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Peak Oil (wiki)Leaking Into The Public Discussion

February 9th, 2011 · 1 Comment

As per Guardian reporting, U.S. diplomats in Saudi Arabia have picked up very serious information over the years calling into question

  1. Saudi abilities to increase oil production in line with what energy agencies (such as IEA and EIA) have predicting they could accomplish to meet growing world demand in the coming years, 
  2. whether the Saudis will be able to maintain their high percentage of exports in light of rising Saudi internal demand, and
  3. the real extent of Saudi reserves and implications for Peak Oil projections.

For those aware of Peak Oil issues, the ‘revelations’ aren’t new but simply additional nails in the coffin for the urgent necessity to take measures to address our liquid fuel challenges (as some say, the need to turn oil into salt).  The news is that this information was moving around the U.S. government during the Bush Administration even as the nation takes what can be, politely, called half-measures to address our addiction to oil and too many politicians are actually pushing fossil-foolish agendas that serve to increase our dependency on a depletable resource that (almost) certainly will become more expensive and less available with each passing day.

Some points from John Vidal’s WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices (which merits reading).

The cables urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom’s crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.

That the Saudis almost certain exaggerate their reserves and constrain any outside experts from peering under the Sauid oil production tent, so to speak, isn’t exactly news.  After all, that is core to Matt Simmons Twilight in the Desert (see Simmons’ Energy Conversation presentation  for something given to a mainly U.S. government (military) audience back in 2006).   The cables, however, provide a window on how U.S. diplomats are urging the government to relook at Saudi production and constrain overly rosy estimates as to those production opportunities.  What is very uncertain is whether these cables had any meaningful impact on U.S. Energy Information Administration (EIA) projections which have remained incredibly optimistic in terms of their projections of increasing liquid fuel availability long into the future and quite constrained projections as to future oil prices. 

The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on global demand and tensions in the Middle East. Many analysts expect that the Saudis and their Opec cartel partners would pump more oil if rising prices threatened to choke off demand.

This is the ‘safe’ (not SAFE) prediction, comfortably shared by far too many — such as those buying (Mc)SUVs to boost American auto sales and by too many in the ‘elite’ making decisions in government and industry.  “Don’t worry, the Saudis will just pump more …”  I remember, with continued astonishment, my boss asserting that — based on what The Economist said, oil prices would fall back to $10-15 a barrel and never go above $40.  Hmmm … don’t worry, be happy.

The information that the US embassy shared back in 2007 was that “Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco” had told U.S. diplomats that the Saudis could never ramp up to a 12.5 million barrel per day production and thus had lost the ability to control prices downward as they had in the 1980s. (The Saudis, of course, retain an ability to easily drive prices upward through real (or simply announced) cutbacks in their production and exports.)    As the embassy put it:

“Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period.”

Husseini also stated that Saudi reserve statements were about 50 percent higher than reality — cutting global ‘traditional oil’ reserves by about 15-30% in one fell swoop.

Hussein also stated that his projection was that Peak Oil could hit by 2012 (which, by the way, six years after the date that the International Energy Agency has now stated it actually occurred). 

“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 timeline for their production not as unrestrained as Aramco and energy optimists would like to portray.”

Well, actually, the “crux” goes beyond this as questionable statements / assumptions about reserves and production increase opportunities are far from limited to Saudi Arabia.  And, there is another side of the equation: in Saudi Arabia (along with many other producers), the demand curves for oil products are quite strong as the wealth from oil sales flows in to foster growth (improved life styles).  And, the internal subsidies for oil within countries like Iran and Saudi Arabia foster even more wasteful approaches to oil than in the profligate American economy.

One of the interesting challenges comes from the fact that Saudi Arabia is one of largest economies that relies on oil for its electricity.  And, with electricity demands going up — inexorably at the moment — at 10 percent per year, that oil demand.  Thus, unless the Saudis get far more serious about Energy Smart practices in the electricity domain (efficiency with ‘smart grid’ management plus renewables), they will be exported less oil as they burn more for generating electrons.  And, for moving their Mercedes around.  And, well, for supporting their own manufacturing and processing as the Saudis seek to transition from raw material supplier to producer and exporter of petroleum-based products.  This is important: the Saudi internal demand will have priority over the external market.  Thus, the increased Saudi demand will combine with constrained (and, likely, declining) Saudi production capacity to remove even more oil from the global market than if we solely look toward projections of Saudi oil production.

In the 1980s, along with Ronald Reagan’s efforts to kill off Jimmy Carter’s clean-energy agenda, the Saudi ability to open the pumps and drive down oil prices killed much of the momentum for auto fuel efficiency and development of alternative fuels.  (The Saudis also likely deserve more credit for the Soviet Union’s fall than Reagan, as the collapse of oil prices savaged the Soviets’ ability to earn foreign revenue through oil sales.)  In the 2010s and beyond, as has been long known but now reinforced through Wikileaks of US cables, it is almost certain that the Saudis do not have the ability to open the taps to drive down oil prices in the face of constrained oil supplies and increased demand pressures.

The Guardian article concludes:

Jeremy Leggett, convenor of the UK Industry Taskforce on Peak Oil and Energy Security, said: “We are asleep at the wheel here: choosing to ignore a threat to the global economy that is quite as bad as the credit crunch, quite possibly worse.”

It is well past time to awake … we risk driving ourselves headlong off the cliff of risks in a world dominated by Peak Oil concerns.

See also Bryan Walsh, Time, Energy: WikiLeaks Says That Peak Oil Could Be Coming Soon

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Tags: Energy · government energy policy · oil · peak oil

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