Kunstler

Anyone recall that I posted an article by Yergin and said I didn't find it credible? This is what Mr Kunstler has to say. (www.kunstler.com)

The Yergin Puzzle

August 1, 2005
We begin this ominous month with the curious case of Daniel Yergin, who won the Pulitzer for his 1992 epic history of the oil industry, The Prize, later turned into a PBS megadocumentary. Since his big score, Yergin has set up a public relations firm called Cambridge Energy Research Associates (CERA) which, in the spirit of the PR profession, seems to have become the main disinformation organ for its clients, the major oil companies.

In a piece published in yesterday's Washington Post, Yergin takes the position that there is no problem with the global oil supply. Over the next five years, he says, both OPEC and non-OPEC producers will come up with an extra 16 million barrels a day, taking the world from its current 85 m/b/d to 101 m/b/d in 2010. This will happen, he says, because of "new technology" used to exploit unconventional sources of oil such as tar sands, ultra-deep-water developments, and natural gas liquids.
More than a few elements of Yergin's pitch are shifty. The slyest one is that he does not mention that unconventional oil tends to be very uncheap, and since it is cheap oil that enables America's "non-negotiable" easy motoring way of life, and the debt-fueled suburban sprawl-building economy that has evolved to serve it, there may indeed be a problem further along in the pipeline, so to speak.

Yergin also leaves out the fact that most (and perhaps all) of the world's major conventional oil fields are past peak and now depleting at between three and twenty percent a year -- and, ironically, as in the case of the North Sea, the more advanced the drilling technology, the more efficiently the oil is recovered, the greater the rate of depletion.
The big question mark, of course, is Saudi Arabia, which until recently was believed to be years short of peak. A new analysis by Matthew Simmons, chief investment banker to the US drilling industry, and author of the just-published Twilight in the Desert, concludes that Saudi Arabia is peaking now. Simmons adds that the Saudi's 30-year-old super-giant Ghawar oil field (from which SA gets more than half its crude) has been structurally degraded by aggressive over-production and by the practice of injecting sea water into the geological strata in order to keep the pressure up in the wells.
Saudi oil reserve figures have been guarded as "state secrets" since they nationalized their industry in the 1970s, so nobody, including Mr. Yergin, knows for sure what is left under the desert. But we do know what is coming out of the Kingdom in its tankers, and despite repeated promises to increase production in order to goose down prices over the past year, the Saudis have failed to do so. This we know.

Among the other things Yergin's rosy analysis leaves out is that oil is inequitably distributed among the nations of the world. It is a generally accepted fact that roughly two thirds of the remaining oil lies under the Middle East, and another substantial fraction is in Central Asia. That is to say, it belongs either to people who hate us, or to landlocked countries on the farthest side of the globe (next door to China). Another significant pool (though past peak) belongs to Venezuela, run by Mr. Hugo Chavez, who remains irked by American attempts to overthrow his regime and have him bumped off. These facts ought to give pause to the confident.

The conclusion that a reasonable person might draw is that the West, and America in particular, is liable to have trouble getting its mitts on all the oil it needs, and that the industrial nations altogether are headed straight into a fateful geopolitical scramble for whatever's out there. That's exactly why we are in Iraq, by the way. It is our central forward base to secure Middle East oil supplies. And it also why we have embarked on the somewhat crazy and dubious project of setting up bases in several former Soviet republics. (Kyrgystan has just asked us to pack up and leave.) A great game is underway and the patriotic steroids that America has been taking since 9/11 are no guarantee that we will end up the winners.

Along these geopolitical lines, we note today the death of King Fahd of Saudi Arabia. Fahd had been disabled by a stroke for years, and the Kingdom has been effectively ruled during this time by his half-brother Prince Abdullah, who now becomes king. Abdullah himself is 82 years old, and whatever his abilities have been, he would not now seem destined for a long reign. What follows Abdullah --with Arabian oil entering its arc of depletion, and the kingdom's oil welfare disbursments shrinking among an exploding population, including a large number of unemployed, futureless, non-royal angry young Arabian men occupied in the study of a militant wahhabism -- may be a very turbulent chapter in the history of that region.
These are the things that Daniel Yergin's public relations escort service to the oil industry doesn't want to talk about.

By the way, the price of oil this morning: $61.02 a barrel as I close.