Friday, March 26, 2010

Oil Reserves "Exaggerated by One Third"

A number of years back, prominent energy analyst Matthew R. Simmons, in his Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, stated that Saudi Aramco and other oil producers routinely overstated their reserves, and this claim is now being seconded by Saudi Aramco itself, which recently admitted that the famous Gwaihir field, the world's largest oil field, is showing distinct signs of exhaustion and that its production might peak as early as 2015.

Other voices are now chiming in. Scientists and researchers from Oxford University in UK state that global oil reserves are overstated by a third by producers, Saudi Aramco prominent among them, in order to bolster investment and market share. Additionally, a paper published recently by these researchers states, such authorities as the ever-optimistic International Energy Agency (IEA) and Energy Information Administration (EIA), and political leaders who rely on these agencies for policy guidance, have taken these overly optimistic estimates at face value even though they have been unofficially recognized as exaggerated among oil insiders for many years. 

The Oxford researchers also point out that "unconventional" sources of oil such as the Canadian tar sands and deep-water offshore fields are also included in reserve estimates. While these sources certainly count as reserves, they are extremely expensive to exploit and oil prices must rise substantially to justify their production. These difficult-to-access sources of oil most likely will become our principle sources in a few years, as the "elephant" fields in the Middle East, Mexico, Russia, and South America pass their peak production. Production from Mexico's formerly massive Cantarell is collapsing , and Mexico, which has been a major supplier of oil to the fuel-guzzling U.S. will soon cease to export oil.

Here in the United States, the world's most energy-dependent nation, we are airily complacent and inert in the face of declining global oil supplies and rapidly increasing global competition for the remains, while other hungrier and less complacent industrial economies, notably cash-rich China, are not taking their futures for granted and are aggressively locking up future supplies of dwindling natural resources. American political leaders are coming late to recognition of the direness of the fossil fuel situation, and even as they unwillingly, and almost in passing, acknowledge that supplies might be a problem in some distant future, that we have plenty of time and in any case can switch to natural gas, another resource subject to peaking and inevitable decline as we ramp up consumption.

We will probably need $4 a gallon gasoline and deeper economic hardship as a result, to shake us awake and motivate us to do what we desperately need to do, which is develop new means of energy production and most of all change the way we live, consume, and inhabit the land. By then, it will be too late to mitigate the effects of a sudden and drastic contraction in available fuel supplies.


Nudge said...

Lovely post. Not surprised about the reserves being overstated .. after all, oil-producing nations keep pumping stuff out of the ground, and every year they bump up their estimates of how much stuff is left. They're not exactly making dinosaurs anymore. While natural processes continue to produce oil (and coal and gas) within the earth, it happens on a slow geologic time scale, and we've been using up the stuff far faster than it's being replaced. On average, the replacement rate works out to be a fraction of the rate at which solar energy is absorbed by carbon-based plants/critters here on earth.

About gasoline .. I strongly suspect it will take more than $4 gasoline to stir the motorists of the industrialized nations out of their “we like driving, we like big vehicles, we like luxury behind the wheel” meme. Actually we already had $4 gasoline here in the UPL a couple years back, and it didn't seem to shake anyone's faith that that coolest thing they could possibly do is sign up for a 5-year loan for some honkin' enormous SUV with chrome spinner rims and a noisy exhaust. All SUV/truck drivers who were upset about $4 gasoline, at the time, correctly rationalized that prices would dip down later, and so they were able to delay achieving any awareness of there being problems with the way we do things here.

What we probably need is a new wintertime floor price of something like $5 or $6 for gasoline, and summertime highs of perhaps $7 or $8. These prices need to stay high, with no retreating back to the comfy $2/gallon level that encourages such stupid waste of resources here in Jeebus-Loves-Us land, where people leave their SUV's idling at the maul just to keep the AC on while they're in the store, and other similar nonsense.

consultant said...

Short of a nuke going off in Saudi Arabia's oil fields or a complete governmental collapse in Mexico within the next year or so, I'm thinking we'll have a slow motion collapse over the next 5 years or so. Everyone except the rich getting poorer.

A year or two from now, upper middle class people are going to be doing things they never thought they would have to do.

Here in metro Atlanta, all of the school systems are in financial meltdown because of falling home values. When Kansas City pulled the trigger and announced it was closing half of its school, it seem to unlock the gates on local school boards here. DeKalb Co. went from looking at closing 4 schools, to now talking about closing 30. Cobb Co. has a 130 million deficit and will close schools, lay off 1,000 school personnel and eliminate half the bus routes.

Nudge said...

Consultant, I have seen the sort of news of which you speak. DailyJobCuts.com has pages of the stuff.

Silly question: are all those schools being closed without regard to what will happen (educationally speaking) with their former or intended pupils, or are they simply being closed on an “oops, no money” basis? It is certainly not as if our country cannot afford to educate our children ~ we afford a great many things here, including taxpayer-subsidized salaried & bonuses for the richest crooked bankers, vast sops to Big Pharma, Big Insurance, Big Ag, the Military Industrial complex, and more. But if we spend on those foolish things while cutting spending on basic education, well, then we're so dumb (collectively) that we probably deserve the inevitable outcome.

Someone said it nicely on the HBB:

Comment by Professor Bear 2010-03-25 22:23:25

An early good morning to y’all.

This story is awesome: It shows a communist country is way out ahead of Wall Street banks on performance-based pay.

I hope in my heart of hearts that America’s leaders take a hint and ensure that our bankers’ future pay is commensurate with the performance of the loans they make (or securitize).

By staff reporters Feng Zhe and Wen Xiu 03.24.2010 21:58
Bank of China Executive Salaries Halved

New rules released by the government have reduced some banker salaries by nearly 50 percent

(Caixin Oonline) The total salaries of senior management at the Bank of China shrank by nearly 50 percent in 2009 although the bank’s assets and profits expanded last year.

On March 10, China Banking Regulatory Commission released a new pay regulation, which stipulates that bankers are required to return the part of their salary related to bad loans.
Over the past several years, the scale of Chinese banking assets has consistently expanded with impressive results. At the same time, listed banks gradually moved toward market-oriented executive incentive mechanisms, implementing across-the-board salary increases.

/end quote

Comment by ecofeco 2010-03-26 12:24:06

…and they have bullet trains and maglev trains and will still have an operational manned space program after we retire the space shuttle.

I don’t admire the Chinese that much, but we sure are making ourselves look bad.

consultant said...

Thoughts on the possibility of opening off shore drilling along the coasts of the US?

If the reports are true, we will continue to support a unsustainable culture until we can't.


consultant said...

From today's NY Times:

"It is not known how much potential fuel lies in the areas opened to exploration, although according to Interior Department estimates there could be as much as a three-year supply of recoverable oil and more than two years’ worth of natural gas, at current rates of consumption. But those estimates are based on seismic data that is, in some cases, more than 30 years old."

Does this fit the definition of "desperate" and "idiotic", both from an energy and a Democratic strategy point-of-view?

consultant said...

I think we need new political parties and a new set of rules for doing political business.

The Republicans have degenerated into a craven, almost despotic mob. Angry and vengeful. Scary.

The Democrats have become a Party of weak, timid souls, ready to give up before the battle has begun.

Both "parties" have failed the American people at the national AND state level.

What to do, what to do?

consultant said...


Sorry for the multiple posts.

Maybe we're getting exactly what we deserve. In other words, this is who we are. This is what we've become.

Nudge said...

Oops, my bad for not checking in more often. Hi Consultant! :)

The newly-opened coastal drilling is actually a hilarious development. The coastal shelves are not any new Dubai or North Sea or Cantarell or Ghawar -type reservoirs. From what I've read, the total volume of oil there would run the UPL for perhaps a few weeks to a month or two tops. And then what?

These newly-opened oil wells will add a small amount to the country's domestic production, but nowhere near the many-million-barrels-per-day, sustained over the course of years, needed to effectively push down the price of crude.

Consultant, you wrote:
Both "parties" have failed the American people at the national AND state level.

Au contraire my friend. Both parties are still in business because they benefit their benefactors, if that's not too redundant a way to say it. That is, they continue to provide useful return-on-infestment to the people/groups who give them money. Neither party has failed its Wall Street benefactors, or its military-industrial benefactors, or its Big Ag / Big Pharama / Big Insurance benefactors either. The endless wars still drag on in the Middle East; the law has still done nothing to punish the guilty on Wall Street, instead, it gave them bonus money; the health insurance reform act just rammed through is almost identical to the one put out in 2003 by the Heritage Foundation (good friends of Bush, Cheney, Rumsfeld & Rove) and written by the insurance industry lobbyists; vast subsidies still go into unworkable corn-based gasahol schemes, all to the benefit of Cargill and Monsanto; and lobbying is a better business than ever.

Both parties are very successful at what they do. The average person is simply not the recipient of very much of what they do. That privilege is reserved for them who paid for it. You may safely consider the two main parties to be the competing McDonald's and Burger King franchises in the same tiny town. Both serve sh** for food; eating either's food is unhealthy; and you can find any number of fans who love one but hate the other. In fact, the serious differences between them are so few that they are far more alike than they are different, and splitting hairs over the distinction between one and the other merely means that you've been snookered into thinking of this one-or-the-other thing being the only real choice.

Hint: it's not.