<News Deposit/Open Thread The Oil Drum Shepherd Bliss: Hurricane Katrina, New Orleans and Peak Oil>

29 comments on Yergin: The Katrina Crisis, a hurricane produces an integrated energy disaster

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NC on September 3, 2005 - 1:45pm Permalink | Subthread | Comments top
Okay, Im a big picture guy.

For months this and other Peak oil sites have been stating the the entire oil and gas supply system is at capacity and is unable to grow to meet future increases in demands.

In fact there is concern that oil can not be increased enough to justify building new refinery capacity.  Those new refineries take too long to build and oil supply will drop (at least in the U.S.) before they are completed.  

I have read the above posts about other countries building refinery capacity but I assume a lot of that will be earmarked for that region.  Even if currently we import some of our gas from off shore.

The above scenario of looming shortages posted by PO people has always been offset by the likes of Yergin who state that there really isn't any supply problem.  Either long term or short term.  Capacity is sufficicent to meet demand.  Both crude supply and distillates.  We don't have more of both on the market because of price.  Increases in price will surely increase supply in the future if it looks like we have a shortage.  

And Yergin & Co. have said this will happen because there is still enough spare capacity in the system to cover short term emergencies or terror acts to allow the system to bring more supply on line.  With the resources going to either crude or refineries or both.

Okay so now we have the test case of Katrina which eliminated 1.3 mbd of crude and an equivalent amount of gasoline and natural gas because of impacted refineries.  All of a sudden Yergin changes his message and says "Oh but this is different because it impacted all of the system, not just crude oil'

Will someone at this site please explain this to me in plain language.  Either we had SPARE CAPACITY in the petroleum supply or we didn't. Since Katrina knocked out about the same percentage of Crude, Gasoline and NG supply all at once.  Why is this different than only knocking out one or two of those three?  Any surplus in the other streams wouldn't help you maintain supply.

I am greatly puzzled by this splitting of hairs in what constitutes surplus capacity.  Please explain.  Thanks.

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Dave Cohen on September 3, 2005 - 2:22pm Permalink | Subthread | Parent | Comments top
Re: "Will someone at this site please explain this to me in plain language. Either we had SPARE CAPACITY in the petroleum supply or we didn't...."

Glad to oblige. I also try to be a "big picture" kind of guy. The short answer is that for many months now there has been no spare oil production capacity outside perhaps some additional heavy sour crude from Saudi Arabia -- which no one can refine at this point anyway. Of course, spare capacity must be understood as relative to current demand. I am going to replicate a post I made what now seems like weeks ago (but it was only Thursday).
Naturally, we are dwelling on the domestic US situation. But what about fundamentals in the world oil market. For example
  • Nigeria is completely unstable and production halts there are now routine.
  • Ecuador -- see Nigeria
  • Mexico has tipped this year, no longer an exporter
  • The North Sea is depleting at a rapid pace
  • Indonesia is foundering, no longer an exporter
  • Saudi Arabia is maxed out for light sweet crude
  • US production has just been reduced 1.3 mbd
  • Vulnerability in Iraq is now higher after Katrina (see Saboteurs briefly shut down Iraq's oil exports (Aug 22) for example)
My point is that even with our overwhelming domestic problems, we are still dealing with a shaky world market. Afterall, oil prices have been rising for months and months anyway, despite what Ali bin Ibrahim Al-Naimi says.

Don't get me wrong -- I love the Saudi Arabian Minister of Petroleum and Mineral Resources. But American exposure to foreign disruptions has never been higher than now.
My point about vulnerability revolves around the point that there is no excess capacity in the global market assuming no large drop-off in demand.
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NC on September 3, 2005 - 2:47pm Permalink | Subthread | Parent | Comments top
Dave,

Thanks for response and I have read the posts religiously.  

How has Yergin said with a straight face in the past that we do have spare capacity.  Because this all seems to me to be the definition of peak oil, not post peak, just peak.  Any disruption anywhere reduces supply, that can't be replaced.

I know many of us at this site believe we are at or close to the peak.  I am trying to understand how Yergin is convinced we are not.

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Stuart Staniford on September 3, 2005 - 5:18pm Permalink | Subthread | Parent | Comments top
I see less inconsistency between Yergin's piece in the WSJ and his position in the past than others seem to. I don't think he's ever denied that crude supplies are very tight *this* year. He's just been arguing (I think implausibly) that they are going to loosen up very much over the next five years. In his WSJ piece, he's mainly emphasizing the refinery bottlenecks.
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Dave Cohen on September 3, 2005 - 5:39pm Permalink | Subthread | Parent | Comments top
Actually, responding to NC and Stuart here, I see no inconsistency between Yergin's earlier statements and this latest missive in the WSJ. It's just that at the moment, he's a little freaked out not having anticipated what a Category 5 hurricane could do to GOMEX production.

NC, Yergin has consistently said that we do not have spare capacity now. The magical new capacity (much from unconventional sources e.g. Canadian tar sands) is coming online in the future.... He is not unlike Nostradamus in this respect. For example, for these oil-rich sands, the best estimates I've seen indicate an additional 4.0/mbd by 2020. I'm not impressed.

Nonetheless, his latest remarks still illustrate his delusional optimism.... See my earlier analysis in this thread of his WSJ editorial with respect to future GOMEX production, preparing for intense hurricanes, et. al.

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NC on September 3, 2005 - 5:46pm Permalink | Subthread | Parent | Comments top
Dave,

In past production of oil and distillates, have we ever been in this position before?  Not being able to meet demand?  I don't count the late 70's.  That was an artificial witholding of supply.

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Dave Cohen on September 3, 2005 - 6:21pm Permalink | Subthread | Parent | Comments top
Things get a little thin on the page as responses get deeper...

Re: NC's "Not being able to meet demand?"

Yergin is actually an historian of the oil business and knows better than I that there have been several such crises in the past.... However, what makes our times unique, in my view, is how large oil demand is now (about 84-85/mdb), how quickly it's been growing over the last couple years (+1.5 to 3.0/mbd/year) and the inelasticity of this demand. On this last point, we are simply talking about a crack-addict's evergrowing need for a larger fix (excuse the analogy, nod to PG). With respect to the increase in demand, Asia (mostly China and India) are now taking up "demand space" that formerly was the sole province of the developed "Western World". All of this is unprecedented historically -- it is all new. I don't see much resemblance between what is happening now and the 70's/early 80's. Since Yergin, Freakonomics author Steven Levitt and many other mainstream economists have a religious faith in free markets, they would not make, as I do, any distinction between earlier supply/demand crises and what is happening now. In that sense, their point of view is ahistorical whereas mine is not. I believe we are in an historically unique period which points to the phenomenon called "peak oil".

Old curse: "May you live in interesting times".
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tedman on September 3, 2005 - 2:55pm Permalink | Subthread | Parent | Comments top
And this is the point isn't it.  We are talking about a global system, not just a domestic system.  There is plenty of evidence that shortages are already hitting a number of countries around the world.  Mostly poor countries that can't pay top dollar for their energy needs on the global market the way wealthier countries can.

It is interesting that we are seeing anecdotes of these inequalities on display right here in the good ol' USA.  Where coal is going to China (China has lots of dollars to spend) and possibly leaving some folks here in the US a little cold this winter.

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29 comments on Yergin: The Katrina Crisis, a hurricane produces an integrated energy disaster

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