Ghawar, Going, Gone...

May 15, 2007 7:53 AM

Heard enough about Pain at the Pump? The 24-hour news love to cover the "unreasonable" record gasoline prices, but the real issue is crude oil supply--and this latest installment of Stuart Staniford's highly detailed analysis of the world's largest oil field, Ghawar in Saudi Arabia, provides new evidence of sharply declining production. Can Saudi Arabia really increase supply to meet world demand that is surging on growth in India and China? Signs point to no--in the past week they have again voted to maintain OPEC's "voluntary" production cuts, and their petroleum minister commented that there may not be a "need" to increase Saudi production much further.
posted by DAJ (64 comments total)

IT'S HERE
posted by anthill at 7:56 AM on May 15, 2007 [1 favorite]

Saudi Arabia may cut production, but oil is being discovered all over:

2.2 billion barrels discovered off the coast of China - March 2007

3-15 billion barrels discovered in the Gulf of Mexico - Sept. 2006

Add to this the fact that a proper survey has not been done in Iraq since the 80's and even then it was done with 1950's methods. In short, there is likely to be a lot of undiscovered oil off the coasts in paces where people haven't been able to properly survey.

The problem in the US with gas prices is not a function of oil. Oil is cheaper per bbl now than it was this time last year, but last year gas was cheaper. The problem with gasoline in the US is that refinery capacity, which used to be at 99%, is now only at 95% due to refinery fires in the gulf coast.

Furthermore, refinery capacity, which even normally is at 99%, isn't growing. While existing refineries can add capacity, the amount that can be added is limited. No new refineries have been built for decades, and none are being planned.
posted by Pastabagel at 8:02 AM on May 15, 2007

Hey, I know this is an important issue and everything, but...WOW does the phrase "pain at the pump" sound dirty.


...Well, it DOES!
posted by kittens for breakfast at 8:06 AM on May 15, 2007

If this kills off the three ton SUVs, so be it.
posted by caddis at 8:11 AM on May 15, 2007

Signs point to no

They publish a lot of good and very smart stuff, but let's remember The Oil Drum is at heart an advocacy site. Are they likely to post anything where the signs would point to yes (other than an easily fisked Moonbat yammering about the deep hot biosphere and such like)?
posted by Lentrohamsanin at 8:13 AM on May 15, 2007

What do you mean, "the real issue"? Can't there be more then one important issue? Does one issue have to supersede all others? I guess the gouging by the oil companies should just be allowed to slide then.
posted by Bovine Love at 8:14 AM on May 15, 2007

I picked the wrong day to start sniffing gas.
posted by NationalKato at 8:18 AM on May 15, 2007 [1 favorite]

Saudi Arabia may cut production, but oil is being discovered all over

None of which really change anything.

Furthermore, refinery capacity, which even normally is at 99%, isn't growing. While existing refineries can add capacity, the amount that can be added is limited. No new refineries have been built for decades, and none are being planned.

Oh yes, I can't wait for all the new refining capacity, with a decade-lag and here we are, probably near global peak production, so all those shiny new refineries will be just in time to sit idly by and do nothing, since we won't even have enough oil then to occupy existing refineries.

You really want your refineries running near capacity as often as possible. As for the point that oil is cheap per barrel right now, people also pointed out in 1970 that U.S. oil production had never been higher. These kinds of statistics hardly prove that a peak isn't near--quite the opposite, really.
posted by jefgodesky at 8:33 AM on May 15, 2007

Sure, more oil is "being discovered all over." Unfortunately, only at about 1/6th to 1/7th the rate it's being consumed. Discoveries haven't replaced consumption for years now, and neither the "Jack 2" find in the GOM or the Bohai Bay find change that. And yes, refinery issues are largely behind the current price of gasoline--but refinery issues stem from crude oil issues. Would you build a new refinery, at the cost of billions of dollars, that will take years to pay off, if you didn't think there would be as much crude oil on the market in the future as there is today? Crude oil is the "real issue" because it is the root issue.
posted by DAJ at 8:34 AM on May 15, 2007

No new refineries have been built for decades, and none are being planned.

so all those shiny new refineries will be just in time to sit idly by and do nothing, since we won't even have enough oil then to occupy existing refineries.

Well, there are existing refineries that were mothballed in recent years to tighten up the gasoline supply and increase refiner's margins, but, what incentive is there to re-open them and bring the cost down?
posted by MikeMc at 8:45 AM on May 15, 2007 [1 favorite]

Peak oil is a crisis cult.
posted by hoverboards don't work on water at 8:46 AM on May 15, 2007 [1 favorite]

Saudi Arabia may cut production, but oil is being discovered all over:

2.2 billion barrels discovered off the coast of China - March 2007

3-15 billion barrels discovered in the Gulf of Mexico - Sept. 2006

So what? Oil has been being "discovered everywhere" for decades, and the rate of new discovery drops each year as well.
posted by delmoi at 8:49 AM on May 15, 2007

Peak oil is a geological inevitability.
posted by imperium at 8:49 AM on May 15, 2007

Peak oil is a mathematical inevitability. So is peak sun. Let's pick the one that will last the longest.
posted by DU at 9:10 AM on May 15, 2007

PRAISE THE LORD AND PASS THE BICYCLE INNERTUBES
posted by loquacious at 9:14 AM on May 15, 2007 [3 favorites]

You really want your refineries running near capacity as often as possible.

I learned that the hard way in Warcraft II.
posted by cog_nate at 9:16 AM on May 15, 2007 [1 favorite]

PRAISE THE LORD AND PASS THE BICYCLE INNERTUBES

Post-peak oil means no chain oil :(
posted by mkb at 9:24 AM on May 15, 2007

Don't believe anything anyone says about Ghawar. The mantra for Ghawar should be, "There is no oil field in the world like it, we should make no assumptions about anything." This decline in production can be from finding low-production points in the vast oil field (they literally march oil fields north to south every time production gets expensive) or it could be that the oil field is damaged and cannot produce more oil without CO2 injections or other exotic means.

Also less oil production means that oil fields are more productive in the long-term. Look at the Texas oil fields that have all those oil donkeys stripping every last bit out of them. That wouldn't happen if there weren't production caps in place during their most productive years, to keep the price of oil up (which is somewhat of an ironic effect, they certainly didn't intend to increase the longevity of the fields, but protect each other from some wildcat deciding to pump all the oil he can out and destroy prices).

Also, non-OPEC countries are much more important than OPEC will recognize. OPEC can do whatever they want, they haven't been the gorilla since the 70s.

The long-tail on oil is very long. Sure we might have very well peaked, but that does not mean that oil fields can produce something for a very long time, and technological increases have shown to extend this lifetime. It is impossible to predict, outside of a 24 month time frame, what the oil supply situation will be.

Besides sustained prices in the 70-80$ bbl are going to lead to conversion of coal, of which, we have several hundred years worth, and if converted to oil several times more than Saudi Arabia ever had in conventional crude.

The only thing we can say right now is that the price of oil is highly volatile. Oil has always been highly volatile, I fail to see what the crisis is. We had a period of relatively stability in the 90s, it does not mean that the world is coming to an end every time summer comes around and prices go up.
posted by geoff. at 9:26 AM on May 15, 2007

Peak oil is a crisis cult.

I just read Oil on the Brain. After talking with people all over the world at all levels of oil production chain, the consensus seems to be high gas prices are one reason: too much demand for a limited supply.

Sure, new oil is being found, but it takes generations to get that oil out of the ground, the supply side and the demand side are out of wack. There will never be no oil, there will just be exspensive oil.
posted by stbalbach at 9:26 AM on May 15, 2007

Wow. My point was that no one has any idea how much oil is in the ground. How much oil is at the bottom of the Atlantic or Pacific?

There is so much focus in peak oil circles on Ghawar, probably because Simmons wrote a book about it, but oil is a commodity and does not behave any differently than any other commodity.

Tell me, how many studies have peak oil theorists seem that relate the decline in the dollar to the increase price of oil and gas which are commodities prices almost exclusively in dollars? If we assume the value of oil is unchanged, the decline in the dollar would result in an increase in the price of oil in dollar terms.

Furthermore, are you aware that the prices of every other industrial commodity that surged over the last two years? Have you seen the price of copper? Is there a peak copper crisis? Should we worry that we won't be able to distribute electricity in 30 years because we are going to run out of copper?

The increase in the price of oil is dues to (a) geopolitical screwing around in the middle east, and (b) the huge increase in Chinese demand for all commodities, including oil, in the past 5 years.

The problem in the oil market is not a lack of supply, it is a huge increase in demand driven by China and to a lesser extent India.

Of course peak oil will occur, eventually, because it is a reflection of the law of diminishing returns which affects the production of anything anywhere. Oil is not a special case.
posted by Pastabagel at 9:28 AM on May 15, 2007

i can't wait till gas is $5. fuck everyone and their H2.
posted by quarter waters and a bag of chips at 9:39 AM on May 15, 2007

Wow. My point was that no one has any idea how much oil is in the ground.

We actually have a pretty good idea. Statistics is all about bracketing uncertainty.

There is so much focus in peak oil circles on Ghawar, probably because Simmons wrote a book about it,

Because it provides an astonishingly large amount of the oil we consume right now.

Have you seen the price of copper? Is there a peak copper crisis?

Yeah, actually, there kind of is.

Should we worry that we won't be able to distribute electricity in 30 years because we are going to run out of copper?

You should worry that demand will outstrip supply, and that the market will correct for that. Such corrections are rarely pretty. A mild correction just makes things more expensive, but nearly every famine in history came about because food was too expensive, not because it disappeared altogether.

The increase in the price of oil is dues to (a) geopolitical screwing around in the middle east, and (b) the huge increase in Chinese demand for all commodities, including oil, in the past 5 years.

Geological peaking spawns positive feedback loops within the geopolitical system. Critically, these loops are not separable from the geological events—they are part of the broader “system” of Peak Oil.

The problem in the oil market is not a lack of supply, it is a huge increase in demand driven by China and to a lesser extent India.

That certainly plays its part, but that wouldn't mean anything if there weren't a lack of supply.

Of course peak oil will occur, eventually, because it is a reflection of the law of diminishing returns which affects the production of anything anywhere. Oil is not a special case.

Special only in how crucial it's become for our society, but I agree, it's essentially just a question of diminishing marginal returns. Naming it doesn't make it any less problematic, though.
posted by jefgodesky at 9:39 AM on May 15, 2007

I learned that the hard way in Warcraft II.

Oh my god, you so win.
posted by Slothrup at 9:49 AM on May 15, 2007

PRAISE THE LORD AND PASS THE BICYCLE INNERTUBES

Post-peak oil means no chain oil :(

Post-peak oil means no bicycle innertubes, either.
posted by LooseFilter at 9:56 AM on May 15, 2007

We actually have a pretty good idea. Statistics is all about bracketing uncertainty.

Really? The same statistics and analysis that predicted we'd hit a $100 bbl last year? I heard nothing about oil prices being $70 bbl in the 90s, in fact option prices didn't expect it to go above $30. Perhaps you have some special statistical box that spits these things out?

The fact is, if you look at oil "models" over the last 30 years, at least since Texas oil no longer was dominant, they constantly fluctuate in how much is left and how long the oil fields expect to be producing.

Granted, oil is a finite resource, it will be used up one day. The question is really at what price will it cost us to move to another energy source. If estimates of 50$ bbl for creating oil from other sources is correct, I would say the costs are rather low.
posted by geoff. at 10:18 AM on May 15, 2007

Post-peak oil means no bicycle innertubes, either.

How does that quote on theoildrum go... "given all the productive uses of oil, burning it to run cars is like burning a Picasso for heat."

Someone mentioned theoildrum.com being an advocacy site. It certainly is, but as they are one of the only sources that actually make, you know, numerically backed arguments about oil production, they're the only source I currently take seriously. Those who think peak oil isn't near either make qualitative "oh look they found new oil fields in country x" claims and hand wave the numbers, or worse, assume that the market will provide. Capitalism requires growth, therefore the energy we need exists!
posted by MillMan at 10:19 AM on May 15, 2007

High Gas Prices: Is it Enron all over again?

yup. Does this merit a separate FPP?
posted by sisquoc15 at 10:19 AM on May 15, 2007

Peeeeak Oil ! Isn't the only reason behind the desire to reduce consumption of oil

1. preparing alternatives will hopefully make more energy avaiable, thus making the cost of energy , in theory, decrease (assuming that the offer is actually brought to the market and not closed into some drawer)

2. 640K out to be enough for everybody ! Yes, but I like having a couple gig very fast memory sticks for a fraction of the cost, thank you ! Similarly, I could use more energy and cheaper energy ; that doesn't imply I will waste it as not everybody wants an electric crucible the shape of a PC in their houses.

3. more energy means one less reason to convince people they must bring democracy

and of course should oil become seriously scare at any time in the future, it's a good idea to have alternatives.
posted by elpapacito at 10:23 AM on May 15, 2007

Not all oil is created equal. Light sweet crude is much cheaper, easier and safer to refine than heavy crude. Light sweet crude is primarily what the US refineries process. On top of the cost to refine heavy crude, tigher environmental regulations are making it more difficult to do in the states, which is why we haven't been expanding our refinery capacity.

The majority of the recent large oil discoveries have been heavy crude (or the even harder to process oil shales in canada). So although I don't think we're going to run out of oil, I don't see a large increase in supply happening either. As demand goes up, so will the price. This will also increase the incentives for foreign countries to build heavy crude refineries, at the expensive of their environment and public safety.
posted by Crash at 10:32 AM on May 15, 2007

Oil has always been highly volatile
posted by sluglicker at 10:36 AM on May 15, 2007

Peak oil is a crisis cult.

Believing in an infinite amount of oil is totally reasonable.

Wow. My point was that no one has any idea how much oil is in the ground. How much oil is at the bottom of the Atlantic or Pacific?

That seems like a strange thing to think. Oil discovery has been fairly stable for a long time, as far as I know. And Oil is being discovered a rate lower then it's being used. So if we "discover" a billion barrels a year, and use 10 billion barrels a year, that doesn't really help. The total amount isn't important, what matters is how fast it's being found. Imagining that a pattern that's been going on for decades is suddenly going to reverse is kind of silly.

Furthermore, are you aware that the prices of every other industrial commodity that surged over the last two years? Have you seen the price of copper? Is there a peak copper crisis? Should we worry that we won't be able to distribute electricity in 30 years because we are going to run out of copper?

Copper can be recycled.

Really? The same statistics and analysis that predicted we'd hit a $100 bbl last year?

No. The fact that someone makes a wigged out prediction about something does not mean that all statistics about all things are wrong.
posted by delmoi at 10:51 AM on May 15, 2007

In no way should what I write be interpreted to mean we should ignore reality and behave as we have been. What elpapacito writes is noteworthy - we should develop energy alternatives now so that energy cease to become a geopolitical lightning rod.

It certainly is, but as they are one of the only sources that actually make, you know, numerically backed arguments about oil production, they're the only source I currently take seriously.

The commodities and stock markets are numerically backed facts.

Have you seen the price of copper? Is there a peak copper crisis?
Yeah, actually, there kind of is.

No, actually there isn't. You're support is a blog entry describing an abstract of a study? The blog summarizes the effects of rising copper prices completely incorrectly. Rising prices won't only spur technological advancement in copper mining, but will also shift demand away from copper to alternatives.

That certainly plays its part, but that wouldn't mean anything if there weren't a lack of supply.

There is no lack of supply now. There is in fact plenty of supply. Demand is increasing faster than supply not because there isn't any supply but because it takes time to drill wells, install pipelines etc. To increase demand, you just have to buy futures - it takes seconds.

In fact, the one difference with oil that no one has touched on directly is that unlike copper, it is not renewable. Fortunately, we don't really want oil for oil's sake, we want it for energy and plastics. Plastics can be recycled and consumption habists can be changed to consume less plastic, and other forms of renewable energy can be pursued.

I'm not against the conclusions of peak oil theorists who say we need to develop other sources of energy and change consumption habits - in fact I wholeheartedly agree. Where I disagree is with the notion that disaster is imminent, and that changes in consumption need to been forced by government.

If oil goes to $100/bbl, the government could do nothing, and people will use mass transit more, drive less, purchase more fuel efficient cars, use less plastic etc. Where the govern can be useful is making sure the mass transit is available tofor people to use when that time comes, and spend money to research alternative energy so that the system doesn't have to be shocked. But mandates from government are not the way to go.
posted by Pastabagel at 10:52 AM on May 15, 2007

Kill two birds with one stone?
posted by Slacktastic at 11:01 AM on May 15, 2007

Not that you'll like it any better, but this is what crisis cult means.
posted by hoverboards don't work on water at 11:07 AM on May 15, 2007

So if we "discover" a billion barrels a year, and use 10 billion barrels a year, that doesn't really help. The total amount isn't important, what matters is how fast it's being found.

My point is simply that it isn't imminent, not that we can ignore it completely.
posted by Pastabagel at 11:30 AM on May 15, 2007

Ah, I had this feeling it was probably about time for another peak oil thread. Every time gasoline prices rise a little.

Pastabagel: Oil is cheaper per bbl now than it was this time last year

Well, sort of. WTI is a real bargain compared not only to last year but to current prices of just about everything else, due in large part to refinery outages and the logistical difficulty of diverting supply from Cushing to where it's needed. Brent for example is well above where it was last year.

geoff: conversion of coal, of which, we have several hundred years worth

Make that several tens of years worth, if we start using it to replace liquid fuels from oil on a large scale, and demand from its present uses also continues to increase. But yeah, no doubt it will start to happen eventually. Realistically, there's no one solution; it takes coal, renewable energy, conservation, etc. to avoid problems. Hirsch probably wasn't that far off on the magnitudes.

So far, of course, the world's abliity to make the transition to expensive oil products without disruption is not so good, what with all the fuel shortages going on in the third world. Uganda and Nepal seem to be the ones in the news at the moment, but there have been many over the past year. Whatever the specific reasons for each, it amounts to demand destruction which helps allow us rich North Americans to continue to buy gasoline at bargain prices. Things will probably get a lot worse elsewhere before they get all that uncomfortable here.

Meanwhile OECD oil inventories are falling at an unusually high rate this year, according to the IEA. It's mainly just the USA that seems to have plenty of oil in storage this year. Anyway, the point for people like my neighbour who's been complaining about the price of gasoline is not that we're all doomed, it's that unless something really bad happens to the world economy, the price is going to get higher on average over the next few years, so get used to it.
posted by sfenders at 12:21 PM on May 15, 2007

Brent for example is well above where it was last year.

Oops, I was reading the wrong. It shows twice as much time as I thought when I glanced at it. Looks like it's a bit lower than last year. Still, the nymex price is anomalously low for reasons that won't last, which has lead to some people (not anyone here afaik) to underestimate current world price of oil.

Anyway, Stuart Staniford's latest is impressive. More informative than anything else I've seen on that subject.
posted by sfenders at 12:34 PM on May 15, 2007

Pastabagel, one thing I don't hear in your arguments is the understanding that the true meaning of "Peak Oil" is not directly related to the amount of oil there is available to extract, but instead to the rate at which we can extract it. "Peak Oil" means "Peak Oil Extraction and Refinement Rate."

It's been exhaustively documented on The Oil Drum and other sites that once you reach the peak extraction rate, it doesn't matter how many more wells you drill and what technology you use, the amount of oil you can extract continues to decline.

This happened in Texas, where the drilling rig count between 1971 and 1976 multiplied by something like 10, but production still dropped off - and AFAIK at every other field that's gone into decline.

And right now, the Saudis are in the process of buying up every rig they they get their hands on, so as to pincushion every possible oil-producing area they have and try to keep their production up. It remains to be seen whether that will work.

One thing I do know is that in 2006, the Saudis said they would increase their production from about 9 million barrels per day to over 12 million barrels per day by 2010. That would require them to add about 1 million bpd in each year up to 2010 - and of course, we've seen that they've actually lost about a million bpd over the last year.

I think they're trying to snow us, personally.

"The problem in the oil market is not a lack of supply, it is a huge increase in demand driven by China and to a lesser extent India."

"Huge increase in demand" without "huge increase in supply" pretty much equals "lack of supply," PB.

But, okay, if it turns out that we can't create a huge increase in supply to match China and India's new demand, then how would you suggest we reduce their demand?
posted by zoogleplex at 12:46 PM on May 15, 2007

But, okay, if it turns out that we can't create a huge increase in supply to match China and India's new demand, then how would you suggest we reduce their demand?

Increase the price of oil so they can't afford it!
posted by geoff. at 12:49 PM on May 15, 2007

And how exactly do we do that, geoff.?
posted by zoogleplex at 1:09 PM on May 15, 2007

The chart I meant to link to. The monthly one gives some better perspective of where things are at this year.

It is impossible to predict, outside of a 24 month time frame, what the oil supply situation will be.

And yet, so many people (and governments) try. That predictions (especially about the future) are unreliable doesn't mean they're all entirely worthless. Only most of them. Such as those who were predicting, a couple of years ago, that within a year or two, at the latest, the high prices for oil would soon lead to a surge of new supply that would send it back to "normal". Ah, what fun it is to speculate on the future of world oil production. So little actual data, so many forecasts to choose from. The discussion of Ghawar at TOD certainly has had some influence on my estimate of the odds on which ones will end up looking prescient.

The problem in the oil market is not a lack of supply, it is a huge increase in demand

I'd say it's a bit of both:

"The prolonged Nigerian outage, OPEC’s supply curbs and strong demand for gasoline have combined to push oil above $65 a barrel, well above the $50 it traded in January." ... "Demand for [OPEC] crude will rise by up to 400 000 bpd in the third quarter alone because of slower output from rival producers, [the IEA] said."

So yeah, there's this little game of psychology, trying to guess whether OPEC would really be cutting supply under these circumstances, and hinting that $70 oil is fine with them, if they really did have a choice about it. Either way, it's certainly a big change that's taken place.
posted by sfenders at 1:11 PM on May 15, 2007

zoogleplex: It's been exhaustively documented on The Oil Drum and other sites that once you reach the peak extraction rate, it doesn't matter how many more wells you drill and what technology you use, the amount of oil you can extract continues to decline.

I am always a little baffled as the thinking behind statements like that. The statement is, by definition, true; if the extraction rate did not decline, then it would not be peak extraction, would it? That is the very definition of peak. So is says nothing of value.

I also see lots of people talking about two different things. Assuming you have any logic at all, clearly there is a peak oil. No one would debate that. What is at issue is what is the effect that peak oil would have, and the ensuing decline.
posted by Bovine Love at 2:27 PM on May 15, 2007

Nothing captures the myopic view of the oil world better than the market's recent dismissal of the big "new" oil in Iraq. On April 19, a Houston-based oil analyst, IHS, released a study showing Iraq's oil reserves to be around 220 billion barrels--or nearly twice as big as previously thought. Such reserves, IHS argued, meant Iraq's potential daily output could eventually top 9 million barrels, exceeding that of the current leader, Saudi Arabia.

In the oil markets, reaction to the news was....almost non-existent.
posted by acro at 2:30 PM on May 15, 2007

"[...it doesn't matter how many more wells you drill and what technology you use, the amount of oil you can extract continues to decline.]

I am always a little baffled as the thinking behind statements like that. The statement is, by definition, true; if the extraction rate did not decline, then it would not be peak extraction, would it? That is the very definition of peak. So is says nothing of value."

Well, of course, if you take the statement on its own, sure.

However, the impression I'm getting from a lot of people is that they think that a massive upswing in drilling campaigns - thus "finding more oil" - is going to increase the extraction rate for the foreseeable future, or at least for several more decades.

This means that a lot of people don't seem to understand what the "very definition of peak" means. Note that my next statement talks about examples of what happens when fields or entire regions (like Texas) go over their peak and begin decline.

It doesn't matter if you put new, modern oil wells every 50 yards covering the entirety of Texas and Oklahoma, the net extraction rate will not increase there ever again. The same applies to Alaska and the North Sea, the latter of which is in a very steep decline indeed.

Yet there are even some folks out there who are saying that the USA can not only increase its oil production rate, but actually put it on a long-term positive trend. The first is marginally possible in the short run, perhaps, but the last is astronomically unlikely.

We're using six times the oil we find every year, at least. Until and unless we start finding a lot more oil very soon, the peak and decline is certain. The timing is uncertain, to be sure, and that's what a lot of the back-and-forth is about.

"What is at issue is what is the effect that peak oil would have, and the ensuing decline."

Indeed, and nobody really knows what effects it will have. There's much contention on the issue, and of course the timing of the peak means a lot to how it will affect the world.

When thinking of possible effects, it's probably helpful to remember three things:

One: everything you eat and touch all day every day is directly connected to (if not produced directly from) oil and its derivatives.

Two: there are 6.6 billion people on this planet, with population projected to increase to about 9 billion mid-century and then slowly decline - this assumes status quo conditions as of today.

Three: the United States burns 50% of the oil it imports in passenger car gas tanks.

Think of how your life might be affected given those facts coupled with 5% less oil every year. Process the information that such a decline rate means 50% less oil in something like 14 years, which should be well within your "lifetime goal planning" zone.

Hopefully, we've got a few years before we hit peak, it won't go that fast, and we'll be able to roll with it. Personally I've got my fingers crossed.

"Such reserves, IHS argued, meant Iraq's potential daily output could eventually top 9 million barrels, exceeding that of the current leader, Saudi Arabia.

In the oil markets, reaction to the news was....almost non-existent."

Even the oil companies seem to have stopped believing IHS and EIA some time ago, or they would have been building more refineries and would never have mothballed others. Watch what they do, not what they say.

Frankly I don't think anyone believes that Iraq's oil reserves, even if they are gigantic, are going to be developed into an operation that would exceed Saudi at its peak. The place is a mess and is at least decades away from being a modern oil producer. The oil markets know this, so naturally they didn't react; "reserves" are not "oil about to come gushing out into our pipelines;" it usually takes a decade or more from discovering an oil field to getting it up to full production.
posted by zoogleplex at 4:09 PM on May 15, 2007

And how exactly do we do that, geoff.?

The markets seem to be filling this function quite well. If demand outstrips supply, the demand goes to the person willing or able to pay the highest price.

That predictions (especially about the future) are unreliable doesn't mean they're all entirely worthless. Only most of them.

The problem is that we don't know which are unreliable ex post facto. The only thing I know is that the markets (and by extension the analysts who set prices, ad infinitum), do not predict future prices for oil very well. While the Iraqi war does no seem very likely to end now, in a year we could see a surprise resolution, which will only become so apparent to us after the fact, and a return to oil in the $50-$60 range. Or Venezuela could return to capitalism, or peace could come to Africa. Any of those events have the ability, and equal probability, of setting oil prices off whatever predictions people have in place.

Mathematically speaking, I would speculate in a short-put butterfly. I know nothing about the price of oil, only that it will not be the price it is today.
posted by geoff. at 4:09 PM on May 15, 2007

hoverboards don't work on water: unlike another approach to essentially the same issue?
posted by acro at 4:16 PM on May 15, 2007

No, climate change is very similar! A real problem, with real consequences, that is totally blown out of proportion to the point where people stop taking it seriously.
posted by hoverboards don't work on water at 4:56 PM on May 15, 2007

How is 'with oil supplies threatened, violence is expected' -- out of proportion

(I'm rushing to post this before global warming cuts the power)
posted by acro at 5:03 PM on May 15, 2007

The markets seem to be filling this function quite well. If demand outstrips supply, the demand goes to the person willing or able to pay the highest price.

Yeah, but perhaps the intended question was how are we supposed to raise the cash to outbid India and China when it comes to that? In which case it might be a somewhat unfair question; probably better to focus on the questions that aren't *completely* impossible to answer.

I wasn't being entirely serious about the utility of predicting the future, as it's somewhat off-topic in a way, but it is a fun topic too. I suspect that nobody predicts next month's, or next year's prices all that well, but if we can estimate for example that peak oil is somewhere between last year and 2015 depending on how things go, then I think it's relatively safe to predict the general direction of prices between now and 2015. My guess is that this would be a large enough margin of error to include anything that might realistically happen in Iraq. The IHS press release referred to above said that if peace, security, and investment money were to suddenly return to Iraq today, it might be capable of producing 4mbpd in five years or so; somewhat more than they were producing before the war, but probably not enough to alter the long-term world supply picture quite so dramatically. It would take more improbable things like that happening than are likely to happen, to delay the expected world oil production decline by more than a few years from wherever you think it's otherwise going to be. Long after the event, of course, the further out you try to guess the future, the less certain it becomes.

So it's almost impossible to say much about next year other than that probably (relatively low confidence) it will be somewhat like this year only more so, and impossible to say much about 50 years from now other than it's not going to be much like this year (relatively high confidence). Seems to me that the short-term volatility and the long-term persistence of the trends give the best window for forecasting somewhere in between those extremes, say ten years from now I guess. Long enough that we're pretty sure to be far enough past peak oil that the possible short-term adaptations will have mostly run out, close enough that long-term solutions won't have gained enough traction to solve all our problems.

That's too many years away for me to be thinking of options strategies on it, though. Over one year continued unpredictable volatility does seem a reasonably good bet. I just think that the probability of oil prices trending up over the next n years increases up to n=15 or so. The counter-intuitive nature of this, that we're relatively more certain of what the market will be like ten years from now than next year, is I think responsible for a lot of the resistance to accepting the idea that it can be predicted at all. But of course it is common to all kinds of forecasts of the end of some long-established trend that must come to an end eventually.
posted by sfenders at 5:34 PM on May 15, 2007

sfenders wrote:
Ah, I had this feeling it was probably about time for another peak oil thread. Every time gasoline prices rise a little.

A minor quibble, to be sure, but a 16% rise in a month is not "a little." Nor is a 140% increase in 5 years. Not as bad as 16% in a month, to be sure, but still quite a lot.
posted by wierdo at 5:37 PM on May 15, 2007

"The markets seem to be filling this function quite well. If demand outstrips supply, the demand goes to the person willing or able to pay the highest price."

The United States is not guaranteed to be able to pay the highest price.

Also, countries that currently export oil may decide they'd be better off utilizing it themselves (for their own energy production and probably food production too), and thus decide not to export it at any price. (How un-capitalist of them to want to benefit their own people in such a way, eh?) You do know the US uses 25% of the world's total oil production, right?

"While the Iraqi war does no seem very likely to end now, in a year we could see a surprise resolution, which will only become so apparent to us after the fact, and a return to oil in the $50-$60 range. Or Venezuela could return to capitalism, or peace could come to Africa. Any of those events have the ability, and equal probability, of setting oil prices off whatever predictions people have in place."

Certainly, in the relative short term. All of these events could put more oil on the market fairly quickly (although I'd argue with you about Venezuela, since capitalist or not they seem to be selling all the oil they can produce as fast as they can sell it; nationalizing the oil industry there isn't guaranteed to change that).

However, if indeed we're facing a steady long-term decline, even if we solve the world's political differences and everyone lays down their arms and starts throwing flowers into the air in peaceful joy, we're still going to have to deal with less oil coming out of the ground every year, after more than a century of getting more oil (and thus energy) out of the ground every year.

Think about what it would be like if you had to take a 5% pay cut every year for the rest of your life, that may help.

Just so you know, I'm relatively optimistic. People are crafty and resourceful and we can learn to live differently, use less energy per capita, and handle the problem. But I'm pretty much positive things are going to change, quite a lot, over the next 20 years (just like they have over the past 20, actually...). I hope they change at a manageable rate!
posted by zoogleplex at 5:41 PM on May 15, 2007

Also, countries that currently export oil may decide they'd be better off utilizing it themselves (for their own energy production and probably food production too), and thus decide not to export it at any price. (How un-capitalist of them to want to benefit their own people in such a way, eh?) You do know the US uses 25% of the world's total oil production, right?

This makes no sense. The countries that export the most oil have to export it because that is their primary source of foreign trade. Saudi arabia doesn't need the oil for exnergy, and the can't eat it. If they sell it to us, they can buy a lot of food, however. Which brings me to my next point:

However, if indeed we're facing a steady long-term decline, even if we solve the world's political differences and everyone lays down their arms and starts throwing flowers into the air in peaceful joy, we're still going to have to deal with less oil coming out of the ground every year, after more than a century of getting more oil (and thus energy) out of the ground every year.

So what if there is a long term decline in production? The price will go up, and we'll consume less. It isn't the end of the world.
posted by Pastabagel at 6:18 PM on May 15, 2007

Yeah, but perhaps the intended question was how are we supposed to raise the cash to outbid India and China when it comes to that? In which case it might be a somewhat unfair question; probably better to focus on the questions that aren't *completely* impossible to answer.
posted by infini at 6:29 PM on May 15, 2007

No, it isn't. But, it is the end of the world functioning the way we are used to it functioning, especially we here in the West and the US specifically.

A lot of people are, understandably, worried about how everyone's going to react to the coming changes. Folks want to know how much time we've got, so we can figure out how to deal with it. That's why the folks at TOD are really digging hard to try to get a handle on the timeframe.

It certainly doesn't mean the utter downfall of civilization, or at least it doesn't have to. But I think a lot of people believe that in order to keep things from falling apart in unpredictable (or perhaps all too predictable) ways, it's going to take some understanding and effort.
posted by zoogleplex at 6:36 PM on May 15, 2007

Woops, should have previewed. "No, it isn't" is responding to your post, Pastabagel.
posted by zoogleplex at 6:44 PM on May 15, 2007

This makes no sense. The countries that export the most oil have to export it because that is their primary source of foreign trade. Saudi arabia doesn't need the oil for exnergy, and the can't eat it.
U.S. food, exported to the world depends on cheap oil. Mechanized farming, fertilizer, shipping, packaging -- "a box of corn flakes contains 3,600 calories but he says it takes 16,000 calories of fuel energy to produce the box."
posted by acro at 6:44 PM on May 15, 2007

Pastabagel, you're assuming the world works in a completely logical, free-market way. In reality, that's not the case. For example, Iran might decide they can earn enough selling directly to china even if the us is willing to pay more. Venezuala might decide to strike an agreement with the EU to sell their oil for a fixed price, or the US might reach an agreement with african nations for sole rights to their exports. Add in the effect of military intervention (either through intimidation or outright warfare), bribery, puppet goverments, etc..., and the concept of a free market can be just about ignored. Most of this is already going on, to a lesser degree.
posted by Crash at 7:00 PM on May 15, 2007

Iran is the obvious example of an oil exporting country that has in recent years been keeping an increasing portion of its oil production to itself, rather than export it. It seems to be a bit of a growing problem for Iran at the moment, but if prices go up far enough it would perhaps become less of one, and higher prices might also generate political pressure in other countries to introduce the same kind of consumption-increasing government policies to reduce the retail price of oil products.
posted by sfenders at 8:53 PM on May 15, 2007

Pastabagel:...no one has any idea how much oil is in the ground. How much oil is at the bottom of the Atlantic or Pacific?

It really doesn't matter. "Peak Oil" is the time at which the rate of extraction of oil peaks. It has no essential connection to the amount of oil remaining in the ground.

Pastabagel:The problem in the oil market is not a lack of supply, it is a huge increase in demand...

Is there any functional difference between excessive demand and inadequate supply? When demand outstrips supply, for whatever reason, isn't that all a shortage is?

Pastabagel:Have you seen the price of copper? Is there a peak copper crisis? Should we worry that we won't be able to distribute electricity in 30 years because we are going to run out of copper?

Copper can be recycled, and rising copper prices are sure to spur more interest in recycling. And in fact, copper has been so darn expensive for so long that an awful lot of modern wiring uses aluminium instead, which is a worthy, plentiful, and cheap alternative.

Oil that has been burned cannot be recycled, and there is as yet no sign of any reasonable alternative, let alone a worthy, plentiful, and cheap one. We are devoted to oil because it is so special.
posted by Western Infidels at 9:20 PM on May 15, 2007

WI... I hadn't heard of this previously, but recycling burned hydrocarbons at the link
posted by acro at 10:26 PM on May 15, 2007

Dude, I saw Ghawar in Saudi. Oderous puked red kool-aid on me.
posted by Pollomacho at 5:13 AM on May 16, 2007

Oil that has been burned cannot be recycled, and there is as yet no sign of any reasonable alternative, let alone a worthy, plentiful, and cheap one. We are devoted to oil because it is so special.
posted by Western Infidels at 12:20 AM on May 16

Roughly 60-70% of oil is burned for energy. There are aother, renewable energy sources. The use of oil in industry as chemicals and plastics are recyclable. Not to the same extent as copper, of course.
posted by Pastabagel at 7:01 AM on May 16, 2007

acro:...recycling burned hydrocarbons...

Wow, nifty stuff. Thanks for pointing that out.

I suppose I should have said that we can't recycle the energy we get from burning oil.

Pastabagel:There are other, renewable energy sources.

There are, and I'm rooting for them. But I realize they're underdogs, too. I'm very skeptical that any of the ones I've heard about are likely to measure up to oil as a transport fuel.
posted by Western Infidels at 10:48 AM on May 16, 2007

Calling the arguments of those who see catastrophe in climate change "simplistic and obscuring the true dangers," Dr. Allegre especially despairs at "the greenhouse-gas fanatics whose proclamations consist in denouncing man's role on the climate without doing anything about it except organizing conferences and preparing protocols that become dead letters." The world would be better off, Dr. Allegre believes, if these "denouncers" became less political and more practical, by proposing practical solutions to head off the dangers they see, such as developing technologies to sequester C02. His dream, he says, is to see "ecology become the engine of economic development and not an artificial obstacle that creates fear."

more.
via the Inhofe
posted by acro at 11:31 AM on May 16, 2007