Blood and Oil

As long as Saudi Arabia and the OPEC nations ... provide the bulk of the energy that is needed to turn the wheels of industry in the western world, there is no way that we can stand by and see that taken over by anyone that would shut off that oil.

President Ronald Reagan

Our jobs, our way of life, our own freedom, and the freedom of friendly countries around the world would all suffer if control of the world's great oil reserves fell into the hands of that one man Saddam Hussein.

President George H.W. Bush 

You can watch our former presidents speak those words yourselves in this documentary called Blood and Oil.  I have included part 3 of 6 below.  President Reagan speaks starting at the 2:45 mark in describing the Central Command.  President George H.W. Bush speaks starting at the 6:27 mark in a campaign to drum up support for sending troops into Saudi Arabia after Saddam Hussein invaded Kuwait in 1990.





The entire 6 part series is here:  http://www.youtube.com/user/deja035#p/u/10/cZh7c29QHS8

How much is left?

On September 1, 2009 I posted an article called "How Long Will It Last?"  I quoted an article from New Scientist which investigated how much of the world's rare minerals are left given the current rate of consumption.  There are nice info graphics showing copper reserves (and many other elements).

Scientific American magazine has a similar article entitled "How Much Is Left?"  It was published on August 24, 2010.  The SA article lists the reserves of other elements besides minerals.  It actually dared to show that Peak Oil will happen around 2014.

Even more important than oil, we also have a serious problem with fresh water.  Lack of fresh water in countries like Egypt and India and Pakistan will lead to revolutions.  Fresh water is necessary for survival.  Farmers turn fresh water into food.  Without fresh water there is no food.

It is very hard for people to understand the concept of years of reserves left and peak production.  If we have 40 years of oil left given the current rate of consumption, the vast majority will think that we'll be fine for the next 40 years.  After all, we have 40 years of the stuff left!  What me worry!?

What people do not realize is that the extraction profile of every non-renewable resource follows a bell shaped curve.  Production rate rises to a peak and falls from that peak.  If the consumption rate remains constant at the peak year while the production rate falls, the price will rise.  And it will rise each year until the price is high enough to destroy demand and force the consumption rate to go down.

Basically it means that the price will zigzag making higher highs and lower highs.  Each higher high will bring consumption rate down to match the lower production rate.  Price will fall temporarily when an equilibrium is reached.  But it will go up again as the rate of production drops further.

We may have 40 years of oil left.  But we will be consuming less and less oil as price rises.  Understand that rate of production is just as important as years of reserves left.

"This is a fight to the death"

One of my favorite movies is Syriana written and directed by Stephen Gaghan.  It came out in 2005 when crude oil prices first spiked.  The movie was not a big hit and I can understand why.  It is a very complicated movie.  The geopolitics of oil is a difficult subject to understand.  The movie weaves three separate stories into one:

1. The story of Wasim, the Pakistani oil worker who loses his job.  This subplot deals with the role of radical Islam.
2. The Emir and the oil analyst played by Matt Damon.  This is my favorite storyline.  We see the young Emir desperately wanting to change his country for the better but is held back by pressures within his country and foreign influence from the United States.
3. Assassination attempt by the CIA agent played by George Clooney.  The dark side of US foreign policy in the Middle East is presented here.

Here is one of my favorite quote from the movie:

They're thinking that it's running out, it's running out and 90% of whats left is in the Middle East. Look at the progression, Versailles, Suez, 1973, Gulf War 1, Gulf War 2. This is a fight to the death.

I.O.U.S.A The Solution

Back on October 18th, 2009 I wrote about the documentary I.O.U.S.A. The Peter G. Peterson Foundation has produced a follow up documentary called IOUSA Solutions. As the title suggests, this sequel proposes solutions to the national debt.

The solutions involve both spending cuts AND tax increases. Some of the specific proposals include:

1. Increasing the retirement age for social security recipients
2. Means testing social security
3. Letting the Bush tax cuts expire
4. Reforming Medicare and Medicaid

And many others. The entire film is on YouTube in 5 parts. This is a must watch documentary.

Economic Growth By Any Means Necessary

Lu Guang Pollution in China

That picture is from China Hush.   In Haimen city, Jiangsu province Chemical Industrial District sewage treatment plant discharges waste water into Yangtze River. June 5, 2009.

Water is life.

Without water, there is no life.

With polluted water, there is much pain and suffering in life.

Economic growth by any means necessary is the reason why the water is polluted and why life is unbearable in certain parts of China.  That is what you get when you measure your country’s success by GDP growth.

China, of course, is not the only country that obsesses over GDP growth.  The United States leads the world in this obsession with GDP.  Politicians in this country cannot win elections by promising Zero Growth.  They always promise more growth.

More cars.

More roads.  More highways.

More jobs.

More houses.  More swimming pools.  More shopping malls.  More golf courses.

More oil.  More coal.  More natural gas.  More copper.  More plastics.

More of everything.

It seems most people want more of everything.  Very few people want less.  The world will be a much cleaner place if more people wanted less.

Google Insights into Peak Oil

Google Insights for Search is a tool that allows you to find out about search volume in different regions of the world.  The data goes back to 2004.  The following is a volume chart of the search term “peak oil”.

As you can see, searches for “peak oil” peaked in 2005 when oil prices first spiked. Searches for “peak oil” again shot up in the summer of 2008 when crude oil traded for nearly $150 a barrel.

We can also look at where in the world people are searching for “peak oil”. Since it is an English term, we expect to see searches mostly from the English speaking world. What surprises me is that there are more searches for “peak oil” in New Zealand than in the United States.  New Zealanders are more “peak oil” aware than Americans.

The tool can further break down the popularity of the search term within United States by state, metro, and city.

 

Portland, Oregon is the most “peak oil” aware metro area in the United States.  That is not a surprise to me.  The Portland City commissioned an 86 page report on peak oil in 2007.  Seattle-Tacoma region is second.  Number ten on the list of top metro regions searching for “peak oil” is Phoenix, Arizona.  The American Southwest will most likely see large out-migration as peak oil takes hold.  The region’s lack of fresh water and overt reliance on automobile for personal transportation pose serious threats.  I believe the residents of the Phoenix metro area are concerned about their own long term survival prospects.

United States military on peak oil

For the first time ever, I believe, the United States military publishes a report that contains the word “Peak Oil”. The United States Joint Forces Command (USJFCOM) publishes the Joint Operating Environment (JOE) report each year.  The report is “a strategic framework that forecasts possible threats and opportunities that will challenge the future joint force.” The full report is here.  I have included a copy of it below.

The report is a boiler plate of the usual trends that will affect United States security.  Forces like economic challenges, climate change, globalization, demographics, etc can all have an effect on the US military.   The interesting part is on page 26 of the report:

To meet even the conservative growth rates posited in the economics section, global energy production would need to rise by 1.3% per year. By the 2030s, demand is estimated to be nearly 50% greater than today. To meet that demand, even assuming more effective conservation measures, the world would need to add roughly the equivalent of Saudi Arabia’s current energy production every seven years.

Really?  We need to add a new Saudi Arabia (10 million barrels per day) every seven years?  We are barely keeping up with demand.  That is why oil is still trading above $80 a barrel while the world is recovering from a severe recession.  The energy summary is on page 31:

To generate the energy required worldwide by the 2030s would require us to find an additional 1.4 MBD every year until then.
During the next twenty-five years, coal, oil, and natural gas will remain indispensable to meet energy requirements. The discovery rate for new petroleum and gas fields over the past two decades (with the possible exception of Brazil) provides little reason for optimism that future efforts will find major new fields.
…
By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD.

Think about what was just said there.  We need to add 1.4 million barrels per day to keep up with demand.  But we’re not doing that.  And by 2015 we could be short 10 million barrels per day.  The supply and demand curve ALWAYS match.  We cannot consume more oil than we can produce.  To maintain current oil prices, new oil must be brought online.  If the new supply just is not there, the price will rise dramatically to bring down demand.