The Oil Drum

40 comments on A small supplement on LNG supplies

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Gets IT on March 10, 2006 - 3:22pm

From various sources ☺

Sinopec has won the right to explore for natural gas in Saudi Arabia's al-Khali Basin,

China's relations with Iran, while rooted in centuries of history from the "Silk Road" and the voyages of Zheng He, have recently blossomed as a result of China's growing energy needs. China has signed a US$100bn deal with Iran to import 10 million tons of liquefied natural gas over a 25-year period in exchange for a Chinese stake of 50 percent in the development of the Yahavaran oil field in Iran. China has also expressed a desire in direct pipeline access to Iran via Kazakhstan.

For example, while China has voiced its commitment to the non-proliferation regime, Chinese companies have been the subject of numerous sanctions for the transfer of ballistic missile technologies to Iran. Since the mid-1980s, China has sold Iran anti-ship cruise missiles such as the Silkworm (HY-2), the C-801, and the C-802.

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writerman on March 10, 2006 - 4:33pm

It seems that increasingly, and no matter how much we may want to talk about other things in relation to PO, politics keeps coming up. Is this an unavoidable trend? Along with the politics and the economics, we also appear to be moving towards discussion of military options and the big dread - war!

How will China react to an American attack on Iran? Will they feel more or less secure? Should they even care?

Sure one can argue that whoever is in charge in Iran will sell oil if China is willing to pay, but is it as simple as that? Wouldn't regime change in Iran to an overtly pro-American leadership mean that the United States could ultimately control the supply of oil and gas to China? Should the Chienese be concerned that it seems the United States is slowly encircling China, with the potential to control it's access to vital energy sources like oil and gas? Where exactly are we heading with all this?

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brook on March 10, 2006 - 4:46pm

One of the fascinating things about Peak Oil Theory (at least to me) is that it brings in elements of many disciplines. Geology is critical, as is economics. I expect as well that politics will be at least as important as physics in determining how well we collectively fare in this crisis. Frankly, the politics of peak oil is the part that makes the least sense to me.

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writerman on March 10, 2006 - 5:26pm

Your perfectly correct. In much the same way that oil and gas form the enegry foundation for the whole structure of our society, the problems associated with Peak Oil Theory inexorably suck in almost everything, almost like a black hole star.

You're right too about the politics of the whole thing. It's not as if we can measure or quantify it. Here at TOD we've had so many models, graphs and numbers, which are used to explain the physical nature of Peak Oil. How much have we really got, where and for how long etc. We're measuring the past, now and trying to measure the future. That is hard enough to do even though we're dealing with the physical world. But politics is far harder to understand in many ways.

Individual human beings are hard to understand and lots of them together seem to be even more difficult to understand. What concerns me about much of the politics is not partisanship or mere sectarianism, or Left and Right, or Republican or Democrat. These are essentially labels we use in order to define social reality as we perceive it.

What concerns me in this respect is people who appear to believe their own political rhetoric to the point of fanaticism. Such people exist across the spectrum and they scare me. Factor in "religion" "faith" "fear" and our collective, emotional response to war; and one has got dangerous brew on the boil at the moment.

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TrueKaiser on March 11, 2006 - 12:02am

you are quite correct that if anyone fails to factor humans into the peak oil equation is doomed to fail from the start.
while i hope for a power down scenario to win out it has become increasingly clear that it was thought up without considering the human factor.
in other words while it, along with capitalism and Communism, which all work on paper always fail in real life.

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dipchip on March 11, 2006 - 10:36am

The physics and geology of energy is like herding cattle you can drive them in a specific direction. The politics of energy is like herding chickens before a storm, each must be confronted on an individual basis or they will scatter to the 4 points of the compass.

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oilaholic on March 11, 2006 - 3:57am

To me, the most interesting aspect of politics in re: PO is that at some point - once the implications of our being at or near peak begin to seep into the mainstream - it seems inevitable to me that oil exporting nations will stop producing at their maximum capacity because they will come to see that their own ability to grow their economies will require nearly all the oil they have in the ground. Plus the price will be so high that they will not need to produce at the maximum rate to obtain sufficient foreign exchange.

In that environment, the Chinese will become even more desperate to secure their oil supplies. This will take more oil off the free market due to the bilateral deals China has and will continue to negotiate. It will also raise the bidding from the standpoint of military tension. In that world, I can see China offering, say, Iran it's own nuclear umbrella. Saying in effect that China will guarantee Iran's nuclear ambitions in exchange for a bilateral oil deal.

The implications of these changes in mindset are orders of magnitude more important than considerations of potential energy substitutes or whether or not (when in my view) the US makes a tactical air strike against Iranian nuclear assets. Not saying all aspects of the discussion are not useful and important. Just that when one considers the millions of bpd of oil that may come off the free market from exporting countries when their mindset changes from the current maximum production to the future minimum production consistent with a given export revenue objective - and when China sucks even more supply off the free market - all other considerations will pale .

The other consideration which I find fascinating and little discussed is the implication of the prospects for a no-growth economy or even a decline in GNP implied by PO on the multiple accorded to corporate earnings in the stock market. I find it hard to believe that when a no-growth mindset begins to take hold, there will not be the largest decline in stock prices in history.

That, of course, will have the effect of lowering demand for oil, as a number of writers have pointed out. On the other hand, even if you postulate that a reduced post-peak supply of oil is able to satisfy a much-reduced depression-effected demand, the fact that oil supply has peaked will still be in the market's mind, so all slack supply will be used for inventory build. Therefore I doubt the price of oil ($250/b? - $500/b?) will be reduced, even after a depression.

To me, it is the impacts of the change in mindset that will have the most vital and least discussed impacts on the market for oil and on societies around the world.

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Gets IT on March 11, 2006 - 5:56am

That is a hellofa good scenario.

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ChrisPhoenix on March 11, 2006 - 11:30am

Hm. This has me thinking wild suppositions. Of course I'm not an economist, and this is probably wrong. But is it possible that GWB's weakening of US economic fundamentals is crazy like a fox, playing brinkmanship with the world economy in order to force low oil prices?

Let's suppose that oil countries confronted with peak oil will want to export the minimum oil consistent with a certain income. Let's suppose further that they already know about peak oil, and know that even small cuts in supply will drive price up to levels that will give them lots more money.

The function of oil consumption vs. oil price is highly non-linear. One of the major features is that if the oil price goes too high, major economies will implode, and then the whole demand/price curve shifts majorly downward. Oil exporting countries don't want that.

A few years ago, people were thinking that $60 oil would cause a problem. Well, apparently it hasn't ... yet, at least. But $120 oil would cause a problem ... right? Well, maybe not, at least not for the US; energy is still only a fraction of our budget, and we could eliminate a lot of waste. And as long as the US economy doesn't implode, China can still sell us stuff, so they won't implode either. And with US and China going strong, the rest of the industrialized world has lots of markets.

Of course we in the US don't want $120 oil. But if we could survive $120 oil, peak-aware exporters would give us $120 oil. So what do we do? We weaken the foundations of our economy until we can't survive $120 oil. Now the oil exporters have to keep producing enough to keep the price at $60, because if they let the price get too high, demand for oil will fall along with the global economy.

Chris

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SqueakyRat on March 11, 2006 - 5:47pm

Try to remember who you're talking about, Chris: GWB.

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ChrisPhoenix on March 13, 2006 - 1:32am

Well, GWB and/or his advisors. Reminds me of recent political cartoon: Cheney tells his aide, "Tell the man in charge that I shot someone." The aide replies, "Sir, you shot someone."

So, not GWB himself, but his administration, might be smart enough to pull it off. After all, they're smart enough to make half the American public think that Iraq was involved in 9/11. They're smart enough to get budgets and plans through Congress that misstate billions upon billions of dollars.

Chris

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jkissing on March 13, 2006 - 7:14pm

The administration's success has more to do with the intelligence of 1/2 of the american public and congress than the intelligence of the administration.

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wkwillis on March 12, 2006 - 7:11am

What concerns me is that synfuel plants require steel in large quantities. We don't have a steel industry that can ramp up quickly anymore. We need all the accessory bits as well as blast furnaces, too. We need to build the plants to build the steel mills to build the synfuel industry. Figure on five years, minimum. That's assuming we have a coordinated national program with at least price rationing of critical path equipment and resources. Just building the coal industry up to the level of synfuel capability is going to be a huge job.
China has a much larger steel industry than we do and so synfuels are a simple problem for them. They even export coal. In the case of oil cuttoff from the Gulf they are much better placed to succeed then we are. Look at them as being about eighteen months from imported crude based fuel replacement at any given time.
Bush, Jr, did attempt to put a tariff/quota on steel imports before he got overrun. It wasn't much of an effort.

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Don Sailorman on March 12, 2006 - 3:34pm

Very good point; here in Minnesota we still have plenty of taconite (relatively low-grade iron ore, but abundant) but it would take some time to, say double, output. Also, I suspect the equipment and skills needed to get at tar sands are very similar to those needed to get the taconite out of the ground and made into pellets (which BTW are the best free slingshot ammo ever made IMO and available for the picking up along rail beds).

Also, where would we get the ore carriers and the freight cars needed to double output?

Hm, maybe I should buy another couple hundred pounds of rice and oatmeal . . . .

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wkwillis on March 13, 2006 - 7:53am

There are PERT charts that could be made about this...
Some things can be done in parallel, for instance, you could build a tube mill for pipe and at the same time be holding classes for welders so that when the tube mill was built, the welders would be ready to weld it into a synfuel plant. Ditto building roads to make coal mines able to get the coal to the railroad spur being built at the same time.
But some things have to be done in serial. Like first you find a mineral deposit, then you analyse it from electrical, magnetic, gravity, and seismic surveys, then you core drill anywhere interesting, then if it is indeed interesting (ie, the surveys gave you a clue about the rock, the core told you if the anomaly you were measuring was what you thought it was), then you grid drill to find out if it's big and rich and friable enough (the mineral not only has to be there, it has to be recoverable after you grind it), then you grid drill to find out where you should start digging first, then you start digging and laying in the rail spur and building the smelter or whatever. A crash program to build a mine is five years. Usually it takes twenty if everything goes right. That's not a joke, that's the way it is.
Building a synfuel plant is a comparative cinch. Building a windmill farm or a solar field is even simpler.

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Don Sailorman on March 13, 2006 - 3:37pm

In Minnesota at one time we had many of the finest mining engineers and geologists in the world working on the iron ranges (There are actually 3 of them.). These guys mapped out in great detail where the ore is, how much, and how good. For example, under the town of Bovey in Minnesota is a fair amount of good ore: To get at it all you would have to do is remove the town. But there is plenty of taconite, and the technology of getting at it is pretty simple, and so I do not think it would take strip mining long to get restarted--were it not for bottlenecks in big tires, rail cars, ore boats and possibly [don't know] seamen and officers to man those ore boats.

The ships are huge, and navigating on Lake Superior in bad weather is not something you want to do with 90-Day Wonders.

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writerman on March 11, 2006 - 12:53pm

I agree that at some point in the not too distant future we will see a sea change in the attitude of the oil producing/exporting nations. For a variety of reasons they may well decide to reduce exports. Many of these countries will need the oil themselves for their own economic development and the oil is going to worth a lot more in the ground etc.

Unfortunately I think adopting such a policy on their part, thought prudent and logical in many respects, would almost be like committing suicide and asking to be invaded by oil hungry nations - and we know who they are!

Five, ten or fifteen years down the line, Europe, China, India and Europe are going to be importing a lot more oil than they do now. We're talking about a roughly 25% increase in world oil consumption, unless we hit a deep recession, which will bring on a whole bunch of other problems we don't need to go into here.

Seen in this perspective, curtailing oil exports by Russia and OPEC as a matter of policy would be regarded as an act of economic warfare in my opinion. We would literally be being starved or strangled by these nations, and there is now way we're going to accept that. Were talking life and death here!

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oilaholic on March 11, 2006 - 8:23pm

A couple of problems with your post:

Nobody is going to be importing 25% more in a decade or two because the oil won't be there to import.
The exporting countries are not dumb enough to say they are hording the oil. What they will say is: we got depleted. It ain't there. So who's to know? Russia and Kuwait have already laid the groundwork for this.

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jkissing on March 13, 2006 - 7:21pm

Hitler tried invading russia. Don't think we will. Kuwait and Suadi are our dear friends, or certainly they get along very well with the administration, congress, and the integrated oils... They will all simply say they are doing everything possible... We will anyway by then have noticed how successful we are in increasing oil imports of those countries we invade...

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Jack Greene on March 10, 2006 - 8:47pm

Writerman,

Small funny story. I got pegged a few years back to go on the very local radio (San Luis Obispo County area of California) anytime there was a gun fired. Russian submarine Kursk goes down, I go on the next day to talk about it and take questions (did you know the Kursk class submarine has a pet animal section on the sub?!). Chinese force down a spy plane, etc. Many years ago, I designed and published wargames, but since writing books, well that makes one an "expert."

Locally we had an oil expert, an owner of several commercial fuel stations, and when he passed on, I inherited his hat. My point is that oil and military action are very close.

And as Clausewitz said, "War is politics carried on by other means."

Now as to China and the Iranian situation. They may make an attempt to take back Taiwan if we are involved for any length of time in Iran. A three day air campaign will not allow them enough time to get ready. At minimum they will be very upset over having their oil and NG from Iran disrupted.

But this is not just money folks, this is about power, and if Iran thinks they can get a Nuke and thumb their nose at the USA, they will try with this current govt. It is scary, and as Secretary Rice said yesterday, Iran is viewed as the biggest single national threat by Bush's people to the USA. That perception, if Bush feels his job is to protect the USA is #1 (and it is), may lead him to do something about Iran's nuclear ambitions, just to set them back 5-10 years and let the next "watch" deal with Iran.

The other thing is twofold.

Right now in Iran many of the young people, unlike most of the rest of the world, likes the USA. Remember this is a country that has laws AGAINST owning a satellite dish. But many people have them and put them out at night and the law is also ignored. We bomb Iran and we lose that support.
A viable strategy in Iran is to appeal to the minorities. The Persians and the Luri people would stick together, while we would support the Kurds, Azeri, and other people which constitute about 41-43% of the total population. Of course supporting the break-up of Iran would bring chaos to the region and all sorts of oil disruption.

Finally, if there is a campaign/fight, see if the UAE seizes the three islands in the Straits of Hormuz that they claim belong to them and Iran has control of! Quid pro quo for the port deal going sour? . . . And yes, those islands have oil assets attached to them.

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Gets IT on March 10, 2006 - 10:39pm

Control the supply lines.

"By method and discipline are to be understood the marshaling of the army in its proper subdivisions, the graduations of rank among the officers, the maintenance of roads by which supplies may reach the army, and the control of military expenditure."

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Gets IT on March 10, 2006 - 10:09pm

I think its complex dynamic systems that we are really looking at here. It can't be isolated to PO only. Is it your contention that politics does not enter into PO, or PO does not enter into "Global Meltdown", or that Global Meltdown does not enter into Politics, or Militarism does not enter into PO, or PO does not enter into economics of virtually all countries on the planet? It is apparent, and stated on numerous occasions, that the USA want's Energy Security, the EU wants Energy Security, GB wants Energy Security. Surely these interests will converge at some point in time. A lot of us would like to think about how that may happen. Peaceful ration tickets for the world or military action on some level seem to envelop most of the more probable, if not most popular, outcome scenarios. PO, for me, is trying to envision those scenarios and determine how I will prepare for, or anticipate my possible reactions to, them. When China gets 60% of its petroleum from the Mideast and the USA is destabilizing the region, I would easily imagine that they do feel slightly unpleasent. When China talks about building pipelines to Iran, I don't think they had in mind that there would be USA hands on the valves. I don't understand how the full ramifications of PO can be discussed as an isolated topic. Discussing PO as a matter of charts, graphs and time frames is really only interesting in the context of time frames, no?

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Engineer-Poet on March 11, 2006 - 2:31am

Peaceful ration tickets for the world or military action on some level seem to envelop most of the more probable, if not most popular, outcome scenarios.

Do you think that powerful interests and their governments are going to settle for the share that a ration coupon gives them? What the advocates of rationing don't realize is that rationing takes a top authority to do the allocation, and the only way that one top authority will be recognized by the whole world is after a lot of military action to establish who's king of the hill.

In short: not only is it not going to happen, we don't even want to try to go there.

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Gets IT on March 11, 2006 - 6:00am

No. No. I only mean to bracket all the possibilities of how petroleum allocation could be accomplished to all those between "rational", rationing and "irrational", nuclear war. OK, still a pretty wide envelop.

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