Monthly Archives: April 2011

Economic projections crash into geologic reality.

Kansas City Star Midwest Voices contributing columnist: Robert Anderson

The IMF (International Monetary Fund) and Stuart Staniford (PhysicsPhD) have provided a very important perspective on our current global oil fundamentals. I know most of you won’t read extensive reports on petroleum production and demand elasticity stats so allow me to recap and supplement what Stuart just published.

Here’s the link on the original. You can also check out the accompanying graphs:

Early Warning. The global economy will not grow at 4% for the next 5 years.

IMF Economic Fantasy Land: 4.5% Annual Growth.

Stuart’s taken the recent IMF economic growth projections for the next 5 years – over 4.5% annually – and multiplied this by their oil elasticity figure of .685% to calculate how much oil supplies will have to grow to fuel this economic growth. What does this elasticity figure mean? It means that for each 1% increase in economic growth, oil supplies need to expand by his elasticity factor (.685%), or about 3% annually. If they don’t, the price of oil has to escalate.

Using the IMF growth rate of 4.5% (approximately) and the .685% elasticity figure, global oil supplies would have to expand by 17 million barrels a day during this 5 year time frame. It’s important to recognize this means more than bringing on 17 million barrels/ day of fresh supply. Many of the world’s large fields are starting to deplete so one has to net new supplies against existing field depletion rates. In other words, if existing oilfield output rates drop by 10 million bls/ day during this time frame, we’d need 27 million bls/day of fresh output to net 17.

The other significant problem is large oil production projects generally take more than 4 or 5 years to develop and bring into production. Point being, we already know what’s ‘in the pipe’ during this projected time frame – very little. This is why global oil output has been fairly flat since 2005. Its projected to continue to be. New output really isn’t doing much more than offsetting depletion of existing fields.

As if this isn’t bad enough, here’s another detrimental factor. With high oil prices, oil producer economies are booming. As a result they are consuming more oil locally and exporting less. Most subsidize their retail fuel prices. China and India are also soaking up lots more of what’s available. So let’s combine these and look at the stats on net available oil exports from ‘05 to ‘09:

2005: 46 – 5.2* = 40.8

2006: 46 – 5.5* = 40.5

2007: 45 – 6.1* = 38.9

2008: 45 – 6.6* = 38.4

2009: 43 – 7.3* = 35.7

In million barrels /day.

These oil export stats are provided by WesTexas at http://www.energybulletin.net :

*China & India’s combined net oil imports.

It’s evident ’10 & ’11 figures would continue this trend. So global oil production stats have been steady but the ‘net available exports’ have actually dropped.

What else has happened since 2005? Oil prices have more than quadrupled. These same trends are bound to continue.

Consequently, its ludicrous to project oil production growth of 17 million barrels/ day over the next 5 years. What Stuart Staniford did was temper this down to 11 million barrels /day. But based on current and projected fundamentals, this isn’t doable either.

IMF Growth Projections: Ain't gonna happen!

If there isn’t enough oil to flow into these economic growth projections and those complex economic elasticity factors stay constant, how much does the price of oil have to escalate to compensate for a 1%/ year reduction in global supplies? Stuart figured 53% – each year! We all know our wallets and gas cards can’t handle this! If this is the case, economic growth would be the other variable that would have to drop -along with the demand elasticity figure.

In terms of these IMF projections, something has to give. Either oil prices are going way up or the global economy is going to contract. Or I’d predict both!

In conclusion Stuart figured:

 “I think the IMF’s growth projections are seriously improbable. What is going to happen instead is that people will keep trying to grow without getting much more oil efficient, that won’t work, oil prices will go through the roof, another global recession, or at least a major slowdown, will ensue, and then people will begin in earnest the work of starting to transition away from oil dependence.”

Of course, I’ve recently concluded that Saudi Arabia’s output might have peaked out and will soon be contracting. We’d better not even consider throwing this into the ugly mix.

So there you go. The economists are still figuring that economic growth is back on track, and oil is no more important than any of their other input variables.

They’re wrong. Aren’t they, Stuart?

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Probe this, President Obama

Midwest Voices contributing columnist: Robert Anderson

April 22, 2011

On Thursday, President Obama announced a new justice department probe to determine if the illegal activities of traders and speculators were the cause of spiraling oil and gasoline prices.

The answer is no. Traders know there is little to no global spare oil production capacity and there’s going to be oil wars and trouble in the Mideast. Demand will continue to exceed supply. The result will be higher oil prices. There ya go, Barack. I’ll send you an invoice.

But if you really want to launch some substantive oil related probes, here’s my recommendations:

1) Why has the U.S. government Department of Energy EIA (Energy Information Administration) been in cahoots with major oil, OPEC and the Saudis in putting out these bogus projections that indicated global oil production could grow and grow and grow without any geologic constraints? This just encouraged Americans to over-consume oil and gasoline with reckless abandon. Its why we are in this economy wrenching, energy policy dry hole right now. Sure, the oil producers wanted us to think there aren’t any CO2 climate change risks or limits to growth. We went out and bought all these Hummers and SUVs and now, low and behold, we’re finding out global oil production capacity can’t really grow past 85-88 million barrels a day. The economists were wrong. Many geologists were right. The result is going to be obscene oil profits for major oil and OPEC.

I understand why oil producers spun this yarn but why did the EIA go along with it? Shoot, the EIA had global oil production projections as high as 125 million barrels a day! They even contended the Saudis would be producing as much as 25 million barrels / day! Thats just crazy.

Now that its too late to do anything about it, we’ll all be indentured servants to the oil producers. We sure missed the oil tanker on that one!

2) Now that oil companies are going to be raking in all these gargantuan profits, how come they don’t pay any taxes? I just read ExxonMobil made $19 billion (wow, they sure like these peak oil economics!) and paid in $0 taxes.

It gets even crazier. Did you know oil companies pay zero royalties on much of the offshore oil they extract from Federal leases? It seems legislation has been passed in 1995, and sweetened in 2001, that exempt oil company’s from paying royalties no matter how high the price of oil goes. Here’s the scoop NYT: Bush’s $28 billion giveaway to oil companies.  This article is a tad dated. Since oil prices have doubled since this was published in ‘06, the government giveaway to major oil is more like $60 billion now.

Yep. Someone is getting probed all right, and it’s not just the oil market speculators.

Its April 1. We’re the fools.

KC Star Midwest Voices April 1, 2011

by Robert Anderson

Over the last two months we’ve seen turmoil erupt in several Mideast autocratic regimes: Algeria, Egypt, Yemen, Bahrain and Syria. But where has NATO and the Obama administration chosen to intercede? Why the big oil exporter, Libya, of course. We’ve got no apparent problems in sub-Saharan Africa or a nuclear North Korea, but if there’s a oil producer with disgruntled masses, its ‘green means go’ on no fly zones and cruise missile attacks. Just like in Iraq, where we moved in and immediately started building a $1 billion Baghdad fortress embassy, permanent airstrips and military bases, oil is fueling the western interventions.

We probably don’t need bases in Libya, due to an already extensive network of ‘em in the Mediterranean, but we sure as heck need that oil!

Let’s revisit six weeks ago when the Libyan disruptions started. U.S. oil futures markets were hovering around $95/ barrel.

The Saudi/U.S. PR machines shifted into action. The contention was made that OPEC has 4.65 million barrels a day of spare capacity. The Saudis were supposed to have over 90% of this.

‘Don’t worry. Be happy! The Saudis have it covered. There’s no such thing as geologic depletion in Saudi Arabia. They have more than 4 million barrels a day of spare capacity. All they probably need to do is flip some oil spigot switch. We really don’t know how it works there.’

‘But didn’t they tell us this in 2008 when oil prices zoomed up past $140 / barrel? They said they had lots of spare capacity but additional output failed to flow. In fact, Saudi oil output actually dropped by 1 million barrels a day from 2004 to 2008. That was a big cause of the price escalation.’

‘No, don’t look back to that. The Saudis are our allies. Even our own U.S. Department of Energy EIA (Energy Information Administration) has confirmed this Saudi spare capacity figure.’

‘But where does the EIA get this info?’

‘The Saudis tell ‘em’

‘But surely there’s some type of external independent verification. Journalist check this out, right?

‘Nope. The Saudis are a closed society. They don’t like Westerners snooping around. They’re our allies. We believe ‘em.’

‘So here we are 6 weeks later with North Sea Brent prices over $117 / barrel. The Libyan situation has spiraled down into a stalemate. We’ve lost 1 million barrels a /day of sweet crude capacity from there. It’s a good thing the Saudis have cranked up their output and delivered some of this +4 million barrels/ day of spare capacity, right?’

‘Well not exactly. Its actually about like what happened in 2008. March OPEC figures are out. The Saudis have  increased output by about 300,000 bls / day since Feburary. They’re up to 9 million! They can still take it up past 12! But unfortunately, their internal consumption is way up so their net exports have actually dropped since the start of the year. But the good news is they’re making a ton of money. With these oil prices over $100/ barrel OPEC will make over $1 trillion dollars of annual revenues this year. That’s going to be a record- even higher than their 2008! Wow, they sure like post-peak oil economics! The Saudis will have plenty of money now to take capacity up to 15 or 20 million barrels a day! There’s no such thing as geologic depletion. There aren’t any limits to economic growth. The economists have told us these high prices are going to bring on more energy supply! Keep driving those SUVs, Americans! And keep shipping your military might and societal wealth over to us. There’s no such thing as peak oil. Global oil reserves are extensive. The major oil companies and the Saudis have you covered.

‘Its April Fools Day today, isn’t it?’

‘Yep.’