Wikileaks -- Saudis Running Out of Oil
"According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the underlying timeline for their production not as unrestrained as [Saudi oil monopoly] Aramco and energy optimists would like to portray," one of the cables reads.
Just a small amount of background may be necessary for readers who haven't been obsessively reading about this issue like your hosts here have.
I touched on the analysis in my previous post, that the world is slowly, gradually running out of oil. We're not at the point yet where you pull up to a gas station and all their pumps are empty, but the problem is that there is a finite rate at which we can pump oil out of the ground. Long story short, we are fast approaching -- or, maybe already living in -- a time when the demand for oil will exceed the "peak" rate that we can produce it, even though there are still trillions and trillions of barrels buried in the ground somewhere. We haven't "run out" of oil yet. It's just that we've sucked up all the easy barrels; the rest will take more time and energy to retrieve, but demand keeps going up implacably.
As Justin alluded in his recent post, pundits everywhere are this week waking up to notice that one common component -- not the driving factor, but perhaps an essential common factor of the recent unrest in the Middle East, even Greece and elsewhere, is the high price of food. Finally this week, pundits noticed that world food-price indexes had crept up as high as they were during the food riots of 2008. Food prices are very sensitive to petroleum prices. The manufacture and application of fertilizer requires large amounts of petroleum, and obviously it needs even more petroleum to be packaged and shipped from country to country. Tunisia and Egypt are food-poor. Egypt imports half its food, and food accounts for half the national expenditure. So places like Egypt are the first ones to feel the pinch -- in the gnawing of their bellies -- as oil scarcity causes commodity and food prices to rise.
The Archdruid Report has pointed out in other contexts that modern humans -- most especially Americans -- buy into the idea that progress is a constant, an upward trending line, always building and improving upon the past. Therefore we are better off than our forefathers, who had things much better than their primitive ancestors, etc. But Peak Oil is not a straight line; it's an expression of the inexorable law of Nature that "what goes up, must come down". It's a decline that is beyond humanity's power to control. Most Americans were raised to believe that Science always marches forward, housing prices or the Stock Market "will never come down", and thus most can't wrap their minds around the concept. It generates fear, and a desire for somebody to come in and deny that the natural law is true.
For two decades or more, energy authorities such as the EIA have re-assured the public that no distress or problems would result from this situation. For most of that time, their projections have simply assumed that Saudi Arabia would step up to the plate and produce precisely the number of barrels necessary to cover that "shortfall" between world supply and demand. In other words, the Saudis used to be the "fudge factor" that will forever make the equations balance, no matter how big the shortfall may become. It was easy to get away with this charade, because information about Saudi oil reserves and production was tightly controlled by their Oil Ministry. Nobody (realistically, not even the Saudis) could say for sure what their reserves were. Indeed, during various Gulf Wars and other disasters, the Saudis did occasionally step up and increase production in order to keep the world oil market stable. Right up until a couple of years ago -- during the commodities crisis of 2008, when the Saudis apparently hit the wall and couldn't (or wouldn't) increase their production any more.
Since about that time, EIA projections have been edited so that "Fields Yet To Be Found", and "Unconventional Oil" become the new "fudge factors", the ones which convieeeeeeeniently, precisely balance supply versus demand as we move forward into a teetering future.
A lot of people see the sense in the quip, that "When Saudi Arabia has peaked, the world has peaked". But in any case, the era where we can assume the Saudis are floating on an infinite sea of oil was well and truly over a couple years ago. From the article again:
"While al-Husseini fundamentally contradicts the Aramco company company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be taken seriously."
Perhaps the official switch from using the Saudis as a "fudge factor", to using Canadian Tar Sands as the "fudge factor", reflects this assessment from November 2007. But If we had really taken that November 2007 prediction seriously, the country today would be quite a different sight than the one I see when I look out my window.
We would already have spent 3 years heavily invested in a gigantic national program to wean ourselves off of oil. Not only would alternative energy be the biggest line item in the President's budget -- drawing in the lion's share of research efforts from all the country's universities as well as private industry -- but there would be massive tax credits and subsidies given to every last citizen based on their conversion to a post-oil lifestyle (giving up their cars, insulating and modernizing their homes, growing their own food, etc. etc.)
Because a few dollars in research and tax credits today are a bargain compared to the costs that will later accrue to the government (i.e., us) as we battle Russia and China, both physically and economically, to conquer oil-rich territories -- retrofit our oil-dependent industries to use alternative fuels, in the middle of a crisis rather than at a lesiurely pace -- and deal with floods of starving refugees, in an oil-poor world.
Sometimes I joke about how new Presidents suddenly look 10 years older within a few months of taking office. Barak's hair is half grey by now, where mostly it was a virile steely black during the campaign -- and you can look up pre-/post- election pictures of every President from Jimmy Carter on down to today, and see the same effect. I have often joked that it's because the Air Force shows the new President the aliens that they have imprisoned in Area 51, and that sh#t scares you white. But in my darker moments I wonder if the big shock new Presidents get, is their first debriefing about the world energy situation.
In so many words, that briefing probably goes like this:
"The world is slowly, gradually running out of oil, while the population keeps going up quickly and steadily. New high-quality energy sources cannot possibly be developed and implemented in time to alleviate gigantic shortfalls in supply. Rising energy prices ripple through all the rest of the world economy, ultimately resulting in mass unemployment and food shortages which will topple governments, cause resource wars, and mass migrations of poor and hungry people. Even if Peak Oil is slow to bring about this situation, Climate Change is ready to do the exact same thing. The combination of the two could be twice as deadly. This is likely to ultimately result in large dieoffs all around the world. The United States is favored by several factors, but in the end won't be immune.
"However -- even ignoring the problem that the petroleum industry is so entrenched in the American lifestyle that it will be politically and economically impossible to swtich to different energy sources -- any official reaction or announcement by the United States which reflects this reality will set off a panic in world markets, causing the same turmoil and bringing on the wars sooner rather than later. Our only realistic choice is to keep on pretending that reality doesn't exist, and hope the whole house of cards doesn't come crashing down around humanity's ears until the next Administration comes in."
Hearing that from the nation's best analysts and strategists would turn my hair white, I'm pretty sure.
What we've learned, even as far back as the 1970s Oil Crisis and the 2001 California Energy Crisis, is that the process of energy starvation is not a smooth, linear thing. Nor is it a sharp divide, like a turning point. It is a chaotic process of turbulence and momentum. Even before demand actually exceeds supply, demand starts to exhaust the "marginal reserve capacity" which the energy producers are keeping in their back pockets for a rainy day. When that happens, the producers know they can jack up the price, because people are desperate. The high price causes turmoil and calamity (for everyone except the energy producers); the country or the world goes into economic recession; during a recession people use less energy; and then all of a sudden as if by magic, supply exceeds demand -- temporarily -- once again.
The process is not a sudden catastrophe or tipping point, but rather a string of multiple smaller shocks. Most of the public is mollified when the price drops back down to a "normal" level (but each time just a bit higher, to account for volatility, uncertainty and creeping scarcity). There are no gas lines, and people can afford to heat their homes again. A few economists even start grousing about a (temporary) "oil glut" again. After each small disruption or shock plays out, people prefer to believe that we have "resolved" the problem. But this is basically just delusion. It's only in the long run, over decades and decades, that the multiple small shocks settle on an end-state that is a rather different one from the American 1950s-era economic models which assume plentiful resources.
I myself have certainly been guilty of predicting a Mad Max type turning point in the past, (predicting that Armageddon arrives in one fell swoop and there's no going back). But today's older and [hopefully] wiser me realizes that things won't play out quite so dramatically. The Archdruid seems to have a good handle on my updated prediction. The turbulent nature of the crisis market means there will still be the occasional stretches of good times, pockets of "normal" prices, and a functioning economy where people, however impoverished, can pretend that we have "solved" these intractable, unsolvable problems. These will occur in-between bouts of destitution and starvation around the world, as the crisis hits one country after another, depending how vulnerable they are. The US has a lot of formidable protections against these kinds of disruptions, but those protections can't last forever in the face of a world starved for energy and food.
Small crisis, breather, small crisis, breather... dwindling US prosperity, food riots, local resource conflicts rising to cross borders... guess what? That's not how Peak Oil will play out 50 years from now... that's the situation we're in today.
So here's a little in-joke, for those of us old enough to dimly remember the 1970s oil crisis: