Monthly Archives: February 2011

A dirty little oil market secret

Published Feb 25 2011 by Midwestern Voices forum, Kansas City Star, and The Energy Bulletin Archived Feb 28 2011
by Robert Anderson

Oil markets are settling down this morning as analysts report Saudi Arabia has boosted their oil output to over 9 million barrels / day.

Holy smokes. Are we gullible!

Have the Saudis really boosted oil output?

Fresh Saudi oil output or are they just tapping storage?

In spite of this short term respite, it’s becoming increasing evident; we are in one heck of an oil related economy crunching quagmire. Oil prices are moving to catastrophic levels and there doesn’t seem to be much we can really do about it. Contrary to what’s been foretold by economists, new energy supplies aren’t gushing into these higher oil prices. Nor is it really curtailing the global demand.

So how did we get into this crucial societal dry hole?

I’ll contend we’ve been led astray by a false faith in economics, a misunderstanding of basic geologic depletion and an intentional false yarn spun about prolific oil supplies.

Although most think oil producers withhold supplies to evoke higher prices, it might well be that oil producers- including Saudi Arabia- are currently producing flat out. There’s just no more there! This is exactly the definition of ‘peak oil’. With the world’s voracious consumption of +87 million barrels / day, we are now up against the limits to growth. Oil production might not ever be able to expand from here. It’s either a downhill slide, or it soon shall be. Sure there will be new oil fields brought on line but this fresh output won’t even counter the current depletion rates of existing aging fields. After all, the average age of the world’s giant oil fields (+500,000 barrels/ day) is 55 years! We aren’t out of oil, but we are out of the capacity to produce more.

How did we miscalculate so badly on something so crucial?

One of the main reasons was oil producers wildly exaggerated their reserves and future oil production potential. If Americans could be led to believe that the world is capable of producing 120 to 130 million barrels a day, as was projected on many former reports, there would be no need for oil conservation policy. In fact we’ve seen wildly overstated oil production projections from our own U.S. government Department of Energy EIA (Energy Information Agency) for years.

Americans we’re encouraged to buy and drive bigger more-profitable-to-produce vehicles. Prudent mass transit projects were depicted as silly. The drive-more, consume-more American dream was actively promoted.

BIG OIL’s escapades shouldn’t surprise us. But why did the U.S. media and even our Department of Energy EIA play right along with this dangerous & indubitable charade?

It’s the same reason they went along with deregulating financial derivatives, Triple AAA ratings on junk paper or the Enron debacle. Big bonus pool money is now running the show. And in this case, its BIG OIL – both the western majors and foreign producers, especially Saudi Arabia. And just like the financial meltdown in late ’08, main street America is going to bear the brunt of this ‘miscalculation’. The corporate Fat Cats will reap the resultant unprecedented windfall$. But this will be much worse than the financial debacle of ’08 because these ill gotten gains will also be flowing overseas to the Mideast, Venezuela, Russia and a whole host of adversarial regimes.

If you don’t want to take my word on this, let’s go back to the important archived threads from my peak oil message board. Tom Whipple wrote a piece entitled The EIA. The Greatest Failure of Them All?

Who is Tom Whipple? Retired CIA analyst who spent his whole career studying energy matters. I love retired guys. They can be such straight shooters!

“The only bright spot in all this official nonsense is that it is so out of touch with reality it can’t go on for much longer. Some day in the next few years, it will become so obvious that projecting continually increasing oil and gas production and steady to lower prices is as unrealistic as the concept of “winning” in Iraq.”

Ok that was Dec of ’06. Guess what? That ugly day is now here!

And here’s another Dec of ’06 piece on the fallacy of our EIA from a French Professor of Astrophysics entitled Tracking the EIAShort Term Forecasts

It’s even got that snazzy graphic that shows how the EIA pumps out bogus projections that never really panned out. But they didn’t stop them from doing it again and again. And the media played right along, and still does.

Back then I added the following commentary:

*“Poster’s Note: The EIA oil and energy growth projects are finally being refuted by actual production stats. The conventional oil peak -or plateau- has arrived. This is it. The limits to growth.

The Mideast producers will increasingly recognize that, unlike the 80s, there isn’t much non-OPEC oil to develop and flow into the higher economics. We’re initially seeing it from Iran but others will follow. Why max out output for fiat currency to help theUS? But the US wont put up with any “anti-west” production curtailments. Soon the US (and China) will recognize the importance -but not the folly- of militarily securing the remaining prolific Mideast oilfields and the big 21st century oilwar has begun. Why do you think we are increasing troop levels in Iraq when +70% of Americans and Iraqis want US troops out?

Its important to recognize how these bogus EIA oil growth projections have contributed to this ensuing no-win oil war. The triad of the Saudis, major oil and the US gov have fostered the BS prolific oil reserve and growth projections that have precluded saner energy policy and adequate preparation. We’ll all now pay the price.”*

Now over 4 years later, the false assessments still flow. Its tough to refute the fact that decades of false optimism has now been undermined by actual production stat reality. So now the question becomes…

Why do we still believe them?

If you’re smart, you won’t!

Energy Bulletin Editorial Notes:

Robert Anderson has been publishing pieces in the “Midwestern Voices” discussion forum at the Kansas City Star.

He’s working towards a regular syndicated column about peak oil/ energy. Anderson’s background is in Big Oil. He was a Refinery Rep and a Midcontinent Marketing Manager for Koch Refining. He also ran an oil trading firm at the KC Board of Trade with 350 industry clients (mostly traders and oil executives).

-BA (no relation)


The Saudi oil shock is here part II

Midwest Voices contributing columnist: Robert Anderson

The mainstream media is missing it again. Everyone is touting Mideast unrest and export disruptions in Libya for this current oil spiral, that’s probably only begun its blast off mode. But as I pointed out in Saudi Oil Shock Part I, OPEC exports dropped 387,000 bls/day in December BEFOREAlgeria, Egypt or any of this Mideast unrest even started.Its 2008 all over again. But you’d think we would have learned something from this energy dry hole we’ve descended into. I’m reading press reports from nearly everywhere that reassures them public that OPEC has spare production capacity of ‘4.65 million barrels a day, or about triple Libya’s production.’ Over ninety percent of this is supposed to be in Saudi Arabia.Saudi Arabia is a closed society. No one audits or verifies thier claims. If you are an objective journalist you don’t get a visa to enter. If you speak out against that regime, it gets much worse.

What’s becoming increasingly apparent- not just through Wikileaks- but through actual oil production stats is the Saudis aren’t credible with their claims. Aren’t journalists supposed to verify such important contentions that are pivotal to the health of the entire western economy? Oh, that’s right. They can’t. Only the Saudis and ARAMCO (the Saudi national oil company) know. OK. If you can’t verify at least quit parroting the disinformation.

Its becoming increasingly evident that the Saudis can’t produce more. There’s no spare capacity. For decades, they’ve claimed they can produce 15 ,20, 25 million barrels/day. Our Department of Energy EIA division would always regurgitate these false claims. They’re totally bogus. We’ve been duped by Mideast oil producers and major oil. Can you believe it? You’d better. Too bad its too late to rectify.

To support this scary contention let’s go back to 2008, the last time oil prices moved up past $100 / barrel. We got the same false reassurances from the Saudis that there’s no problem and plenty of spare capacity. In truth, it was their 1 million barrel / day drop in exports 2005 – 2007 that helped spawn the crisis. Of course, our crisis is their windfall. And we now know via Wikileaks that a Saudi windfall is also a al-Qaeda and Taliban windfall.

Now that 2008 is behind us, lets go back and see what actually happened with Saudi output since its déjà vu all over again. Saudi Arabia oil output peaked in 2005, and although there’s been a few fits and starts, the trend is downward.

Saudi oil output and projections

And that Bloomberg report that came out Saturday which indicated Saudi December exports (not output) dropped down to 6 million bls / day lends loads of credibility to the future downslope projections on the chart above.

If you want to read more on the source of this chart, including peer review assessmernts of this dire Saudi oil depletion situation, here’s the link:

Saudi Arabia’s Crude Oil Production Peaked in 2005

Batten down the hatches. We’ve been duped. And the overstatement of oil production potential was willfull, deliberate and duplicitous.

Read more:

The Saudi oil shock is here!

Midwest Voices contributing columnist: Robert Anderson

As anticipated, oil prices are moving higher in early trading this Monday. The U.S. is getting somewhat of a reprieve because every crude in the world is trading over $100/barrel expect our futures market NYMEX WTI and some of our other domestic grades. Many U.S. crude economics haven’t breeched $90 yet. Our economy is just too sluggish and midcontinent WTI delivery point is oversupplied. But don’t get smug. Our crude day of reckoning is upon us.With these high prices, it’s a strong incentive to produce more oil, right? Wrong!Check out this Bloomberg story that came out Saturday:

OPEC Oil Exports Fall 2% as Saudi Shipments Decline

Take note that these are December production figures. So its from a time frame before this Mideast turmoil began.

“OPEC’s oil exports fell 2 percent in December from a month earlier as Saudi Arabia, the world’s largest exporter, reported a decrease of 4.9 percent. Total exports by the Organization of Petroleum Exporting Countries, excluding Algeria and theUnited Arab Emirates, fell by 387,000 barrels a day to 19.4 million barrels a day, the Joint Data Initiative website, which compiles data supplied by governments in an attempt to improve transparency, showed today. Saudi Arabia’s exports fell to 6.05 million barrels a day in December from 6.36 million in November even as Saudi production rose to a two-year high of 8.37 million barrels a day, JODI said.”

December is the start of the northern hemisphere winter and the strongest seasonal demand time frame for oil. So OPEC and the Saudis were dropping output in spite of a strong economic incentive to produce more.

One of 2 things are at play:

1) Matt Simmons, energy investment banker and author of Twilight in the Desert. The Coming Saudi Oil Shock and the World Economy, was right and geologic depletion is starting to bite hard in Saudi Arabia. They can’t pump more. Five giant Saudi oilfields account for over 90% of their output. Their average age is 55 years! Their last major oilfield discovery was 1989. According to Matt Simmons, ‘No one audits Saudi claims. We’re depending on an illusion.’ So with Saudi exports down to only 6 million barrels a day the prolific Saudi oil production potential is finally being disclosed as a fraud. We read it on Wikileaks. We’re seeing it now!

2) Saudi King Abdullah has been quoted as saying they aren’t going to max out oil output for the west. They are going to save some of this precious resource for future generations. Why max out output for a fiat currency to the detriment of reservoir longevity so Americans can drive their gashog SUVs?

With either case, we have an economy disrupting calamity on our oil soaked hands. Oil prices are headed higher. This economy can’t take it. Too bad we didn’t learn anything from the 1970s oil shocks. To bad we listened to those high falutin economists, oil execs and politicians who said we couldn’t afford prudent energy policy, and the free market would take care of things. Yeah, it will. It’ll take very good care of Mideast oil producers, al-qaeda, and major oil company bonus pools.

Read more: