DrumBeat: February 3, 2007
Posted by Leanan on February 3, 2007 - 8:56am
Topic: Miscellaneous
A showdown within OPEC may soon erupt. Iran and Saudi Arabia are at odds over oil cuts. Could this fissure lead to OPEC's dissolution?In This Corner
Iran and Venezuela have a few things in common. And, although both share a hatred for the U.S., the bond I'm referring to is their desperate need for higher oil prices.
Both have smaller production capacities than Saudi Arabia, so they would benefit from selling less oil at greater prices.
Global warming: the final warning
According to yesterday's UN report, the world will be a much hotter place by 2100. This will be the impact...+2.4°: Coral reefs almost extinct
+3.4°: Rainforest turns to desert
+4.4°: Melting ice caps displace millions
+5.4°: Sea levels rise by five metres
+6.4°: Most of life is exterminated
Europeans hooked on Russian gas face tough choices in search for substitutes
Europe wants to break its decades-old dependence on increasingly unreliable Russian natural gas supplies amid fears that Moscow is using its vast energy resources as a foreign policy tool.But there's no easy way out.
Green giant Russia to produce 1 billion tons of biomass for exports
[Minister for Agriculture Alexej] Gordejev says his country's current bioenergy production potential for exports stands at a whopping 1 billion tons of biomass per year. According to the official journal of Russia's agriculture ministry, 20 million hectares of land are immediately available for biomass production.1 billion tons of biomass roughly equals 15 Exajoules of energy, or 2.46 billion barrels of oil equivalent, or the equivalent of 6.7 million barrels of oil per day. Russia currently produces some 9.15 million bpd of fossil oil.
EU will need imports to hit biofuel targets
Europe will need to import thousands of tonnes of bio-fuels to hit stringent new targets proposed by Brussels yesterday.
Don't blame Mexican tortilla crisis on biofuels, blame subsidized corn instead
We have received some sharp questions from readers on why we do not report on Mexico's widely covered 'tortilla crisis'. Don't these protests prove that there is a growing conflict between food and fuel? We don't think so. The questions stem from the unnuanced way in which mainstream media report on biofuels. The price increases of tortillas in Mexico are not due to biofuels as such, they are entirely due to the fact that corn and corn ethanol are extremely heavily subsidised in the U.S. and protected against foreign competition by high tariffs. Biofuels and U.S. corn ethanol are two entirely different things.
China: Increased search for offshore oil
China's top economic planner has called for greater offshore exploration efforts from local oil giants to meet soaring energy demand."Chinese oil producers are doing a good job extracting oil and gas on land, but not in the deep sea. More efforts are needed in this field," Zhao Xiaoping, head of Energy Bureau under the National Development and Reform Commission (NDRC), said on Friday.
North Sea gas and oil boom threatens dolphins
Marine conservationists have called for permanent protection of one of the UK's most important colonies of dolphins which is being threatened by a boom in North Sea oil and gas exploration.
Dmitry Orlov: Collapse and its discontents
It's been a couple of years since I started writing on the subject of economic collapse, as it occurred in Russia and as it is likely to occur here in the United States. Thus far, I remain reasonably content with my predictions: it's all lining up, slowly but surely.
Cyprus: Oil Dispute with Turkey Won't Go Before UN
Cyprus said Friday that it will not bring the oil exploration dispute with Turkey to the UN Security Council at the moment.Government spokesman Christodoulos Pashiardis made the statement in an apparent response to a U.S. call for refraining from actions that might further raise the tension.
Iran: The war has already begun
As opposition grows in America to the failed Iraq adventure, the Bush administration is preparing public opinion for an attack on Iran, its latest target, by the spring.
Nippon Oil acquires North Sea oil/gas rights
Nippon Oil Corp., Japan's biggest oil refiner, has acquired stakes in six oil and natural gas blocks in the North Sea, a financial daily said on Saturday.
The market for European wind power capacity broke new records in 2006, according to the annual statistics issued by the European Wind Energy Association (EWEA). 7,588 MW of wind power capacity, worth some €9 billion, was installed last year in the EU, an increase of 23% compared to 2005.
Report Finds Energy Efficiency and Renewables Can Slash U.S. Carbon Emissions
The Solar Energy Society report says meeting that challenge in the United States will require Congress and the White House to make major changes in U.S. energy policy.
Silicon Valley Focuses On Solar Power
Silicon Valley is also poised to lead the way in developing alternative energy sources. Solar is in fact, the most rapidly growing energy sector and demand is driving innovation.
Tortilla crisis hits the poor as clean fuel drives up corn price
Tens of thousands of farmers, trade unionists and consumers gathered in Mexico City’s central square this week to protest against the rising price of the staple of the Mexican diet since pre-Hispanic times. “No corn, no country,” protesters chanted as they massed for the first big demonstration against Mr Calderón. Workers on the minimum wage could now spend a third of their earnings on tortillas alone.The crisis, in which the price of tortillas has risen by 40 per cent in three months, has been blamed on a variety of factors, including hoarding by grain monopolies, rampant speculation and the North American Free Trade Agreement. Prices have also been affected by an increased US demand for corn as a source of ethanol, the alternative, ecofriendly fuel.
No time to waste in pursuing advances in energy
The administration is late getting around to dealing with the energy crisis. However, those of us in the environmental and conservation field are accustomed to the old saying "better late than never."
Comrade Hillary Tackles "Obscene Profits"
Ever the opportunistic populist, Comrade Hillary Rodham Clinton is seeking to make class warfare the hallmark of her 2008 presidential campaign.Speaking before a room filled with hypnotized Democrats, Her Ladyship declared that she wants government to take excessive oil profits and "put them into a strategic energy fund."
15 points to break with oil addiction
1. Human addction to energy consumption has spiralled to an unsustainable level in which oil is the hard drug of the global capitalist economy.
Addax Petroleum Ups Security Measures in Nigeria After Contractor Death
Peak oil production is between 10 and 20 years' away, according to Europe's biggest car maker, Volkswagen.After that, failing supplies and increasing demand will push fuel prices even higher. VW is calling for a drive towards a second generation of biofuels, claiming that first-generation fuels such as ethanol and biodiesel, compressed natural gas and liquid petroleum gas have different molecular structures, require the release of large amounts of carbon to produce (in some cases they release more CO2 than their equivalent fossile fuels) and require new production, storage and delivery infrastructures.
Peak oil advocates argue that we are at or rapidly approaching the beginning of a long decline in oil production, having reached the "peak" of oil resources. Combined with the increase in oil use, some in the peak oil community are predicting dramatic consequences, says the Washington Policy Center (WPC).These predictions, however, don't match the facts, says WPC...
Oil-rich Venezuela's leader urges energy conservation
With the zeal of a die-hard environmentalist, President Hugo Chavez plans to invest some of Venezuela's oil wealth in manufacturing solar panels and has begun giving out millions of energy-saving fluorescent light bulbs in homes nationwide.Though his country survives on oil sales, Chavez is increasingly talking up the environmental cause and urging the world to cut back on oil consumption to prevent climate change.
Facing a collapsing ideology, conservatives are now scrambling for damage control.
A canary in the Chinese coal mine
The wheat farmers of Donglu village can't sell their harvest. The wheat kernels are dark, sooty, hollow and twisted."Nobody wants to buy it, so we have to eat it at home," says Zhang Xiaojiao, a farmer in the village.
"Look at it," she says, brandishing a handful of the stuff. "It doesn't taste good. It tastes bitter. It's because of the coal pollution. But nobody cares about us, and nobody comes to investigate."
Limits to Growth co-author says collapse due to climate possible
If climate change sparks a global collapse this century, future historians are unlikely to acknowledge what caused it, says Norwegian scholar Jorgen Randers.
Canada does not see greenhouse gas cuts soon
It is unlikely that Canada will be able to reduce greenhouse gas emissions at all in the next few years, let alone achieve the major cuts needed to meet its Kyoto targets, Prime Minister Stephen Harper said on Friday.
Peak Oil Passnotes: The Iraqification of Iran
The war in Iraq has been a huge success for the elite in the United States, it is they who will eventually work with the Iraqi oil reserves and make the profits they so richly deserve. The same process will be undertaken with Iran, the first step being economic degradation, a move the United States will be successful in accomplishing.Then ten years down the line, during the next Republican administration, the full Iraqification of Iran can begin. Or should that be the Central Americanisation of Iran. Simply destroy its infrastructure, reduce the population to desperation and they will pose you no threat, and the right people will eventually get access to the energy reserves.
Bolivian protesters shut down pipeline
Protesters forced the shutdown of a natural gas pipeline serving several of Bolivia's largest cities to demand that President Evo Morales broaden his petroleum nationalization and expand state energy company operations in southern Bolivia.
Venezuela vows Orinoco oil takeover by May Day
Venezuelan President Hugo Chavez on Thursday set the world's biggest oil companies a May Day deadline to surrender control of multibillion-dollar crude projects, accelerating his raft of nationalizations.
Support grows for new environmental body
Fear of runaway global warming pushed more than 40 countries to line up Saturday behind France's bid for a new environmental body that could single out — and perhaps police — nations that abuse the Earth.
How language on climate change has evolved
A brief look at how language on climate change has evolved, gradually showing that man-made factors are to blame.
Ten years left to avert catastrophe
If one or both of the ice sheets disintegrate, sea levels would rise disastrously to inundate most of the major cities of the world as well as low-lying and densely populated countries such as Bangladesh.
Perhaps the scariest thing about the IPCC report is that is, by the nature of its composition, probably conservative.
Heating up: A gloomy UN-backed report is published
The other part of the report’s job is to make predictions about what will happen to the climate. In this, it illustrates a curious aspect of the science of climate change. Studying the climate reveals new, little-understood, mechanisms: as temperatures warm, they set off feedback effects that may increase, or decrease, warming. So predictions may become less, rather than more, certain. Thus the IPCC’s range of predictions of the rise in the temperature by 2100 has increased from 1.4-5.8C in the 2001 report to 1.1-6.4C in this report.
This was the IPCC saying 'We told you so'
No doubt we will go on hearing grumbles from flat-earthers and paid-up sceptics among economists and in the oil industry, but science is no longer on their side.
DVDs of the Boston ASPO-USA Oil Conference are now available at: www.aspousa.org
The set consists of 9 DVDs covering the complete 2-day conference including Q&As. They have been edited to show PowerPoint slides integrated into the speeches from the original presentations, so text and graphics are easy to read. (Note that the preview on the website does not show the integrated PowerPoint slides) .
Cost for the complete set is $75.00 + $7.95 shipping & handling for the 9 DVD set. They come in 2 DVD cases and are shipped immediately via priority mail.
So, I have been thinking about Saudi a lot and wondering just what they are up to. One exercise I like to do is to consider what my actions would be if I were running their oil business. My own thoughts are that I want to extract every possible penny from my depleting resources. To do this, I am going to manipulate the price just as high as I can (they do have the power to manipulate prices by withholding production) and see just how much is too much. I saw that the world dealt with (admittedly, some dealt with it worse than others) $75/bbl crude. I want to get the price back up there and test the waters again. I may want to push it to $100/bbl. I want to know just how much money I can extract without destroying my business. I am no longer satisfied with $25/bbl oil like I once was, and I will do all I can to keep prices high.
If I see that inventories are filling up worldwide, or that prices are falling, I am going to cut production. It is not my desire to supply the rest of the world with cheap energy. It is my desire to make them pay just as much as I can, without massively encouraging alternatives or a shift away from my business. I am not going to increase production until I see inventories start to come down, and prices get back toward those levels that were making my country so wealthy. I won't sell incremental barrels today for $50/bbl if I think I can get $75/bbl for them next year.
If my oil production has peaked, I think I would admit it to the world. I would be glad to admit it. I explain to my country that even though production has peaked, we will still be producing a lot of oil for many more years, and now we will get an incredible premium because of the pending supply/demand imbalances. The coming years will be prosperous indeed.
This is the way I believe they are running their business. In light of that, the moves they have made over the past year now are very consistent with this business model. That's why, when I look at them and their production moves, I say that if they have peaked it is certainly convenient that it caused them to reduce production just as inventories got full and prices started to fall shortly after that. They have not made a move yet that didn't make sense in light of market conditions. If they keep production down as inventories get pulled down to normal levels and prices are over $60, then I will say their moves are now inconsistent with market indicators.
So, how would you run their oil business if you are the oil minister of Saudi Arabia? What moves would you make that are different than what they have done over the past year? And would you open up your reserves to outside scrutiny? Why or why not?
It seems to me that the first rule of being in power is job security, not that your comments contradict this. But your early-on emphasis on maximising profit might not be the key consideration.
Is it reasonable to suggest that the Saud Family is principally facing an existential crisis (or a percieved one, if there is any difference) at this point? So the balancing game and the swings up and down of supply offerings might be the 'dance done to prolong the dance itself'.. Or at least until some other solution presents itself.. and there one is again advised to be careful what one wishes for, in case what 'presents itself' is a geologically imposed energy-sanction.
Of course, the decisions a manager makes would ideally be based on good, detailed oilfield information, which we here lack, it seems. But to read back from the actions we see, I have to first ask whether they are guided by Adam Smith and those market economics assumptions, or if other priorities and endgames (besides 'maximise shareholder value') are at play in the decision process.. I think 'maximum profit' is a security blanket in western thought, even if it, like the 'security' of carrying a handgun, may not be as guaranteed as one wants to believe.
Bob Fiske
I agree with both of you. I would add to it that they want to keep alternatives out of the picture. Make oil expensive but not overly so.
Maximum profit and job security = better w/o alternatives.
Robert, let's try this step by step.
I don't see what the Saudi's have to gain from announcing either their true reserves, or the fact they they have passed peak. When we say Saudi's, let's be clear we mean the House of Saud, not the country, by the way, a difference that may yet come home to roost.
I'm guessing the present situation serves the Saud House just fine. If we presume that their stated reserves are not accurate, they have information that others don't, and can build future policies on that. Very helpful, both politically and economically, to know more than others. Their present position doesn't depend on what they really have, just on what people believe they have.
A Saudi peak announcement can lead to global economic panic, something that, today, most likely wouldn't be good for them, or their US buddies. Prices may go up, but they may plunge as well, better keep the economy quiet and rolling in a steady stream of income.
Admitting that they have less than stated reserves might cost them face and status, both abroad, just look at OPEC, and at home, where the House of Saud is tolerated only beacuse of oil revenues.
What's best: an aura of unlimited profits, or one of large, but limited ones?
So no, I don't see what they have to gain by coming clean. But maybe you see things I don't.
So no, I don't see what they have to gain by coming clean.
I feel that way about their reserves. It doesn't really serve much of a purpose. If they are less than stated, then they would lose face as you say. Their OPEC production quote would also be reduced.
I guess the same loss of face would happen if they admitted to a production peak, but I imagine that this would ensure huge profits - far beyond the windfall of the past couple of years. I just go back and forth as to whether admitting to a peak would be something I would want to do. I think I would. I would want to foster supply/demand concerns, so that my remaining barrels have greater value.
I see your point, and we agree on most of it, but in your initial post you did say that you would come clean about that peak, mainly because of extra profits, if I understand you well.
What is more important to me than it seems to you is the possible shock for the world economy that a Saud peak announcement might bring.
And that would make those added profits "not secure" at best. There could be a massive shift towards other producers, or other fuels, there could be much more (geo-)political tension, their region is already volatile to the extreme. Uncertainty and finances are hard to mix.
If I were Abdullah's chief economist, I'd tell him to be very careful, and ride the train he's on now for as long as he can hold on.
Of course, if Abdullah knows what we don't, that there is a peak, he will have to look beyond that train ride as well. But, being his economist, I think I'd still advise him to sit tight for the moment.
Lastly: Abdullah, if he announces a peak, runs a serious risk of being targeted by his population for mismanaging the resources. Whaddaya mean it's almost gone?
Lastly: Abdullah, if he announces a peak, runs a serious risk of being targeted by his population for mismanaging the resources. Whaddaya mean it's almost gone?
That's just the thing, though. It wouldn't be almost gone. They would have enough for many more years of production - years in which they can extract absolute top dollar if scarcity is perceived. That's why I don't think the citizens would revolt if they announced a peak. It's not like the oil is going to be gone in a few years and the citizens living under bridges.
But that is still at odds with what the rulers have been telling their people of how they have enough oil to last for a century or more. If they have already produced around 107 billion bbls and they ONLY have another 85 billion bbls that might seem pretty ominous. It is going to take a while for people to understand that they are going to get paid a great deal more money for that remaining 44%.
The other thing the Saudi leadership needs to worry about is how the US is going to react when we realize how they have been lying to us about OUR oil. The Saudis might fear that when we realize that they cannot raise production to meet our projected demand growth, we might decide to take the oil under our protective custody (a la Iraq). We might want to fire their management for malfeasance and put in our own people.
re: Saudi Public reaction and US reaction to such an admission..
This was why I (so vaguely, I guess) was thinking in my first reply about considerations other than immediate profitability increases.. to jump back the 'Addiction' theme, a pusher can't tell his addicted customerbase that he will certainly be running out, even if there's some great benefit 'in the meantime'.. "The last few hits always feel the best!, Even if they cost a bit more!"
Of course jumping to the Drug analogies seems as audacious and uncalled for as comparing your political enemies to the Nazis.. but, there it is. There does seem to be some truth in the analogy.
"There's no greatness without Audacity"
-Oscar Wilde
By announcing a peak KSA would lose the political clout of seeming to be a swing producer. Also it would energize the world to look for alternatives sooner than otherwise. Such an announcement would be evidence of lying which might have political consequences.
I agree. People and organizations in power tend to be conservative. I mean conservative in the classic sense - resisting change. If you're on top in the current situation, naturally you'll be wary of any change. Those on top have little to gain and much to lose if things change.
Al-Qaeda has denounced the House of Saud for selling oil too cheaply to the infidels, instead of husbanding the resource for future generations. Announcing a peak would be playing into Al-Qaeda's hands.
I would say that restricting/husbanding output while charging whatever the market will bear is in the interest of both the House of Saud and its subjects. Such a viewpoint has great implications for the future of Iraq.
Iraq is currently outside OPEC's control and will remain so for as long as the US military is there. This provides the motivation for the resistance, whose actions serve to keep production low and effectively forestalls any actions to increase it. Thus, as the Saudi's have stated, they want the US to remain, but for different reasons, of course.
It's also interesting to note that Iran has the same basic interest as Saudi--hell, we might as well lump all oil exporters together, which is OPEC's main raison d'etre--stretch out production and maximize price. I think the US invasion of Iraq has effectively ended the "grand bargain" between FDR and Saud, and the mixed political messages we get from the Saudis is an artifact of a power struggle between the nationalist faction and the US Compradore faction within the Royal Family.
Given the above assumptions and their dynamics, it's actually in the interest of ALL the West Asian regimes to keep the US mired in Iraq thus stifling its ability to become the next "swing producer" until world oil supply has declined to the point where the concept of "swing producer" no longer has meaning. Thus the corollary is for the US to evacuate Iraq while doing everything it can to revamp its oil industry, although this won't be in the interest of the oil "majors" either, as their interests are essentially identical with OPEC's.
These boys are looking further ahead than they get credit for. The Sauds haven't remained in power by being utterly stupid. They anticipate, they divide and rule, they hooked up with the US for the only secure protection available to them, in short, they've played their hands quite well.
It's not smart to assume that today they would have lost their smarts. They're not going to sit and wait in total apathy while their wells run dry. KSA is one of the biggest clients of the US arms industry, and has been for years. The House is armed to the teeth. We won't find out if they have nuclear bombs till they use them, but I wouldn't dare bet against the possibility.
If there are problems with Ghawar, or the entire Saudi reserves, they will have their eyes on sharing both Iraq and Iran oil reserves, once these have been "secured". Aramco is a very professional team, well able to do what Exxon and Shell do, and they'll want and get their share in exchange for further support of the US. The White House can't make moves in the Middle East without the Saudi's, and why should they wish to? KSA is a voice that carries a ton of clout, and the US needs that, every inch of it.
They'll be like Siamese twins, each risks dying without the other.
It's one thing to buy armaments and another to be able to apply them effectively. The appraisal of Saudi's military capability is very poor. All their purcahses were no match for Saddam being in Kuwait. And remember they were duped by false US satillite photos into thinking they were next, which promted them to "invite" the US Oil Protection Service to occupy their country.
I find it very interesting who wants the US to remain in Iraq. Actually, it's easier to list those wanting the US to leave--the Iraqi nationalists, which comprise both Sunni and Shia groups. ALL the other regimes in the region want the US to remain, all citing various reasons, none of which have to do with oil. Even the Green Zone government allied with Iran wants the US to stay, as do the Iranians. This reality was reflected in the recent interview of Moktada al-Sadr in the Italian press and discussed by Juan Cole at his indispensible blog Informed Comment.
From both the Peak Oil and Climate Chaos perspectives, higher prices and decreased production are positives, while increased Iraqi production would be a negative since it would cause prices to fall and CO2 emissions to increase [The same goes for tar sand production increases]. Such a perspective seems bizzare since it implies an ongoing war in Iraq, but such is the current reality, although there's no guarantee that Iraqi oil production will rise after the US leaves given the dynamics of Iraq's internal struggles.
"If there are problems with Ghawar, or the entire Saudi reserves, they will have their eyes on sharing both Iraq and Iran oil reserves, once these have been "secured". Aramco is a very professional team, well able to do what Exxon and Shell do, and they'll want and get their share in exchange for further support of the US."
Damn!!! Never thought of that...makes damn good sense though...
Thank you.
These things need much more attention. People in power have one goal first and foremost: to stay in power. In order to do that, they have to look ahead. That can be done one of two ways: plan and execute action, or anticipate others doing it. Mostly, a combination of the two is the most logical.
From what I see, people in general see the Saudi's as a group of rich guys who sit back while their source of wealth will run out, whether in 2 or in 20 years, or 60 for all I care. For the Saudi's themselves, that is not the view. Of course it's not, they are the power that will do about anything it takes to retain that power. They look beyond the depletion point, and they know much better when that'll be, which is a huge advantage.
They have three things going for them right now, vis-a-vis the US:
The Fed can print $10 billion tomorrow, but not $200 billion. It would collapse the dollar. KSA has much more then those $200 billion, and can dump it in 5 minutes.
So their take is: give me a reason not to.
These three "powers" are being played out as we speak by the House of Saud, as a leverage against the inevitable depletion of their resources. I give you something now, if you'll give me something later. And they do have the smarts to not be easily cheated by empty promises.
Aramco will be one of the companies moving into Iraq and Iran, well, at least according to the plans being drawn up. We'll have to see how it plays out. The suggestion that the Sauds have all those weapons and don't know what to do with them is naive. They've covered their bases alright, but they're not trigger happy, that's like showing your hand in a poker game. Let the US do the shooting, that's the deal after all.
So...you're saying the US military is basically one, big mercenary group for the Saudis? That's ludicrous, that's insane, that's...not a bad deal for the Sauds at all.
US military ground forces, the type that really matter, are being rapidly used up in the Iraqi meatgrinder, and as the following show, the Saudis have virtually no offensive, let alone a defensive, military capability. And as to the battle capabilities of the Iraqi resistance, even someone without any military training should be able to understand these after-action reports, http://www.juancole.com/2007/02/4-us-troops-announced-killed-troops.html...
From the National Review, not a source I usually use, http://www.nationalreview.com/nr_comment/nr_comment020102.shtml
"As the ruling princes meet in secret family conclaves in their Riyadh palaces, they will have another consideration to bear in mind. They know that they have spent hundreds of billions of dollars on military equipment, but to no avail. The Saudi army is not an effective fighting force, and many, if not most, of the airforce pilots are only mercenaries on hire from other Islamic countries such as Pakistan. Maintenance and morale are equally poor. In their one and only experience of battle, Saudi soldiers ran away from the Iraqis during Desert Storm in 1991. Had the American military not been present, Saddam Hussein could have captured Saudi Arabia as swiftly and easily as Kuwait."
All indicators point to no improvement in Saudi military readiness/ability. "The small Saudi Army is denied ammunition to prevent it staging the kind of coup that overthrew Iraq’s British-run puppet monarch in 1958. A parallel `White Army,’ composed of loyal Bedouin tribesmen led by US `advisors, watches the army. The US Air Force, now based in Iraq and the Gulf emirates, is ready to intervene to protect the royal family in the event of a coup attempt." http://www.ericmargolis.com/archives/2004/06/the_storm_headi.php
Then there's this thread, http://www.strategypage.com/militaryforums/40-238.aspx and this one, http://www.worldaffairsboard.com/war-iraq/27818-saudi-will-intervene-ira...
Lastly, "Why couldn't the Saudis defend themselves?
"They had spent easily a hundered billion dollars since 1970 buying the best US equipment and training. Saudi Arabia spends more per capita on defense than any country in the world and has done so for years.
"In 1989 its expenditures of US$14.7 billion ranked eleventh among countries of the world. Nonetheless, this level of spending reflected a declining trend from a peak of US$24.8 billion reached in 1983. ... The share of gross national product (GNP) originally earmarked for defense in 1990 was 16.9 percent, materially below the peak of 22 percent reached in 1983 but still about twice as high as the Middle East as a whole. Defense outlays constituted 35.5 percent of central government expenditures in 1989.
Even today the Saudis spend more on defense than South Korea. The amount of American-made military hardware sold to the Saudis is stunning. They had the best hardware that the US, Britian and France could sell them. Given all this, why couldn't the Saudi army fortify its border with Kuwait and grind down Saddam's army?
"There are two answers, one general and one specific. The general answer is that the Saudi can't defend themselves because the Saudis can't do anything. Foreign labor performs all the real work in the Kingdom, from wasking clothes and picking up garbage, to construction, to the oil industry. Why should defense be any different? The specific answer is that a lot of the defense spending is wasted in corruption and graft. A lot of it is spend on the Saudi Arabia Nation Guard whose job is to protect the royal family from internal rebellion. But I think that isn't the real story. The true answer is that dispite all the equipment and training over decades, the Saudis simply do not know how to use what they have. Their culture does not create or support the kind of soldier required to use the complex tools at their disposal, nor does it promote indenpendent thinking or problem solving. The equipment is useless without strategy and tactics." http://rantwraith.blogspot.com/2005/02/frontlines-house-of-saud-1980-to-...
Business as usual is definetly in their best interests. Upsetting the apple cart by declaring peak would create many disagreeable events; covetousness, on the part of others, outrage, on the part of the population, as pointed out above. Etc. Very very bad for the oil industry - surely bad enough to offset ‘greater’ profits. (Many of these points are made above - I just started to type after the question...)
Then, just as important, there is loss of face - the fact of having to admit that the real world is not quite as it was presented, or that situations can change. Keeping a rosy, stable, all is OK face on things is practically mandatory; difficulties are deemed to be something that can be dealt with cleverly when they arise; the winner is the one who anticipates correctly and saves face for everyone. Loss of face means instant loss of power, eg. in OPEC, etc. Peak oil is an open secret, to be cleverly managed. Note, Western authorities do the same thing, but with a lot more noise in the media, it is a question of cultural style.
Lastly, there is the small matter that Saudi, in the sense of the Royals and those directly responsible or involved may themselves prefer the status quo, as they have been maintaining their position through a more or less fixed strategy since post WW2. Admitting that strategy, or the real world state of affairs, comprises upcoming difficulties, may be hard, even 'repressed.' My guess is that beyond commercial considerations, coupled with some good old geo-political calculations and acquisition of clout, no real planning for depleting resources has been made. This is evident in the dire impoverishment of their huge ‘young’ population, their use of slave immigrant labor, their grandiose projects, their stranglehold on the population, their lack of investment in other industries, etc. Conservative .. to a high degree; as their power both at home and abroad rests on it..
The curse of black gold, indeed.
Imagine if Saudi Arabia had had half of the planning intelligence of Norway. They could have invested themselves into hundreds of years of prosperity and a renaissance for their culture including the muslim faith.
Leanan
That has been a common perspective. If that was true with the historical belief that the Saudi's had plenty left...
How would the decision trees change for all parties if we were Post Ghawar Peak and there was a reduced amount each year???
For one example;
Would someone "Seize it" before it was too late?
If they announced it, and the world believed that the age of oil is coming to an end, we could see demand destruction on a huge scale after a few years, which would lead to a collapse in prices.
Kind of like what happened in the early 1980's - world demand for oil *did* decrease for a while.
Ericy, yes there was huge demand destruction in the 1980, but that did not result in a collapse of oil prices. In fact, the exact opposite happened, prices went through the roof. Prices did not drop to normal levels until 1886 when production began to ramp back up. Demand destruction does not cause prices to drop....normally. Only if we have a severe depression will prices collapse. Of course most of us doomers expect that to happen....eventually. But I expect to see $300 a barrel prices long before we see $30 oil prices.
Ron Patterson
Oh, so THATS what the civil war was really about!
Just kidding Ron, I know you ment 1986 :P
Of course, as any animator knows, you have to have a wind-up before a punch. They call it 'anticipation'..
.. and in the case of a broad acknowledgement of PO, you'd have to balance the likely extreme reactions: the eventual demand-destruction against the initial and then persistent hoarding.. everyone would be building out SPR's and backup SPR's, no?
Bob Fiske
Robert, very good post, thanks. But I have a question. Now I know you really do not know what Saudi's true crude reserves are. None of us do. But we all have our suspicions. Here are a few guesses that were current on February 20, 2006:
Oil & Gas Journal....................264.3 billion barrels
BP Statistical Review..............262.7 billion barrels
Colin Campbell.........................159 billion barrels
Dr. A.M. Samsam Bakhtiari...120 to 140 billion barrels
Ron Patterson..........................70 to 80 billion barrels
Robert Rapier..........................???
Anyone else who would venture a guess. ????
I realize you may be reluctant to venture a guess, but please do. Let’s suppose for a moment that there was a way to accurately measure Saudi’s reserves. (Although we both know there is not.) And then suppose this were a contest and the one with the closest guess would win a million dollars. What would be your guess? Okay, my guess of 70 to 80 billion barrels is not specific enough so I would guess 75 billion barrels.
Ron Patterson
Actually, I have done this, but I would have to dig for the number. What I did was assume that the reserve number was accurate in 1982 when they closed the doors to outside scrutiny, and then just draw down by the amount produced in the interim. That avoids inclusion on that big reserve increase that showed up in 1990. But, it also presumes that there have been no increases in proved reserves in the interim, which is probably too conservative of an estimate. But, like I said I would have to dig up the number I came up with. I think it was in the 110 billion barrel range.
Edit: It was 95 billion that I had calculated, presuming no additions to their reserves since 1982:
http://www.theoildrum.com/story/2006/12/12/21114/589
95 billion barrels! Wow, I am shocked. Saudi cumulative production is around 108 billion barrels. That means they are at about 53% of URR.
Perhaps you and I are a lot closer on Saudi than I thought. We both think they have peaked anyway.
Ron Patterson
So Ron, to follow up on the role play Robert suggested, and with the addition of Robert's 95 BB, what would you do if you were Abdullah?
I'll make a first suggestion: buy a ranch in Paraguay.
HeIsSoFly, I would have to think about that for awhile. It is quite possible that the Royal Family is in denial, that they really do believe they have over 260 billion barrels of reserves. And you must realize that they really believe that if the price of oil gets high enough "alternatives" will replace oil and they will be left with a lot of worthless black goo on their hands. I suspect however that they now believe the price can go a lot higher before that happens than they used to believe.
They realize that if the world realizes that, not just Saudi but the entire Middle East reserves, are grossly overestimated then the price would go through the roof and those "alternatives" would be developed that much sooner. Of course you and I know better but they do not.
If I were Abdullah, and thought the way Abdullah thinks, then of course I would do exactly what he is doing. But If I were Abdullah and thought the way I think, I would tell the world what is really going on, watch the price skyrocket and make a lot more money.
And hope of course that the world's economy would not collapse because of very high oil prices.
Ron Patterson
Hello HeIsSoFly,
This is an issue I have been pondering for some time: what will the wealthy do WTSHTF?
Will American billionaires and multi-millionaires bail on the US when the going gets rough? Or will they be true heroes to help promote Peakoil Outreach & Biosolar Powerup like Richard Rainwater appeared to be doing at one time?
EDIT: [At what point will Tiger Woods use his fortune to help convert golf courses into vegetable gardens?]
Consider the Revolutionary War Patriot of wealthy financier Haym Solomon: http://en.wikipedia.org/wiki/Haym_Solomon
Will rich people like P