capacity". If not, it should be "liberated". The warning is clear, Saudi Arabia can be liberated with the help of Israel and its atomic weapons. Extreme versions of this Dr Strangelove petro-dreamalong include a double wipeout of both Iran and Saudi Arabia - in that which concerns their human populations - while their oil export capacities are magically kept intact.

There Will Be Oil!

There is no real shortage of oil if the right price is paid. At this time, simply because world supply/demand balances are so tight, the invasion and occupation "model" or "option" for improving oil production performance in exporter countries, such as Iraq, would almost surely backfire if it was used. Loss of supply from the country being "liberated" by colonial-minded war criminals would impact fragile and "mature" supply structures - quickly driving up oil prices, to the displeasure of average greedy consumers.

The well-mapped tipping point for peak oil, for conventional oil in 2010-2011 depends only on the intensity of the global economic recovery and the growth rate of world oil demand. By early 2011, oil prices may be very high, due to structural shortage - but this situation only means we have reached the point where 50 percent of the world's ultimately recoverable oil has been consumed.

The other 50 percent can be more wisely used, and will be more wisely used if prices rise to high levels - and stay at high levels, encouraging conservation and substitution.

We can note that while Cornucopians claim he did it by pure chance, M. King Hubbert, in 1956, accurately predicted the peak of US domestic oil production in 1970-1971. At the time, with the world oil price set at $1 and 50 cents a barrel, the effect of 100-dollar oil on estimates of remaining and extractable oil were could not be imagined.

There is nothing wrong with Hubbert's theory, when the remaining reserve figure integrates the price factor - even the impact of the first Oil Shock, in 1973-1974 radically changed the economic feasibility of then-marginal oil. One example was US Alaskan onshore and shallow offshore Prudhoe Bay and related reserves.

Thus Alaskan North Slope oil production, starting in 1977, caused the US oil depletion profile to show a kink upward, with early 1980s US production coming close to, but not surpassing the 1971 peak output, a year average of 9.45 Mbd including NGLs (May 2010 production: 5.4 Mbd).

Natural gas, as previously mentioned is a real stopgap energy source for the US and other big energy consumer countries, making it unnecessary to invade and kill, destroy and occupy Iran and Saudi Arabia. Including natural gas on an oil equivalent basis, remaining extractable or producible oil + gas reserves are probably over 2.5 trillion barrels oil equivalent. This provides us with a long-term context for serious and efficient energy transition, without need to operate risky and environment damaging deep offshore, and tarsand oil reserves.

Fantasy figures offered by grandstanding Apologists and Cornucopians often go above 12 trillion barrels oil equivalent remaining, of which "up to 50 percent" could be produced or extracted.

Historically, the petroleum industry has been able to recover only 33 percent or one-in-three barrels of conventional resources, and this score is even lower with deep offshore oil. Tarsand oil, and synthetic oil from coal and gas taking all system inputs and outputs, is closer to one-in-four, or a loss rate of 75 percent. Neglecting to explain this, helps the Cornucopians maintain their lurid figures for remaining world oil, by counting impossible-to-extract oil along with the one-third that can be extracted.

Including these unrealistic, or absurd estimates and guesstimates for deep offshore oil reserves, in the Russian case, can be used to inflate Russia's remaining oil reserves from about 65 billion barrels (of real oil), to around 135 bn barrels (of fantasy oil). Applying the same "creative accounting" everywhere on earth, allows the most extreme excesses of Cornucopian myth making.

New Discoveries

In depression year 2009, world oil consumption hit 31 billion barrels per year, or around 85 million barrels a day. These figures will continue to rise in the next few years in lockstep with global economic recovery - unless there is a plunge back to recession. Greater recovery efficiency is of course to be welcomed, but needs higher oil prices to pay for the investment. Exactly the same applies to oil saving and energy efficiency raising. Economic recession means that "unfettered trading" of prices will cut them down below $50 a barrel.

2009 was a bad year for Apologists and Cornucopians, but 2010 will be even worse. The BP disaster in the Gulf of Mexico has opened eyes, and mouths on the extreme high risk, and high environment damage that deep offshore oil really means.

In 2009, overwhelmingly in small discoveries, some 7 to 9 billion barrels, about 33 percent extractable, was reported by the world's 225 biggest oil companies. 2010 to date has been worse. BP's claimed discoveries in the Gulf of Mexico were a key plank for Cornucopians - who can now tell us about the risks and costs of producing that oil.

Most basic to the peak oil argument, none of these new discoveries were as big as those in former decades, when single fields of more than 10 billion barrels each were regularly found, especially during 1955-1965. True enough, the Cornucopians will sigh, but Human Ingenuity (and very high oil prices) are helping the quest to scrape the bowels of the earth for the last drops.

Keeping our eyes closed to the environment devastation, and oil wars our mindless quest to burn and waste oil drives us to, the basic bleat of Apologists and Cornucopians is that there is remaining oil in the ground, but it is getting a lot harder to extract.

In August 2007, in a scene redolent of the Cold War, Vladimir Putin's government planted a metal flag on the Arctic seafloor. Within days Canada, the United States, Denmark and Norway were also publicly asserting their rights to map and claim huge areas of the Arctic.

Their interest was not sardines or polar bears - but oil. Going to the deepest, most hostile regions of the planet, for oil is because it is getting rare in easy-to-produce locations - like onshore USA or Russia and shallow offshore Norway and Denmark.

In October 2007, being unable to claim Arctic seabed territory, the UK confirmed it was planning to assert sovereign rights over one million square kilometres of seabed off Antarctica. This again was nothing to do with cod fishing - although warlike England has in the past gone to war, with Iceland over cod fishing for its gastronomic national dish, fish 'n' chips.

To be sure, oil importing Chile, Argentina, Australia and New Zealand quickly declared their own intentions to grab potential oil producing Antarctic territory, underscoring we are surely in the world's latest -and last - Black Gold rush.

The Battle for the New Frontier

Another favorite gargle by Apologists - talking up environment destroying deep offshore and tarsand oil - and Cornucopians who airily claim oil reserves are practically limitless - is that great (and midsize) power rivalry for deep offshore territory, possibly holding oil, is very high.

To them, this demonstrates or proves that more oil will be produced. In their logic-free theory, abundant supplies should reduce oil prices, but they can't understand that cheap oil is the enemy of their very own high-tech, produce-and-destroy, gung-ho philosophy. Cheap oil remains the proclaimed goal and payoff, from their Battle for the Last Frontier.

Many of the expert gaggle of talking heads on deep offshore oil - who profess astonishment at BP's disaster in the Gulf of Mexico, demonstrating their ignorance on its risks - like to predict that Russia will be the world's Master Nation for deep offshore discoveries and production. The very same Russia is labeled anti-western, or at least anti-American, run by greedy and corrupt mafiosi, and technologically incompetent.

What we can be sure of is that Russia, at least to date, has never claimed oil prices were too high - but in the late 1990s many times said out loud that it was exporting its natural resources, not only oil and gas but gold, nickel and other metals at ridiculously low prices.

From the late 1990s, Brazil has emerged as the location of some of the largest offshore oil and gas fields ever discovered, if not produced, and through what the Apologists call "equal to space-age technology", are drilling and producing in water depths now extending to 2.5 kilometres. Brazil, to be sure, wants to be an economic superpower. Doing this needs oil.

Discovery of oil fields such as Brazil's deep offshore Tupi, or Kazakhstan's Kashagan field, are showcased as a technological accomplishment, the crowning glory of more than 30 years of the oil industry edging into deeper, and deeper waters, as it runs out of reserves onshore, and then in shallow offshore provinces.

This does not come cheap - Brazil's Tupi field, which one day may produce about 2.5 Mbd, could cost more than $200 billion to develop, according to industry analysts. Brazil in 2009 already accounted for 22 percent of world deep water oil production, notably because its onshore production is close to zero.

Brazil's Petrobras claims that the company's oil production, 2.76 Mbd in 2009 will climb to 3.66 Mbd by 2013, then rise by 2020 to 5.7 Mbd, its newer and extreme high cost fields covering depletion losses on its cheaper developed, shallower offshore fields. National oil consumption, rising despite its showcased bioethanoll program, is steadily rising, and attained about 2.8 Mbd in 2009. Deep offshore accidents, or catastrophes will at all times menace Brazil's frothy optimism that deep water oil is its passport to Big Power status.

West Africa offshore, a safe distance away from the poverty and civil wars or insurrections, coups and gang warfare onshore, is home to a host of deep water New Frontier finds, both by IOCs and national oil companies of large consumer countries, such as Spain's Repsol.

In all cases, however, amounts found are relatively small. They are always reported using the biggest possible definition of what is found - that is oil plus oil equivalent gas in place. From these finds, such as finds offshore Ghana and Sierra Leone, announced at around 1.4 to 1.8 billion barrels oil + gas equivalent, actual extraction of oil will at best be 250 million barrels - 3 days consumption for the world.

To be sure, natural gas discoveries eclipse those for oil, but when produced a couple hundred kilometres offshore there is only one thing to do with this "incredible bounty" of gas: flare it at the torch.

Keep On Talking

Apologists and Cornucopians never cease raising their fantasy estimates of remaining oil and gas, to invalidate and ridicule the consensus among peak oil theorists that about a half of the world's 2 trillion barrels of recoverable oil has already been consumed, meaning that future growth of production, from conventional oil sources, will soon fall to zero.

Using wildly inaccurate forecasts, the coterie of No Shortage talking heads continues to exaggerate. Key members of this fraternity, like Michael Lynch, put on their most serious face and simply triple the world's real remaining reserves of oil - and get paid to do it!

This is nothing new: from shortly after the first Oil Shock, in the 1970s, Peter Odell has earned a nice living by claiming the world's remaining oil reserves are roughly three times what they really are. Odell is at least honest enough to add that he uses an oil price estimate of $250 a barrel for gauging the remaining reserves.

The coterie of government-friendly, IOC-friendly consultants and analysts has a very simple goal, other than getting paid to tell fairy stories. The most basic goal is to make it look rational for world oil production to increase at 2% or more, every year, from now to 2030.

This gaggle of high paid consultants, such as Dan Yergin's CERA, a gung-ho leader in its 2002 and 2003 announcements of "definite finding" of oil under Saddam's palaces, expect global oil productive capacity to grow through 2030. Obviously this will not be possible if Peak Oil is real, and so therefore Peak Oil must be denied. World oil output capacity is claimed as capable of reaching 115 Mbd, up from the current total capacity of 88 Mbd.

Only then, in 2030, we are told with eye-popping sincerity, will there be a peak, followed by a decades-long "undulating plateau" of supply. Hinting mysteriously that this Happy Ending for the consumer masses, who will no longer have to switch to electric cars with Afghan lithium batteries, is not determined by anything as vulgar as geological resource depletion, CERA claims this profile is "not a below-ground issue".

Like the oil war crimes in Iraq, the above-ground behavior of the oil greedy consumer societies will certainly have an impact.

The Apologists and Cornucopians come together, finally, in a be-in for high-tech, resource-gulping energy waste, proclaiming that energy supplies - for all practical purposes - are infinite. The opposite being the case, oil and energy saving will be the real future.

After so many failed predictions of "huge finds" and "tech breakthroughs", always backed by complacent press and media, we might think the buffoons and charlatans selling cheap oil-snake oil would wise up to facts.

These are as far in the distance between real facts and their childish and lying theories as BP's hole in the Gulf is deep. We can note that the same axis has been responsible for two recent and ongoing illegal wars in the Middle East, and attempts at generating another, against Iran or Saudi Arabia. Oil greed is the basic motivator.

Andrew McKillop is a writer and consultant on oil and energy economics. Since 1975 he has worked in energy, economic and scientific organizations in Europe, Asia, the Middle East, and North America. These include the Canada Science Council, the ILO, European Commission, Organization of Arab Petroleum Exporting Countries, the UN Economic and Social Commission for Asia and South Pacific, and the World Bank. He is a founding member of the Asian chapter of the International Association of Energy Economics. He is also the editor, with Sheila Newman, of The Final Energy Crisis (Pluto Press, 2005).


View Comments: Nested | Flat

Read Comments

[ - ]

By Rene Gauthier (anonymous) | Posted June 16, 2010 at 10:48:47

All of a sudden I am wondering if there's something sinister underlying with the invasions of both Iraq and Afghanistan.

Permalink | Context

[ - ]

By zookeeper (registered) | Posted June 16, 2010 at 10:59:54

Um, you just started wondering that now?

Permalink | Context

[ - ]

By frank (registered) | Posted June 16, 2010 at 13:47:54

I'm pretty sure Rene was exercising the right to place tongue firmly in cheek there...

Permalink | Context

[ - ]

By race_to_the_bottom (anonymous) | Posted June 16, 2010 at 14:33:49


Permalink | Context

[ - ]

By jason (registered) | Posted June 16, 2010 at 20:21:45

I thought this might be a useful reminder right about now:


Permalink | Context

[ - ]

By Mr. Meister (anonymous) | Posted June 17, 2010 at 01:30:29

Except that the U.S. is not really dependent on mid east oil. Venezuela and Canada provide the vast majority of their imported oil. Much different today than the oil embargo of the 70's.

Why would you fight a war to get something you can buy on the open market? The cost of the war is huge compared to oil the Americans get from there. The war did not increase oil supplies.

You may or may not like American actions but to blame the war(s) on oil is a little far fetched. Just follow the money. I certainly do not approve of a lot of the things that they do but I find it hard to believe they did it for oil.

Permalink | Context

[ - ]

By z jones (registered) | Posted June 17, 2010 at 08:16:49

Hey everyone, I don't know what 'fungible' means!

Permalink | Context

[ - ]

By Pxtl (registered) - website | Posted June 17, 2010 at 10:39:21


The difference is that the money spent and the money received are by different people. The money is spent by the American government (and, by extension, their taxpayers). The money received goes into the hands of members of the oil market. The fact that it's a net loss doesn't matter when the "revenue" and "cost" is happening to different people... as long as you're on the "revenue" side of the question.

Permalink | Context

[ - ]

By Kiely (registered) | Posted June 17, 2010 at 16:21:59

You may or may not like American actions but to blame the war(s) on oil is a little far fetched. Just follow the money. I certainly do not approve of a lot of the things that they do but I find it hard to believe they did it for oil. - Me Meister

Maybe it isn't so much about controlling sources of oil as it is creating profit for oil companies?

There is not a better or quicker way to increase the consumption of oil than firing up the war machine.

Permalink | Context

[ - ]

By Undustrial (registered) - website | Posted June 17, 2010 at 18:09:35

The Soviet Union is a truly fascinating case study in oil depletion. The official Soviet policy was the "aboitic oil theory" (rather than being produced from ancient swamps, it's just magically produced underground), and that it couldn't run out. Then Russia's oil supplies peaked right around the time Hubbert said they would - in the late 1980s, and we all know what happened next.

And as for Iraq, one has to remember that America is an empire, not just another crazed rogue state. The point of invading Iraq wasn't to get more oil for themselves, it was to control one of the world's largest remaining sources of oil and sell it to everyone else. Since oil is so important to economies, industries and militaries (the US military is the single largest user of oil in the States), the ability to sell, or not sell, oil to a nation can grind it to a halt overnight.

Never forget that the Japanese attacked Pearl Harbor immediately after the American government placed an oil-embargo on them.

Permalink | Context

[ - ]

By Hemp friend (anonymous) | Posted June 21, 2010 at 06:56:53

Iraq must have been about oil, or denying china oil at least. Thats the real cause here, one empire supplanting another. All the U.S, and most other western european countries have to do, is use industrial hemp to produce methanol/biodiesel. This takes the pressure off crude oil based fuel and eventually (or rather rapidly) fosters a transition into sustainable industrial society. Enough people have died or suffered from the crude oil empires, lets stop it and grow our own energy.

Until the stupidity of the 1930's is reversed, Industrial hemp will just sit there and watch the monkeys fight and starve because they could not use natures naturally occuring gifts.

Its starting to look like a tragedy, it can be turned around anytime with Hemp.

Permalink | Context

[ - ]

By MonkeyMuffins (anonymous) | Posted July 10, 2010 at 22:54:47

In response to Z Jones' posting of the Dilbert cartoon:


Actually--since "fungible" means, "being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind"; and since oil (a finite resource) cannot be replaced (easily or otherwise) by a magical, mythical, "free market" substitute--the statement Dilbert's car would make would be, "I don't understand that infinite growth is by definition impossible on a finite planet".

Scott Adams demonstrates, yet again, why he's not the sharpest tool in the shed.

Joe Bageant, on the other hand, has recently sliced and diced with the best of 'em:

Essay Titled: Waltzing at the Doomsday Ball: Capitalism is dead, but we still dance with the corpse

URL: http://www.joebageant.com/joe/2010/07/waltzing.html

Permalink | Context

[ - ]

By Mogadon Megalodon (anonymous) | Posted April 21, 2011 at 13:23:51


Permalink | Context

View Comments: Nested | Flat

Post a Comment

You must be logged in to comment.

Events Calendar

There are no upcoming events right now.
Why not post one?

Recent Articles

Article Archives

Blog Archives

Site Tools