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Nigeria: A Closer Look at "Above Ground Factors"
Posted by jeffvail on June 22, 2007 - 1:45am
Oil prices recently passed $69/barrel in New York (and above $72/barrel for Brent) over fears that a looming general strike in Nigeria will exacerbate already tight oil supplies.
The “indefinite strike” is scheduled to start Wednesday, June 20th, and will include both major union groups in the country. The prospect of a strike successfully shutting down Nigeria’s remaining oil exports is rightly driving world markets, but what is the relationship between this strike and the background of violence and attacks in the Niger Delta? Buried below headlines of the looming strike, this week saw two significant attacks: one on a Chevron facility that cut 42,000 barrels of oil production, and a separate takeover of an ENI facility taking 27 people hostage and cutting 40,000 barrels of production.
Unions & Villages
Nigeria’s trade unions reflect the general mood of the populace—disgruntled over rising fuel prices, higher taxes, and the new government’s failure to implement a promised general pay increase. There are few things that Nigeria’s highly diverse and divided population can agree on, but the unions seem to have found a set of uniform grievances, and are now pushing this lever.
In the Niger Delta, on the other hand, government wages, taxes, and official fuel prices have little effect. Few people have a traditional salary—most earn their living fishing, as small-time entrepreneurs selling goods and services to employees of the oil industry, or living off the kickbacks that trickle down from payments made to village chiefs by local ministers or foreign oil companies. Fuel prices are determined by the black market, not the government, and decisions to engage in “illegal bunkering” of local oil pipelines are at least as pressing as calls to strike.
Negative vs. Positive Feedback Loops
There is a very real difference between the violence in the Delta and the looming general strike. The strike is a decent example of a negative-feedback loop—if the unions succeed and get concessions from the government, then the strike ends. If the unions manage to take oil production off line, but fail to win concessions, then at some point the strike will also end as popular support for this tactic declines. The violence in the Delta is quite different. The vast profits available from illegal bunkering and from ransoming western oil workers have degraded the traditional tribal structures of the Delta peoples to the point that gangs now exert great social, political, and economic power. In the Delta it is a classic positive-feedback loop: a switch from political motivation to profit motivation is shifting the entire culture to one of guerrilla entrepreneurs. So while the strike and the ongoing attacks both impact the oil markets, one seems likely to be a short-term event, while the other is a growing and indefinite problem.
"Above Ground Factors"
Both the strike and the Delta violence are excellent examples of what is euphemistically termed “Above Ground Factors.” While it’s convenient to explain away high oil prices by pointing to vague generalities like “above ground factors,” the reality is less rosy. The insinuation is that such factors are temporary—a brief but unexpected disturbance that will be resolved shortly, so stop worrying and go back to following the saga of Paris Hilton. This is why the distinction between positive-feedback loop and negative-feedback loop factors is so critical. Positive-feedback loop factors, such as the violence in the Niger Delta, won’t go away on their own. They will persist, and they will get worse unless the underlying catalyst of the positive-feedback loop is addressed. In the case of “above ground factors” influencing oil production, the underlying cause is geological peaking—if the world was awash in spare capacity, there would be little incentive to fight over control of oil. Oil Majors would just move to greener fields elsewhere if geology (and the resulting difficulty replacing reserves) didn’t dictate that they stay. I’ve called this phenomenon Geopolitical Feedback Loops in Peak Oil. Geologically-driven scarcity sets the conditions that lead to oil-related violence: the battle over oil revenues in Iraq, the violence in the Niger Delta, the leftist policies of Hugo Chavez, China’s increasingly aggressive policies in Africa, etc.
These “Above Ground Factors” aren’t happy to meet you.
An Isolated Example, or an “Early Adopter”?
So while we watch events unfold in Nigeria, it is important that we distinguish between “above ground factors” that will go away on their own, and those that will continue to get worse. Geological scarcity is a driving force behind both types of factors—-it is certainly one of the root causes of the Nigerian strike—-but it is particularly critical when geological scarcity spawns positive-feedback loop disruptions. In this sense, Nigeria is a case study of particular importance—is it just an isolated example, or is it a glimpse of what many (most?) countries could look like on the down-slope of global oil production?
"Above ground factors" are a very serious problem, and they are inextricably linked to geologically determined decline in oil production. We should continue to distinguish between geological limitations and "above ground" limitations, in Nigeria and elsewhere. What we should not do is think that "above ground" somehow means either "temporary" or "less serious."
For all of The Oil Drum's past work on Nigeria (including Jeff's recent profile and other information), click this link: http://www.theoildrum.com/tag/nigeria
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International flights cancelled in Nigeria due to petrol shortage
Strike shuts Nigeria, but oil keeps flowing
Re: The Export Land Model: http://static.flickr.com/97/240076673_494160e1a0_o.png
We have had a lot of discussions about oil exporting countries trying maximize exports, at the expense of domestic consumers.
I think that Nigeria is a good example what can happen when exporters do try to maximize exports, at the expense of domestic consumers.
Absolutely. To me this article perfectly captures the nexus of geology, global economics and local political upheaval in a post-peak world.
I love the work you've done on the Export-Land Model, Mr. Brown. It is probably more significant than any other factor with respect to the onset and magnitude of PO.
I'm curious. Will most nations follow this, however, or are there other potential major exporters, not necessarily super-rich First World ones, that may decrease available oil for local consumption in order to fuel exports instead?
I can't see the KSA doing it, for instance. Though Nigeria obviously has no qualms with cutting back on what natives get in their pursuit for the (formerly) almighty dollar.
I've speculated that we may see Phase One and Phase Two in post-peak exporting countries.
In Phase One, their income from export sales will continue to increase, even as their oil exports fall, because oil prices are going up faster than exports are falling.
In Phase Two, their income from export sales will decline, as their exports continue to fall, because higher oil prices can't offset the export declines.
In any case, the top five net exporters (half of world net exports in 2006) have shown an accelerating rate of increase in domestic consumption (most recently up 5.5% from 2005 to 2006).
Note that one of the interesting aspects of the ELM is that the decline rate in net exports accelerates with time. For example, the first 4.5 years of the ELM show a 16% per year decline rate. For the second 4.5 years, it's about 37% per year.
Another factor that I've been trying to incorporate into your ELM model is population growth. Oil exports seem to correlate with population growth in many cases--perhaps most notably in Saudi Arabia, but this is also certainly true in Nigeria. I think that this is very significant for what happens in exporting countries for several reasons. First, while total oil export revenue is probably the best factor to explain the rise in domestic consumption, export revenue per capita is probably a better indicator of potential for violence. Despite the huge oil wealth of Saudi Arabia, for example, its per capita income is steadily declining, exacerbating social tensions caused by the divide between the rich royal family and the poor masses. Nigeria faces a similar problem with its exploding population--even an honest effort to distribute oil wealth among the people will fail to raise their standard of living enough to remove incentives to engage in illegal bunkering and other such activities. Contrast this with Norway, where the low population growth (accompanied by the wise investment scheme) will lead to dramatically different social dynamics on the down-slope of oil exports.
Oil revenue per capita and rate of populatin growth will, I think, be a critical factor in determining the rate of violence in Export Land countries as their total oil export revenues peak and begin to decline. And, of course, the more that an exporting country suffers from violence, the more "above ground factors" accellerate that country's decline rate in both production and exports. Yet another positive-feedback loop...
Note that in undeveloped oil-exporting nations all of those also positively correlate to unemployment. Saudi, Nigeria, etc...
I've used the example of the US since about 1950, 20 years before we peaked. We saw a gradual increase in production, a peak in 1970, a decline, a little rebound due to Prudhoe Bay and then the gradual decline resumed, but we still have a pretty reasonable level of production.
One problem, if the US were the sole source of crude oil for the world, net crude oil exports since 1950 would have been zero.
You are right about the demographics. I think that the Saudis are "down" to something like six children per family now. Saudi crude oil production seems to have recently stabilized at about 8.6 mbpd. One problem. With rapidly rising consumption, flat production = declining exports.
Look at some of the problems that Iran is having trying to curtail their subsidized gasoline consumption.
Every time I run these scenarios through my head, I get more concerned. I remain stupefied that declining world export capacity is not the #1 story in the world.
WT, I think you really have it nailed with your Iron triangle. reading the paper "...housing prices up 8%..."
http://blog.oregonlive.com/breakingnews/2007/06/portlandarea_home_prices...
When you read it you see in SW washington "median" prices are up 4.3% yet volume is off 17.7%.
I find the volume data for the Portland market missing while they report the 8% increase in the "median" cost of homes, and that the national media wanted to report on it(why?).
I firmly believe you have this correct(I-T). I pay nothing extra to get the paper delivered to my remote address. They have to make it up on advertizing, and advertizers want increasing sales(or at least not down!). It is all to easy to see why things get reported (spun) the way they do.
Add to the newsprint papers reluntance to kill the sales of it's advertizers the general populations avoidance of PO and I think it adds up to any export story being buried in the middle in small print if at all.
This is one major reason I think we are screwed.
It will take high prices to change behavior and this will be bad for retail sales and our service based economy. The effort made to prop our economy via low interest rate, mortage ATM withdrawl, is all but over.
There is no political will to tax our energy use.
Add CERA's and Exxon's recient statements that everything is OK for 35 years and I think we are set up for some serious problems.
This is my optimistic forcast.
D,
The MSM people are really in a fix. A financial columnist for the Dallas Morning News (Danielle DiMartino) last year wrote a series of columns warning about a housing collapse, and she occasionally referenced future oil supply problems. I can only imagine the angry e-mails that the Morning News was getting from real estate related advertisers. Result? She was fired in September of last year: http://housingdoom.com/2006/09/15/dimartino-goodbye/
From her next to last columan:
In any case, the net result is that the message being conveyed to the average Joe Consumer by the Iron Triangle is that high energy prices, high food prices and slumping real estate prices are temporary problems.
The root problem is the lack of a low cost source of energy (obviously). Concerning this, there are a series of articles over at EnergyPulse (one of the most respected websites for utility articles) by Dr John K Sutherland that state that new generation breeder reactors
re-enrich (reprocess) uranium as they use it -- so the resource base of uranium is over 100 years (Sutherland estimates 100,000 years here): http://www.energypulse.net/centers/article/article_display.cfm?a_id=374
All articles by John Sutherland and bio: http://www.energypulse.net/centers/author.cfm?at_id=283
From reading briefly on breeder reactors it seems to fit -- but I am not a nuclear expert. Does anyone konw more about Breeder reactors and supply of uranium (I know the traditional estimate of supply is only 50 or so years but breeder reactors propose to increase supply
dramatically).
So far no-one's managed to keep a breeder reactor running long enough for it to actually start "breeding" in significant quantities (AIUI, all reactors breed to some degree), for various commercial and safety reasons, but there are no serious technical limitations that I'm aware of. I've never heard 100,000 years though. Personally I think a couple of hundred would be more than enough time for us to develop something else. But note that FBRs aren't particular cheap - indeed wind power is significantly cheaper.
Care is needed to distinguish between "exporters" and the general population. The "exporter" is simply the ruling or Royal families that allow the export of national resources, with token or no participation by the vast majority... [and please list the exporting countries that are exception to that view. E.g., Venezuela exports with huge participation of its population, but only after failed attempts by BigOil to assassinate its popular leader].
This is a good point, but there is also a great deal of feedback between the exporters and the local populace. Take Saudi Arabia, for example: while the royal family essentially gets all the revenues, the vast majority of it is spent on social, jobs, and infrastructure programs to buy off their potentially restive populace. Same deal in Kuwait. Qatar and the UAE have slightly different "trickle-down" structure, but the effect is the same: wealth accumulated by the royal family or ruler-du-jour trickles down to the local populace, who in turn drive more, consume more imported goods, and engage in other practices that increase their consumption of oil.
Actually, the imported goods issue is potentially important. Because trickle-down oil wealth leads to a monetization of the economy and an increase in consumption of imported goods, this means that domestic spending in places like Saudi Arabia, Venezuela, etc. is responsible for a portion of the oil consumption of first world importers (who are also often the exporters of the consumer goods). For example, when a Venezuelan buys a new SUV, they will consume more gas, but they are also driving the consumption of energy in the US needed to produce and export that SUV to Venezuela. So, not only does the Export Land Model lead to increasing domestic oil consumption, but it also "speaks for" an increasing portion of the use of the oil that they are exporting to first world consumers, decreasing the demand elasticity of the importing nations... not sure how to accurately quantify this.
Your right I noted this also and almost wrote about it their is a bit of a double counting issue going on with oil exporters which are also big importers which is basically all the export countries. The problem is oil is intrinsic to all economies and price inflation of oil effects everyone not just the importers. Also understand a lot of the oil wealth is itself reinvested in exporting nations. This is one factor in the strong US stock market despite fundamentals.
To back up a bit and look at the monetary side we are conditioned to place a large amount of faith in "real" money thats in a bank account but in a fiat currency regime the ability to borrow money as as real as any bank balance and you can print as much money as people are willing to borrow.
So the oil exporters with their hard currency are competing with people willing to borrow and with fractional banking as the export nations inject hard currency back into the banking system you get even more debt creation since banks can lend money to anyone based on the hard money deposits.
We have discussed this before but I think you can see that the concentration of oil wealth initially causes the global economy to go into overdrive as the fiat currencies and debt creation causes massive monetary inflation until you effectively have a meltdown of the fiat system since its not sustainable vs the the real barter economy i.e goods for oil that is driving it.
Your right about the double counting but its a lot worse than that its more like 10 fold as the velocity of debt creation outstrips the real economy.
At some point we cannot grow since real inputs of commodities such as oil are decreasing and then we can no longer service our debt. Exporting nations will desperately buy hard assets a lot of them will be in importing nations and the importing nations will happily nationalize these assets in time just as these nations nationalize the oil assets.
The intrinsic problem is that with fiat currencies and concentration of wealth you get a lot more debt creation and this leads to rampant inflation when the real economies can no longer grow because of lack of commodities. As far as assets go I think initially you see price inflation in assets but I think this reverses as people are no longer able to buy common assets such as homes land and small businesses. You will see a continued inflation in higher end assets such as larger companies and infrastructure as the holders of concentrated wealth try to convert their fiat holding both borrowed and real into hard assets.
Since this is whats happening now I can't call it a prediction except to say expect the prices for higher end but common durable goods and fixed assets to continue to fall even as commodity prices increase as people have to spend more and more on non durable goods and esp commodities. So wealth will be focused increasingly into the hands of commodity producers who will in turn invest in "big" durable goods for a time as the attempt to solidify their gains.
As you can see the world's economy naturally converts back to traditional stores of wealth which are commodities and the means of production for critical goods and services.
So from this perspective you can again see that it will take some time for the economy to unwind and falter from this fake prosperity caused by high oil prices. Its tightly tied to when people begin to fail to service their debt on a large scale. I think we still have time but the fiat system will itself begin to unwind in 2008. I think that the maintainers of the fiat currency systems can actually stave off collapse for a time but 2009 onwards will be very dicey since real economic contraction will ensure a eventual collapse.
What I think will happen is a move to some sort of commodity based currency i.e glorified barter with effectively no fractional banking. So post collapse we will have a lot less money but it will be a very deflationary world with stores of wealth not debt being the focus. Debt will only be available for the creation of real goods and services with obvious benefits and backed by notes on real assets. In effect your only allowed to borrow a million dollars if you put up a million dollars in collateral. Needless to say this is a lot less money than we have in circulation today.
As people note we can continue to grow our wealth without increasing our energy usage but its a far slower business than today.
Memmel
I like where you are going.
There is an excellent book now in its 5th edition by a MIT Economics prof
Manias, Panics, and Crashes: A History of Financial Crises (Wiley Investment Classics) (Paperback)
by Charles P. Kindleberger (Author)
Key Phrases: financial crises, commercial distress, commercial crisis, United States, New York, Bank of England (more...)
He goes over the past 200 plus years on a worldwide basis. There are distinct patterns that emerge, and right now we are right on track.
Oil is a catalyst.
To be honest I'm getting well outside my depth and some professional help from someone with and understanding of economics would be a god send for tying WT export land firmly to a realistic economic model.
I think I'm on the right track since its easy enough to see that priced based demand destruction with most of the market participants in denial does not accomplish much. So the mechanism for demand destruction is primarily not demand destruction via high prices. I wonder if this model is ever valid but thats a different issue. So we go with the shortage model. Now what do I do ? How do I model a shortage ?
I'm sure their is a wealth of information but as I said I really need some help from someone who understands this.
It might be better to call my model a correct template not a model since I need more information to pick the right model.
And example I just posted lets say your depleted by a thousand units and you have say 500 customers. Lets assume 250 mess up in getting supples and they each suffer a 4 unit shortage for those with no reserves that use 4 units a day they simply do not use oil. Others draw down stocks etc.
I think you can see where this is going. The problem is you can partition this problem a lot of different ways and the time progression can be complex.
So I'm sure someone has studied this issue and ferreted out the correct or at least common models and parameters.
So basically I need more constraints before it could be a predictive model.
Right now you can easily see that even this simple design is close to reality since running low is very different from running out. A lot of people may well be running low at different times and further depletion will cause a cascade of true shortages. And its a bit insidious so the market can either not see whats happening or write it off to above ground factors. So its easy enough to see how the market could not see this happening and since we have scattered information on a lot of the uses of oil we don't even have enough data to detect the early but critical stages.
So anyone who feels I'm on the right track and can help I'd sure appreciate it I'd love to apply this to WT's export land to see how things play out. I really think we can get good leading indicators if we figure this out.
I looked at the reviews. First if anything I'm Austrian school for economics. But my understanding is feeble at best. I need a helping hand to wade through this.
I emailed Mish over at
http://globaleconomicanalysis.blogspot.com/
See if I could get some help I've followed him for a while and have been impressed with his understanding of economics.
Wish me luck.
Memmel, Your conclusions and opinions stated in this piece is an excellent example of why I scan for your posts in every drumbeat.
Perfectly stated.
My mental picture of this is a wave cresting on a beach.
What happens is the top is moving faster than the bottom and it just out runs itself.
Think of that mental picture. In our case the height of the wave is represented by the amount of money floating.
The bottom of the wave is the REAL economy. People working, etc.
Well the bottom of the economy, Real People paying Real Bills, is slowing WAY down. The amount of fiat money is getting extreme.
The Wave is a Tidal Wave of fiat money which is grows in perportion to the rise in prices of Real Economy goods like energy and food.
When this wave crests and falls, it will take out everything.
Great example of the effects of SA recycling their money back.
JC
Thanks :)
I think you have it about right. The real economy has to be slowing since oil is required for growth. Sure you can think of exceptions but the basic equation is simple oil = real growth.
Thus as you say at the moment the central banks are pumping more and more money into the system to keep it growing for les s and less real return. Its always worked in the past since oil usage simply increased. As your example indicate we go through these cycles and I like the way you describe it. But the problem is this time around they can't keep the GDP going via inflation.
Now I have been trying to find economic info on the effects of a depletion resource and economist generally hate the concept and effectively refuse to deal with the issue.
In normal economics you have your wave example it crashes then a new wave builds plenty of info on this. But near as I can tell our current economic models simply don't work in a era of declining natural resources.
Anyway I still don't have any good economic info on how to actually create a numerically testable model based on known economics.
I guess my simple model is good enough. When you have a market in denial you get shortages but because the market is so large the shortages occur and are corrected in different places and different times so they are viewed as uncorrelated.
To you your wave example its like random waves on a ocean.
But to continue with your wave example they coalesce and grow as depletion continues eventually causing a tsunami.
From the economic side we see fiat money expansion as you say unable to cause economic growth.
Interestingly it seems to be the same model either way you look at it.
Rough Waves may be a better analogy.
http://www.livescience.com/environment/050503_monster_waves.html
And the critical part of my model is the presence of correlation caused by peak oil by events that are generally not considered correlated. This correlation is what allows these waves to build.
If the model is correct the outcome is obvious and stark.
James Howard Kunstler is a flaming optimist and his predictions way underestimate the situation. He should be castigated for giving far to rosy a scenario and his books are rubbish. We simply won't have time for a long emergency.
If my model is correct our economy simply stops.
Now with that said you have to take a hard look at third world economies and how they function since they deal with shortages all the time.
Why I think they work but we collapse worldwide is these economies depend on injection of technology and money from the wealthier countries to keep them semi-functional.
When the wealthier economies are collapsing these injection
are not available. So I don't see how we stop at the third world level instead we will go below this.
So the real question in my mind is how far the collapse will extend before you hit stability. Certainly regions with a wealth of resources food and low populations will be able to maintain a higher standard so fragmentation will have a big effect.
Maybe the only model we have is the break up of the Soviet Union ?
Is their another case of a fairly modern society collapsing ?
And to repeat the key here is correlation !
Jeff,
Thanks for the excellent article. Here are a few tidbits I picked up from WSJ 6/16/07, byline S. Swartz.
- Shell to cut $100M in spending on Nigerian operations 'to offset rising costs and lost revenue as security concerns curtail oil production'
- $16B lost oil-export revenue in Nigeria since end 2005
- 710,000 bpd capacity currently idle (475,000 of which Shell participates in)
I wonder if you would comment on how this fits into the feedback loop. Negative loop in which Shell decreases investment here in favor of investment elsewhere or still positive loop in which there are no other opportunities for that $100M. Or is it silly to talk about such a small sum?
Thanks
I think you're correct that at some point, the violence and disruptions caused by positive-feedback loops begin to temper investment, and in turn reduce the effect of that positive-feedback loop. At some point, as oil is highly fungible, the level of disruption and violence in one locale can't get too far ahead of the level in another locale, or international actors such as Shell will allocate resources to the less violent locations. Of course, this will only serve to accellerate whatever positive feedback loops are already working in that "less violent" locale until partiy is reached. That's pretty theoretical--reality tends to be more erratic and jerky for a variety of reasons, so I doubt that we'll see a nice, even movement toward global parity in oil-related violence...
Also worth considering that when Shell cuts $100 million in Nigerian operations, that reduces the overall pool of FDI available for local politicians and gangs to target, enhancing their focus on the remaining portion...
Jeff, I am wondering, how prevalent in Nigeria
are guns (AK-47s, other guns?). I noted one
analyst wrote that it was and is the culture
of Iraq that almost all households process
at least one gun --which makes violence much
more likely.
Jeff, (one more question) much of the work in Nigeria is offshore -- so for example if the oil platform is 50 miles in the sea off the coast can the violence really affect the oil production that much?
WT care to speculate on when a export nation transfers to phase two. As we see in Nigeria when a country ignores its people to export problems happen. My own rough calculations goes as follows. Gasoline/diesel will not go over about 10 dollars a gallon in todays dollars since at this price biofuels are competitive and significant demand destruction will be happening. This puts a effective maximum cap on oil prices at around 200-300. Next we would expect a lower ceiling price say around 150 a barrel or less to be effective at curbing demand for some time say 1-2 years before we go to maximum. And finally because of the amount of storage most countries have it takes time for the price to spike even to 150 as the base price. Above ground factors will of course cause the temporary spikes.
Now if you add all this together if a exporting nation is in depletion the time period that they have maximum revenue in the export land model seems very short. WT you have said that exports drop by 50% in five years obviously by year five they would be at the maximum price and you would think it would hit earlier say year three.
This says to me that phase one of export land where prices are rising faster than exports are dropping is a short lived situation certainly less than five years once a country is in decline. Of course the economic engine won't immediately slow in these countries so you will enter a imbalanced condition where the economy continues but the balance of trade goes negative.
So the golden age of exporters seems to me very brief and I feel this is why the US is doing little to combat Venezuela since I think they realize that the time period which these countries can grow social programs is short.
And on a final note outside of KSA a lot of these countries don't have the technical know how to efficiently extract their oil without the help of the western oil companies. So these internal above ground factors will probably significantly increase the real decrease in production.
So overall we expect that despite high oil prices the balance of trade and next government revenue will begin to decline quickly as internal consumption increases since diversification will significantly lag the windfall profits from oil. If you look at Mexico and Iran they seem to already be in this position with Venezuela soon to follow.
And analogy of the situation would be the California gold rush the guy that sold shovels made the most money if we equate the post peak oil economics to be the same as gold rush economics where you have a rapidly dwindling resource thats used extensively locally (The gold itself was directly used to by shovels at inflated prices ) you see that export land will have problems quickly.
And last but not least you need to consider the economic issues most of the countries run a dollar peg and they may well unpeg their currencies but it will not prevent rampant internal inflation caused by the infusion wealth.
Venezuela is experiencing 20% inflation.
http://www.stratfor.com/products/premium/read_article.php?id=290286
Iran is officially at 15% but probably much higher.
Mexico is the oddball and has the most diversified economy
with a 4% inflation rate but in reading they seem to use American style inflation indexes which are bogus.
http://www.latin-focus.com/focus-economics/indicators/070607_mexico_infl...
I expect that the real inflation rate in Mexico is higher at
least 8%.
Overall we expect inflationary forces to be very strong in exporting countries both from monetary inflation caused by the influx of wealth and price inflation since they import almost all goods and services.
And we can expect bubbles in land housing etc to form pushing prices for fixed goods very high. We already see this in Russia for example.
This economic inflation tends to drive economies to grow even faster before they "explode".
Maybe you can expand a bit on the internals of export land like I've done. The conclusion is that countries like Venezuela will experience a very brief period where they have a real increase in wealth and will quickly fall into economic disaster. I think this is true since Bush is doing little to stop Chavez and its because for once he listened to his advisor's who I think have come to the same conclusions I have. These countries will meltdown rapidly.
So if you consider the economic factors and export land model most of the exporters will briefly grow because of the flow of wealth but probably will quickly fall into economic chaos which will almost certainly lead to dramatic drops in exports.
This is why I'm not all that interested in long term decline predictions since above ground chaos will effectively eliminate exports from a lot of countries soon.
Now look at Nigeria its taken the opposite route from Venezuela and is trying to maximize exports yet its failing even faster so its a no win situation. The story of the golden goose is also a good description of the economics of export land. KSA actually seems to be the best steward of its oil wealth when you compare it to other exporting nations.
I can't argue with that.
I'll put it this way, the world industrial economy is a like a guy, with late stage terminal cancer, with a severe heart condition, who looks up to see an 18 wheeler bearing down on him as he crosses the street, as a guy on the other side of the street is shooting at him. The only question is what kills him first.
It's going to get very interesting.
WT, when do you think the industrial economy will start dying? 2 years, 5 years, 10 years or 20 years from now?
I'll give my two cents event though you asked WT I want to compare. I actually think that things will play out slower than we expect initially. At least in the US their is room for a lot of demand destruction via simple changes in lifestyle such as car pooling. In general all that has to happen is employers become somewhat flexible with employees getting to work. Short term it looks like we will have a refining capacity induced shortages soon. Next year it will be oil supply driven. Overall I think we will make it through 2008-2009 with a worsening oil shock like effect similar to the 70's. This puts the big one so to speak possible in late 2009 early 2010. Next we theoretically have 20mbd of new production coming online over the next few years I doubt we will see most of it but it will help. And we can drain the SPR to play with prices.
So this puts us at about 2010-2011 for TSHTF as far as I can tell 2012 for sure at the latest. Economic downturns and simple conservation measures will buy us a bit of time and it simply takes time for the market to adjust and oil reserves to be drained. So even though the fuse will be lit I think in 2008 the world economy is large enough that it will simply take time for the real effects to manifest themselves. The models are right but I think it will take longer then most people realize on this board for the world to wake up to the fact that things won't get better and the problems are not temporary. At least I hope this is true.
Now with that said the factors are primed starting 2008 so depending on events we could readily fall into problems starting in 2008.
I'm personally still working on my plan A but I did my plan B already ( Move back with mom and dad on the farm :)
Since I don't own property and am not a millionaire I am gambling a bit waiting for the housing bubble to collapse massively in 2008/2009 which will send land prices downward.
I wish I had more money but I need to wait till this bubble blows off to maximize the amount of land I can buy right now prices are still ridiculous but I expect land prices to plummet in 2008. This is personal and it is a gamble but since I have a good plan B I'm willing to take a chance and see if I can pick up a lot more land for the same amount of money.
As far as housing goes if I don't get a place with a good house I have no problem using a double wide trailer as temporary housing and building my own home either a existing one or a new one. A lot of properties have trailers on them.
Plan C for me is to move into a city that has a chance of making it post peak Portland Oregon is my top choice and land in Northern California Oregon Washington State as plan A. The pacific northwest seems to be a region that in general will weather peak oil/global warming reasonably well outside of the Seattle/Vancouver area which is over populated.
A bit personal but I think that expressing my private plans might be useful for people. I'm pretty doomerish I think but also hopefully making the right balanced decisions. I certainly don't see us having more than 2-3 years at most before things get obviously and permanently bad.
WT ?
Memmel has a solid response, but in regard to how bad/how fast, I think that the big variable is Russia, but as I have said before, IMO, net export capacity--the lifeblood of the world industrial economy--is draining away in front of our very eyes.
It is kind of interesting that the North Sea has two Export Land extremes, Norway, with a net export decline of 3.5% per year and the UK, with a net export decline of 60% per year. Of course, this is primarily related to the population difference between Norway and the UK. If there were ever a country that ought to curtail net oil exports it is Norway.
The top five net exporters (half of net exports in 2006) showed an annual rate of increase in net exports of 2.6% per year from 2000 to 2005. The decline from 2005 to 2006 was 3.3%. The average monthly Brent crude price in the 20 months prior to 5/05 was $38 per barrel. The average monthly Brent price after 5/05 was about $62, within a range of $54 to $74.
If we assume a 5% rate of decline in production by the top five and a 5% rate of increase in consumption, I estimate that their net exports will decline by about 22% per year. The 2006 stats (relative to 2005) were a 1.3% rate of decline in production and a 5.5% rate of increase in consumption--resulting in a 3.3% decline in net exports.
In any case, the math on this export situation was clear to me in early 2006. By and large, we are highly dependent on some large exporters at advanced stages of depletion, with fast growing domestic consumption.
So that puts us into definite problems in 2008. But I'd argue that external factors could keep us going albeit with problems through 2008 a obvious one is we have not drained the SPR yet.
This is of course betting against a big hurricane or Iranian invasion. So please what are your bets for 2008 I think we will skimp through it with problems and 2009 onwards are going to be problematic. If your right its basically down to the wire so I'm fascinated to get your prediction for 2008.
So I'm basically saying that 2008 will be a bad year but can be still considered "normal" and its 2009 that the truth is obvious barring again hurricane or Iranian invasion.
I think you will agree we are toast by 2010-2011 for sure ?
And 22% per year ?? Simple math indicates 10% per year and if you add in at least some support from projects coming online and simple demand destruction we get what I call a effective decline rate of about 5-7% per year at least for the first year that export land will be a major factor this year its refinery capacity. The point is its a at least geometrically increasing number not a simple percent increase.
I see like I said our effective export land effect including demand destruction to go like this.
7% decrease 2008 <-- shortages/recessions -->
14% 2009 <--- importers start too collapse depression--->
28% 2010 <--- wars start--->
90% 2011 <--- exporters collapse ---->
2012 end of oil age.
This is why I think we will barely make it through 2008.
And on the same hand I also see the export economies hitting a brick wall almost immediately after the importers do because of the fiat currencies. The key is your prediction for 2008 :)
I think your implying we are toast in 2008 but I really think the system is effectively so large it will just simply take time to fail we still have a lot of slack. It will take a good bit of 2008 to draw down inventories and into 2009 to empty the SPR.
So are you will to voice your opinion of 2008 ?
I think that a lot of the production coming online is overestimated, and will be delayed in any case, e.g. the ongoing delays at Thunderhorse that pose serious questions about ultra deep water production, and is further characterized by brief peak production periods, with sharp declines. Also, I think that the underlying declines of the giant/super giant fields are underestimated.
The 22% decline in net exports is what you get if we assume a 5% decline in production per year and a 5% rate of increase in consumption (for the top five net exporters).
In any case, if Russia starts declining this year, I think that 2008 on will be very tough.
Dave Cohen has an interesting article in the Energy Bulletin. An excerpt:
"In a recent personal communication sent to ASPO-USA, former Saudi Arabian exploration and production head Sadad Al-Husseini made the following statement."
After I debated Peak Oil on PBS (August, 2006) with ExxonMobil, Michael Lynch and a representative chosen by Saudi Aramco, I pointed out several times that the Aramco guy said that exporting countries in the Middle East would be voluntarily cutting back on their production.
I think that we are seeing an emerging excuse for lower production and exports: we don't want to produce at full capacity. Who know? It might even be partially true.
Duh :)
Its a weighted average exports don't equal internal consumption :)
I knew I was having cognitive meltdown but ...
Now to move forward esp with the info you just posted I cannot see how we can make it through 2009. According to you estimate we won't quite make it though 2008 I'm assuming a massive recession will buy us some time but by 2009 I cannot see anything that would keep us from entering what I call full blown post peak effect. 2008 I can see us barely making it. 2009 and esp by 2010 the probability of being in an effectively endless depression seems to be 100%. Way to many negative factors are in convergence by 2010.
But to back up I can't see how with your model we can even make it through 2009 and my assumptions will only take us barely through 2008 before we are effectively running on empty. So now I'd like to here our opinion on 2009 since I'm pretty comfortable proposing that we will be in deep by 2010-2011 the issue is can we make it through 2009 this determines if deep doodoo is 2010 or 2011 with any attempt to even guess what happens ending at 2012.
To back up a bit it seems we probably will enter 2009 having either had major gasoline shortages or very low on heating oil or both and NG will be a problem. So we probably will have heating oil shortages at the beginning of 2009 and forget about any sort of driving season that summer.
I'd have to guess that major emergency car pooling and using or inefficient public transport will help the US. You figure if we only double up we can make it on a lot less gasoline.
So in 2009 we should be having problems meeting inelastic demand but still functional. Hmm so this puts us into late 2009-2010 before we have to seriously deal with the lack of oil. Which puts TSHTF at late 2010-2011. Throw a hurricane in or other above ground factor and we pull the date forward.
So basically assuming a best case scenario we have late 2010 as a sort of maximum date that anything like a normal oil economy can function throw in the certainty of something happening and post late 2009 forward does not look good.
In general expecting anything like business as usual after late 2008 is probably not prudent and what happens will be very sensitive to above ground factors.
Btw this sort of analysis is what makes me really wonder if the Neocons will give up power if they think they will lose in 2008 since we will be under martial law basically for sure by 2010 and as early as 2009. The 2008 election is pretty meaningless in the sense the winners will be in traditional power for only a year or two at best. Bush has to do very little to jump the gun a little bit and institute martial law sightly early and postpone the election. To be honest I don't think it matters either way since its too late to do anything but it is one reason I keep running these scenarios since the timing is so close between the election and when we will go under martial law regardless of the political party in power. If I was Bush I'd bomb Iran starting summer of 2008 the reason for waiting is simply so no one freezes this winter. Then call martial law and stop the elections.
Lets hope I'm wrong since I'm not Bush.
After considerable discussions, Khebab and I are going to proceed with a net export paper for ASPO-USA in Houston, but I am on record as telling the ASPO guys that, IMO, declining net oil export capacity worldwide won't be news by October.
I staked out three positions last year. I warned of declining Saudi crude oil production, declining net exports and declining Russian crude oil production.
EIA data support the first two, and EIA data show that Russian crude oil production has been flat since October, 2006, and we are now getting broad hints from the Russians about "voluntary" production cutbacks.
We shall see how the year unfolds.
(There is of course always the possibility that the production/export declines were coincidental and not related to depletion and rising consumption, but I wouldn't count on it.)
Memmel,
I don't understand why an apocalypse is imminent. Even if exports start declining at 5% this year (which means 5% less exports in 2008 as opposed to 2007) can we not survive for a few years at least? Conservation and ability to pay more for gasoline should buy us at least 10 years, I think.
Note that so far global exports have remained flat although they might start declining this year or next year if Russia starts declining.
World net exports were down from 2005 to 2006, and on a monthly basis, the decline is much more pronounced, e.g., the 18% decline in Mexican exports (from 1/06 to 4/07).
Note that a 5% decline in production by the top five and a 5% increase in consumption would result in about a 22% annual rate of decline in net exports (by the top five).
"World net exports were down from 2005 to 2006, and on a monthly basis, the decline is much more pronounced"
I didn't know that. I thought I saw a graph a few days ago on TOD that showed flat world exports for the last couple of years.
What is the difference in measuring decline on a monthly basis as opposed to measuring it on an average annual basis?
Can you tell us at what rate world oil exports declined between 2005 - 2006?
Thanks in advance.
Rembrandt did a post on total net exports a few days ago, showing the total decline. If memory serves, the top 15 were down about 2.5% or so, from 2005 to 2006.
In regard to monthly versus annual average, if we are looking at a steady decline, the annual average decline will be lower than the monthly value.
For example, assume a country producing 10 mbpd on 1/1/06, that averaged 10 mbpd for all of 2005. They decline to 9 mbpd as of 1/1/07. Their average annual production for 2006 would be 9.5 mbpd, an annual decline rate of 5.1%. But their decline, on a monthly basis, from 1/1/06 to 1/1/07 would be 10.5% per year.
BTW, you need to use the natural log function on a calculator to get accurate decline rate numbers.
The EIA is showing a slight decline in Mexican exports, from 2005 to 2006, average annual. However, Pemex is showing an 18% decline in crude oil exports from 1/1/06 to 4/1/07, a decline rate of 16% per year.
WT,
Thanks a lot for taking the time to explain this so well. I appreciate it.
The problem is shortages not absolute supply. Prices obviously are a factor. Think about it this way gasoline climbs to say 6-8 dollars a gallon fine life is tough but your ok. Next you go to fill up and the station is empty and so is the next one etc etc. You run out of gas and don't go to work that day or the next. Better assume your a truck driver and you miss work and your shipment of oil drill bits does not make it.
You can see where this is heading. Its shortages that will gum up our economy not the absolute level of supply. Think of it like rolling blackouts for electricity you know the negative effect of a electric blackout a gasoline shortage has about the same effect. I cannot see us going forward much past 2008 without shortages becoming a regular issue and with them will come economic problems.
And its not just here with the global economy a shortage in India or anywhere in the world can cause a factory to shutdown that was supplying something we needed. And since these shortages are caused by peak oil they will only get worse year after year. My position is it won't take long for these shortages to cause irreparable harm to our global economy. We only need to be down by about 5% to initiate persistent shortages somewhere in the globe by 10-15% decline from peak they will be regular in countries like the US and causing havoc for business.
The only way to not have shortages in one area is for the wealthiest countries to effectively outbid the rest of the world and thence for one to consistently out bid its peers.
Understand it only takes a few destructive riots to cause a fairly large economic effect and you can be sure that these shortages along with other economic factors will cause quite a few riots.
The second factor is that under these conditions you have to think that one of the major oil producing nations will fall into chaos Nigeria is the prime candidate at the moment or we have some other event such as a hurricane that causes a further major loss in oil production and boom we have a world wide crisis. I've posted before that I expect a crippling OPEC embargo for example in the near future its a matter of when and why not if IMHO. But it need not be OPEC or start with OPEC it could be a US invasion of Iran for example.
For the situation to not spin out of control would require a lot of factors to line up and stay lined up for a number of years I just don't see how this is possible. So my position is that peak oil induced shortages will cause a lot of problems but the real event will be some above ground factor that takes a major producer off line like we are seeing right now with Nigeria. Consider a Nigerian strike later in 2009 after WT export land model has run for a bit longer it will be devastating by the end of 2008 we won't be able to handle any disruption in oil production without major feedbacks. What are the chances of this happening ?
If you can come up with a plausible reason why we won't go down fast I'd love the hear it.
Memmel,
You are making a lot of sense and to be frank it is very depressing and scary. I hope we can buy some time through conservation.
The question is: how much of our consumption is mandatory and what fraction of it is discretionary? I think most people will cancel their vacations when shortages become chronic. They will be afraid of getting stranded away from home. They will eat out less, shop less, buy small cars, use more public transportation, etc. Hopefully, conservation will keep shortages from getting out of hand for a few years.
Also, when shortages start happening businesses will respond by maintaining bigger inventories. That should help them deal with a flaky supply chain.
Another possibility is that the price of gasoline will keep rising and there will be no shortages (rationing via price).
First when a region is out of gasoline it does not matter if you have a 100,000 Mercedes or a beat up VW bug neither will move without gasoline.
My guess is that the wealthy will quickly form private clubs with private stations or a mobile tanker thats allowed to dispense gasoline directly to cars. This means we may quickly see the effective end of public gas stations which will be replaced with these private networks. The more you pay the more security you get. Businesses could well do the same thing. Public gas stations would only seldom have gasoline regardless of price controls or not. Their is nothing illegal about having a private supply of gasoline and since it would benefit the rich I can't see it made illegal. So my guess in America at least is we will handle it in this fashion with the rich using their money to ensure gasoline supplies for themselves along with companies.
The poor will simply be left try and use what they can get when the remaining public stations have gasoline. We have a precedent with Costco dispensing gasoline to members only but expect this to become very very common fast.
Good point! I never thought of that. That's the way it is with water and electricity distribution in much of India today. There are not too many neighborhoods in India today where municipal water supply is available 24 hours a day. The relatively wealthy get their water in private tankers; they often spend more on water than they spend on petrol. The relatively wealthy also buy bottled water for drinking. If you can't afford to hire a tanker or can't afford bottled water, you have to learn to live with the trickle that comes out of your tap between 1am - 3am every other day.
Ditto with electricity. Outside of Mumbai (formerly known as Bombay) there is not a single city or town in India with 24 hour electricity supply. Bangalore, the silicon valley of India, has blackouts of several hours every day. The rich IT companies and wealthy individuals run on diesel generators which are powered by personal gas stations. TCS has several diesel generators powered by an underground tank which can store 5400 gallons of diesel!
Several years down the road, I see the gasoline situation in the US becoming like the water/electricity situation in India.
See I'm brilliant :)
No I'm aware of the private services I used to live in Vietnam and China. I've also read the same stuff about Africa.
Thanks for the detailed example from India. I think your right on the mark. We won't have public access to commodities.
BTW this fits right into my high level model of one and ten Americans living in abject poverty with the number growing as depletion proceeds. The wealthy outside of paying more for private services will not be affected.
With this said no matter how rich you are you need government support for roads etc. So how are the roads in India ?
In Vietnam that were crap china pretty good. Whats your take on how the road system will decay ?
How do the wealthy travel in India ?
" So how are the roads in India ?"
Depends on where you live.
They have built some very good highways during the last 10 years. But outside of big cities, roads in general are crappy. Even in a big city, roads are good only in commercially important areas.
"How do the wealthy travel in India ?"
Local travel is by car; long distance is by airplane. Car ownership has increased significantly during the last 10 years. Also, thanks to discount airlines many more people are flying.
Come on, WT!! Stop sugarcoating it so much. Tell us straight! ;-)
It will start in about 2 months after a big hurricane hits the gulff. We will have no spare cap and the imports won't be there. This will really shake up the public and Bush will have carte blanche to invade whoever for oil.
I agree with you but.....
What if Venezuela stops taking worthless inflatable paper money for oil. They could demand gold, silver, corn, rice, tractors, trucks, etc.... Of course this would have to be a command economy by the govt. but look at Cuba....
memmel,
A very informative, speculative comment. Thanks.
So is it the case that above ground black swans will effectively elongate the "life" of some of these countries' oil reserves? I seem to remember a lot of talk about Saudi "abusing" their fields, high water-cuts and over-production, etc. If social chaos does lead to decreased oil production in many oil-exporting nations, does this effectively increase the lifetime of many already developed fields? Or, on the contrary, will the economic hardship, lower production, and less expertise end up damaging fields because of lack of attention to existing infrastructure? Do these geological outcomes make any sense? It seems like whatever you don't produce, stays in the ground, right? I'd be interested in any responses the more geologically inclined might have to this conjecture.
I don't think oil is relevant much post peak. I use a 4mbd decrease in production as a trigger event for economic conversion. Understand that our world economy is founded on cheap oil not just oil. Once oil is no longer cheap and supplies are uncertain our current economy ceases to function.
America can not survive shortages regardless of the price of oil and shortages are certain the moment supplies become to tight. These shortages are the real issue and the free market cannot effectively allocate oil in a very tight supply situation thus shortages are sure to develop and a worldwide command economy rationing oil is not possible.
I think the EU will be able to demobilize of oil so to speak and keep their economy functioning but most of the world economy will rapidly fall apart as shortages reek havoc on economic production.
In short it does not matter if gasoline is five dollars a gallon or ten if you don't have any your not driving. The economic effect of shortages is probably 10,000 times worse than simple pricing issues. And once they develop and esp once people realize its permanent we are doomed I'm sorry the age of oil is over.
Well, all I'm saying is that as world production starts to dip off and the rate of depletion outstrips the rate of global production increases, many oil-exporting countries may drastically cutback on exports, or shutdown exports altogether, due to domestic pandemonium. Then the interesting question militarily is how desperate are foreign parties for access to the worlds dwindling oil base?
If production does end up decreasing because above ground issues then the implication is that means more sustained oil production for that "developing" nation. Or in this context perhaps devolving would be a more appropriate term. Who knows how things will pan out in each oil exporting country... I'm sure it will vary. Most will probably go through a very difficult period.
As to being doomed... It is all semantics. The word "doomer", for me, always evokes laughter. Just the fact that we are alive right now, overrides any doom that has or will ever occur. I think our species will survive PO intact, but will have to go through a lot of self-inflicted harm... But that goes without saying.
Ignorance is bliss!
Esp. when people realize that shortage is perm and going to get worse, much worse over the years then we have a problem. People will scream for oil, no matter the cost. Govts will listen and will try to obtain said oil, no matter the cost. Its like musical chairs for oil. Someone is going to get left out.
The US will most likely lock up what it needs by military might. China will use money and some military inffluence to lock up its needs. Maybe chinese troops in Africa? Europe and Russia will come to some kind of deal. South America will limp along as always. Africa will be toast. India/SE Asia will be toast. Japan will do what???? They are in a bad position IMHO.
So Africa and India/SE Asia are the canaries so to speak. We already see PAkistan and Several African countries having big problems and next will be India.
When its gets to China's turn they will have to act, maybe sooner. They already have a relationship with Iran. Watch a desperate India/SE Asia, Japan, and Africa align with China to take the Persian Gulf. It will be a bloodbath but in the end 2.5 billion people will not be denied. They will have the ME oil.
Norway perchance?
Or is the fact that Norway is a much wealthier country come into play here? (ie they can afford to tax the crap out of gasoline) Or is it a matter of development?(Norway has alternatives to gasoline fueled transport.)
300Kb consumption, no growth for 25 years
3Mb export (roughly) at peak.
Based on EIA data: http://www.eia.doe.gov/emeu/cabs/topworldtables1_2.html
From 2000 to 2006,
Norway has shown (Total Liquids):
Production Down: 3.1%/year
Consumption Up: 2.4%/year
Net Exports Down: 3.5%/year
This is the very definition of the post peak ELM: lower production, increasing consumption, lower net exports. It's also the best case model for exporting countries, since their consumption, relative to production is so low.
For a worst case, look next door in the UK, where the annual decline in net exports from 2000 to 2005 was 60% per year.
Don't forget Norway's production figures for May released a few days ago, showed a 10% decline from February, annualised to 40%. ie. Norways position on the production curve appears to be just hitting the steep descent, following the UK's precipitous fall.
Records
WT please stop reminding me about the UK - I have to live in this banana republic - soon to be re-named 'United Kingdom of Cuba'
Seriously though, to analyse each exporter independently would be very useful and not too difficult [Im talking model, not reality obviously] - if we could predict the order in which they will fail.
Parameters include:
Total production
Total consumption
How developed relative to 1st World
Pop Growth
Order in which they fail [the last country will behave differently from the 1st etc]
Population behaviour/culture etc
There is one parameter which I have hardly ever seen mentioned - maybe in some Russia discussions - CLIMATE.
List the places in which you would not live, with any quality of life, without excess energy.
The desert
The arctic wastes
Tundra
Inner continents
Equatorial Swamp belt
sound familiar??
Unfortunately, most oil exporters seem to have awful climates. When it is clear their fuel for existence [not luxury] is limited, exports will stop dead
My opinion is never humble
I completely disagree. Norway did not suppress local consumers at the expense of exports at all. Rather, Norway worked very hard to make all sorts of domestic alternatives in both energy and transportation as appealing as petroleum.
Norway is probably the example of what can best be done. It's an outlier. Do you seriously expect the Congo, Nigeria, Iraq, Iran, Kazakhistan, etc., to follow Norway's lead? I find it far more plausible to believe they will follow Nigeria's path instead.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
Norway may well be the Ethical Export Model.
As prices increase, short of a recession/depression to bring them down, these exporting nations are going to experience a lot more pressure, so to speak, which will most likely propagate and sharpen positive feedback loops.
Iraq isn't getting better anytime soon. As you stated, the tighter the supply/demand relationship gets the more incentive people have for 4GW and blackmail over corrupt governments "losing billions of dollars over accounting problems" (you can look towards Angola for this too--or, how about the US? Although we're so wealthy we hardly notice the glut of corruption...) There are a lot of people pissed off in these oil-exporting countries because they don't see the benefits of the "free market" that Wall Street so esteems (and reaps the bounty of). They're too busy living in poverty with no basic services, infrastructure or education--but, judging from that mere one picture, they certainly have an abundance of AK-47s!
And why shouldn't they use those AK-47s???? I would. Most Oil Govt's are corrupt and deserve to fall and they will, once they can no longer afford to pay off the rebels. If I was in charge of the Rebels the first thing I would do after I took over the country would be to raise my price for oil. I wouldn't let it be priced by Wall St. that's for sure. For instance, if I took over KSA I would instantly raise my price to $100 bbl, take it or leave it. I would raise it affter that as I saw fit, not as the West wanted.
Someone is going to do this after peak that's for sure. If we are at peak we will have to pay them for it, no other way around it in the short term. And thus the bidding war will begin and oil will skyrocket.
Here's a nightmare: What if Russia said that beginning tommorow it will not accept ANY currency for oil, only gold, quarter oz. per bbl.
Russia insisting on bullion for oil seems about as likely as, oh, say, the US military launching an attack against Iran under the cover of TC Gonu.
Didn't KSA only want gold backed currency early in its oil empire?? After we made a deal to protect them they then took dollars. If we can't protect them maybe they want gold again.
Another thought: Why would Russia continue to accept dollars or anything for their priceless oil and gas. If they were to export no oil wouldn't they have enough to keep their economy running for 50 yrs?? Long after the west went down the tubes I suspect.
Russia imports a lot of goods and services from the west esp Europe I don't think they are in good shape to practice ELP and the need to exchange oil for finished goods. Basically none of the oil exporting economies are really able to function in isolation. The US was/is and anomaly having both a diverse economy and large oil/coal deposits. China to some extent is also a exceptional place comparable to the US but with a lot lower quality index so to speak because of its large population. The US could actually practice ELP with esp if it tightly integrates its economy with Mexico and Canada ( hmm :) and of course the US can seize Venezuela assets if needed. Europe needs a massive investment in renewable and nuclear and they probably will. You can also see that a forced marriage between Europe and Russia similar to the US/KSA relationship is almost a must for both. Since Russia must export its not all powerful in this relationship. Its easy to see that Europe with full excess to Russian resources will do well so I suspect Russian attempts to control the situation will fail sooner or later.
Expect the situation between Europe and Russia to polarize as the post peak game begins in earnest.
Notice Asia/India is the big loser because of simple geography but on a large scale the extended US and a Europe/Russia are regions that can readily practice ELP with a robust manufacturing and resource base. In addition Brazil should be able to build a similar ELP region.
On a smaller scale South Africa Australia etc have favorable ELP conditions with caveats. But agian you should see the huge crater centered in Japan that is Asia's chances for ELP post peak. The reasons for Japan entering WWII will come roaring back soon and the whole region will effectively fall back to the same resource problems they had in the 1930's but this time without the oil.
Indy
While it is passe' to think Russia has no industrial sector,
that is simply rubbish.
Yes, the US-EU axis did a number on Russia's economy during the Yeltsin period, but Russia's economy has more than doubled since then, and much of it has been high tech.
Russia, not China has resisted the push to expand its highway system, instead focusing on rail. Russia is pushing back into commercial airliner production, truck production, auto production, floating nuclear plant production... etc.
I did not say they have no industrial sector just that I suspect now that they are dependent on ties with the EU for industrialization. Their economy is tightly linked in with the EU and probably it it would difficult to re localize it.
For example Canada has a large industrial base but its economy cannot be unlinked from the US they are interdependent.
Or at least in both cases isolation would be painful. This is from considering WT ELP on a regional scale. The regions should be easily linked via rail/barge shipping traffic and they should provide complementary products and services.
Obviously most of the EU and FSU countries in eastern europe are tightly tied economically to the Eurozone I'm asserting that Russia is also tightly tied into the Eurozone at a economic level.
Sorry if I've implied they have no industrialization I did not mean to do that, instead I mean they are no longer independently industrialized.
See my post above but the poor people get all the inflation associated with the flow of wealth without the benefits.
Rampant internal inflation coupled with concentration or lopsided distribution of wealth with lead quickly to real problems in most exporting countries.
Geologically-driven scarcity sets the conditions that lead to oil-related violence: the battle over oil revenues in Iraq, the violence in the Niger Delta, the leftist policies of Hugo Chavez, China’s increasingly aggressive policies in Africa, etc.
I can't let that pass. You completely omit the key driver in above-ground violence: the US gov't. It is not just a battle over oil revenues -- it's an invasion for control of oil in the ME, which is in flames, flames fanned from here. Iran is under the gun, Somalia has been invaded, Sudan is targeted.
Chavez? How does he show up in this list of oil-related violence?
China's increasingly aggressive policies? So far China has not invaded anyone. (When they do, I'll condemn.)Their military budget is a teeny fraction of ours. To speak this way with no explicit mention of what our own gov'ts role has been -- come on. The violence in the world has has a principal source: our own gov't.
Yes, above-ground factors are obscuring the below-ground reality, and this is very much to the advantage of our own rulers. To acknowledge the below-ground facts
would oblige them to deal with them. But if they can get away with blaming it all on above-ground chaos they have had a major role in creating, then war and mayhem will continue.
Nor will I will I let it go unsaid that 9-11 was the first above-ground fact orchestrated by our gov't based on its cognizance of PO. It should be completely obvious by now, in light of all that's happened since. Don't hurl insults and invective: read David Ray Griffin and look at the early MSM video clips.
So Afghanistan should have been added above. It (too) was planned before 9-11.
BTW, I served in the Peace Corps in Nigeria in 62. I'll never forget the day my students threw their books in the air: I had showed them a beautiful proof in mathematics!
I don't question your anger with US government policies, but consider: Geologically-driven scarcity is WHY the US government is acting as they are, and therefore IT, not US government action, is the "key driver." But for geological scarcity, the US would not be in Iraq, would not prop up Saudi Arabia (leading, proximately, to 9/11), etc.
As for Hugo Chavez and China, they are both part of the new mix of geopolitical violence related to oil. Chavez funds FARC in Colombia, Morales' resistance in Bolivia, forcible nationalization in Venezuela, etc. China is inextricably linked with the violence in the Sudan and Somalia, as well as several other African garden spots. Mere inclusion in that (hastily composed) list was not intended to suggest that they are "better" or "worse" than the US actions in oil producing lands, or to condemn them--it was only intended to reflect their involvement. Moral judgments yield to realpolitic when it comes to energy--I'm not condoning this, just stating that it is my opinion of the reality of the situation.
As for 9/11 conspiracy theories, I'm not persuaded, and I've seen all the "evidence" that is supposed to persuade me, as well as being personally invovled in the ANG F-16s that were scramble out of Langley AFB. I'm a big fan of conspiracy theories, but it is my opinion that this one doesn't hold water. It distracts us from addressing what I think is the real source of our problems: it is not some secretive cabal but the fundamental structure of our economy that is creating the current geopolitical situation.
I think people focus to much on the event of 9/11 not the surrounding factors that made such a event almost certain no conspiracy needed. Consider the PLO and terrorism associated with it the actual events are the ones that happened but the certainty of a event happening existed because the organization to do terrorism existed. So no conspiracy is needed for 9/11 or the next major terrorist event to happen its simply a matter of time as long as people are committed and funded to perform terrorist acts. Its better to consider them like a fatal car crash the probability exists and the event itself is horrific and people focus on the actual events but you don't consider the need for a conspiracy theory for car wrecks. Terrorism works in the same way so you simply don't need a conspiracy theory simple bungling is sufficient to ensure terrorists will succeed periodically.
Jeff & memmel: precisely.
All you need for 9/11 is group dynamics and a certain strain of fundamentalism that stems from suicidal military tactics thought up in and exported from Iran during the desperate Tanker War.
To what extent our government is incompetent and botches up the job--well, that is to be expected... Just because our government is run by a whole bunch of insipid dolts doesn't mean that those said dolts planned 9/11. In fact, quite the opposite! It means that they are way to incompetent to ever do so and get away with it, I think that's what a proper reading of Occam's Razor would reveal--but hell what do I know! Wishful thinking certainly makes for a thrilling shock to our dulled nervous systems.
I'll also echo Jeff and say "I don't question your anger with US government policies." This country has been behaving very poorly since the 1970s. Three Days of the Condor is more like 30+ years! How little things have changed.
jbunt
Keep in mind, if 9/11 were a government conspiracy, then you must be willing to accept the fact that the Clinton administration started it. The hijackers were already in the country and already had taken their pilot training before George's administration got in office. If he were responsible, in 8 months he would have had to find these people, something the government could not do, talk them into the plot and put it all together.
And if neither Bill Clinton nor George Bush orchestrated it, just who in the government did?
Poisoning the well:
It's now impossible for a scholar to question the official narrative of 9/11 (or the assassination of JFK, as another example) without being branded a conspiracy wingnut. Well, so be it: I am one, based not on what I know to be the case, but what I know can't be the case.
I know nothing of strategy and precious little about tactics, but I do know a bit about national strategic assets. My knowledge is getting a little out-of-date, but let me assure you that "losing" those four airliners in the best-protected airspace in the world isn't even remotely credible. To those who scoff, I have only two words: Payne Stewart. Read the story of what really happens when a plane goes off track - controllers are on top of it in a New York minute, so to speak.
We suffered two attacks in September of 2001: One was a show for the whole world, nasty business but ultimately not terribly damaging, and the other was potentially catastrophic - the release of anthrax spore. Now, years later, the FBI still has nothing to say about how that plasmid-modified Ames strain came to be sent to to the congressmen who were independently investigating 9/11. Their best effort was attempting to pull a "Richard Jewell" on one Steven Hatfill, which ultimately failed.
This is the same FBI that was efficient enough to release the names of the nineteen hijackers minutes before the FAA knew that the fourth plane had gone astray, according to the oft-amended official timeline.
Of course I can't offer an alternative hypothesis, only data that falsify the offical one. Ergo, I must be a nut.
Maybe I'm just saying that a conspiracy is not needed.
As far as I'm concerned outside of some miracle a nuclear terrorist event is certain to happen as long as we have terrorists the only question is when and if its a nuclear explosive device or dirty bomb. Equivalent would be a large scale chemical or biological attack. The probability is 100%.
You don't need a conspiracy to know this.
Next I'm sure that in most cases the US has some information on practically all terrorists and may even have the needed intelligence but data does not equal knowledge and for every plot thats executed I'd suspect the terrorists plan ten or even a hundred. They are kinda like terrorist business plans cheap to formulate hard to execute. So the US probably has a lot of information on possible plans its being able to follow them and capture the people and foil the plot thats the problem again its a data vs knowledge issue. Most people that call conspiracy like to not separate out our obvious knowledge after the fact from the presence of data before the fact. So to finish yes we will experience a nuclear/chemical/biological terrorist attack somewhere in the world and yes the government will later be shown to have had data on the event and yes many will call conspiracy.
But without clear and direct evidence of the exercise of knowledge i.e a order to not act on data showing data as proof of a conspiracy is not enough. To uncover a real conspiracy you need to show the actual orders and preferably repeated orders and even better a cover up amongst very high level people. We got this info for Watergate but its rare.
The key again is showing knowledge not data.
So we have no smoking gun data is not proof and Occam's razor ensures we will suffer repeated terrorist attacks including at least one horrendous event if not more as long as we have well funded terrorist bent on the destruction of the US.
Thats called life its not a conspiracy now with that said its easy enough for conspiracies to exist but I don't see that they change the equation. As far as I'm concerned President Bush could have used another massive terrorist attack on US soil a while back to solidify support for the NeoCons and Iraq war. Yet we have not had one. If Bush was really conspiring to allow terrorist attacks I cannot believe they would not have allowed one more attack to slip through by now. The fact that he is trying to start a war with Iran instead of doing the obvious and allowing another terrorist attack on the US suggests that the first one was not allowed either. I'm sorry but for me to believe that we are allowing terrorist attacks I'd have to see a fairly consistent number of them make it through and execute on US soil without this in my opinion the argument is false.
And I'll add that if we somehow got proof of a conspiracy or if attack suddenly started succeeding I'd would not be shocked I just don't think that they are using this as a tactic now. So its not like I have a lot of faith in our government or trust now or in the future Iran-Contra anyone ?
And finally who cares ?
If they are so what ?
I think middle class America is toast and soon we will probably lose our democracy anyway simply because of security needs. Mexico out of oil/ Internal strife etc.
I don't think that any nefarious actions are needed or really change the situation we are already toast its just a matter of when we realize it. Our fate was sealed a long time ago when the US peaked in production and we did not aggressively wean ourselves of oil. Conspiracies real or imagined are really not that important the big lie has already been executed.
Brilliantly put, memmel. I applaud your efforts to convince others of the obvious.
...but let me assure you that "losing" those four airliners in the best-protected airspace in the world isn't even remotely credible.
Boston air controller (retired of course) Robin Hordon (if I recall correctly) backs you up on this (along with many, many others).
jbunt
Dave - by golly
I think that you have just discovered Murphy's Law!
Or there was a conspiracy involving 10's of thousands. I guess that I am with Murphy.
But since this is the Oildrum again the point is what does it matter to us ? I think a lot of people hear believe that Peak Oil was a big factor in Bush's invasion of Iraq which was the outcome of 9/11. It does not matter if it was and allowed event or not I'm sure either way Bush would have found another pretext to invade Iraq and Afghanistan which sets up a good pincer move on Iran. Reasonable and credible evidence for peak oil has been available for about forty years and global warming for a shorter time period yet the Americans and their governments have chosen a path that leads to almost certain destruction of most of the middle class post peak. Considering the size of the lie that our governments esp for the latest American administration is 9/11 really that important? The Necon course of action was probably determined pre 9/11 IMHO the event was a convenient excuse to initiate the takeover of Iraq but I'm certain that the Iraq war would have been fought either way. If you look back Bush did some might fancy footwork to tie Iraq into 9/11 with his WMD stuff. So again we see and administration that used 9/11 but did not seem to anticipate it. If they really meant for 9/11 to happen you would think they would have used Iraqi pilots not Saudi. If anything hiding the deep ties between the terrorists and the Saudi's is the real conspiracy. And you want to dig a bit deeper we seem to be supporting Sunni elements in Iraq vs Shiite certainly or moves make Iraq more unstable.
The goal seems to be to foment Sunni "freedom fighters" to help their brethren in Iran and separate Sunni's from Al Qaeda of possible if not then to try and re target Al Qaeda forces to foment rebellion in Iran. In any case we seem to have adopted the classical colonial approach of switching sides repeatedly supporting various groups to ensure all are weak. This is a classic method for controlling a country. Once the groups are exhausted from fighting among themselves you move out to control the country.
The real goal is too keep Iraq unstable so we have to stay and incite rebellion inside Iran.
If this mean our allies are Sunni freedom fighters that happen to be former Al Qaeda supporters ohh well. Remember that we had close relationships with current Al Qaeda members when they where fighting the Russians so don't be surprised if they eventually come around to our point of view and decide to fight the great Satan Iran an become our friends again.
I think its just a matter of time before most of the Sunni's switch sides back to support their American buddies against Iran.
Actually something like 85% + people believe that Oswald was not the lone gunman. Bugliosi has a new book out on this which is very good. I go way back on JFK w/ the mark lane books etc.so I would consider myself a reformed conspiracist on that one. That said, I think it is downright likely compared to the 9/11 ones. I agree w/ the other posters, it would be too big of an operation to keep secret. ONce something involves more than a few people in the govt,something will get out. this is one of the few positives of a vast interlocking bureaucracy.
Matt
Iran-Contra was complex and involved a lot of people and they ran that for a while before being caught so its possible.
God only knows all the stunts the CIA has pulled over the years again with a lot of people involved. Your right we eventually find out about this but only years after it happened. My rejection of the 9/11 conspiracy is simple if they indeed wanted to do something like this they would have done a lot better job of causing a event that was more directly tied to Iraq. And next because of the financial effect I can't see any American president agreeing to a attack on what was effectively one of our major banking centers. And of course the secondary attacks on the pentagon. These are basically the two places that no American would attack esp to simply stage conditions for a war.
What the conspiracy theorist don't do is build a case for these two targets vs numerous other ones that have just as big of a emotional impact without effecting the country.
Hell Bush could have killed his key generals in the pentagon attack that would have been a real pisser.
Think back to previous wars we generally have used the fake or real attack on a naval warship numerous times to start a war thats our standard approach in fact I think every single war we have had we entered because of a naval engagement Iraq is the lone exception.
Now I'm not saying that we did not have a lot of data on the attackers I'm just saying that their does not seem to be any grounds for an active conspiracy to encourage and support the attack. And if we needed to why not use the standard Naval attack or in the case of Iraq a "unprovoked" attack on a plane in the no-fly zone.
Now JFK on the other hand ....
That one reeks of CIA.
"Iran-Contra was complex and involved a lot of people and they ran that for a while before being caught so it's possible."
It also didn't stop when they got caught. There is one common denominator through Iran-Contra, Clinton, and Cheney: GH Bush and the CIA.
A lot of people seem to want to use the Occam's Razor defense to say that the government is too incompetent to conspire on 9/11. That is a good point except that Occam's Razor also favors the idea that the government isn't in charge of the government. THEN, and only then, does all the cutthroat activity to raise the price of energy make sense. If actual representatives were thinking about the future, we would already have put the speed limit back to 55, instituted mandatory vehicle miles per passenger laws, and maximized wind and solar installations, cut airline subsidies, converted as many farms and university research programs as possible to organic agriculture, maximized labor and minimized energy use, etc. If 9/11 was anything other than a false flag operation, then our goals should have been to set up a fortress America, where we became self-sufficient and well defended, instead of MORE Saudi dependent and spread all over the world chasing ghosts in the CIA databases.
Yes, the oil is the source of the violence, and we live vicariously violent lives every time we fill up a gas tank.
"If you want Change, keep it in your pocket. You vote for a faux president every four years, but you vote for real corporations thousands of times each month. Your money is your only real vote."
Jeff,
I will not take space to argue 9-11 here: inappropriate, I acknowledge that. I simply say read Griffin( and even Colin Campbell's 9-11 chapter in OIL CRISIS) or just watch some of the videos. It's just like PO, it's a matter for dispassionate (yeah, sure, in this case?) investigation. BTW, a whole slew of military people (all retired!) have come out on this issue mostly Lt Cols & Cols in the AF.
Yes, of course, we agree the US is acting as it does because of its knowledge of PO -- knowledge it does not acknowledge having! But to put China, much less Chavez in the same boat as the US is to put Czechoslovakia in the same boat with Hitler Germany. There is no doubt that some injustices were committed against some Germans in the Sudetenland.
But that had nothing to do with Germany's invasion, nor could the two be mentioned in the same breath. We are invading, destabilizing and destroying countries in a way no other country is currently doing. When and if they do, we should condemn them. No, the "they all do it" argument does not work. Or if it does, then nothing means anything.
I think PO people are, no matter their political leanings, doing a great service in bringing to the public's attention what the media and the gov't ought to be bringing to their attention. So you're a subversive whether you intend to be or not. :)
Indy
Regarding 9/11.... if it looks like a duck, quacks like a duck, and flies like a duck... it's a duck.
Same for 9/11....
Invasion of Afghanistan was preplanned to secure a pipeline route.
Invasion of Iraq was preplanned to seize oil from a dis armed country.
Planes flew around for nearly half an hour after being hijacked when US CAP standard response time is < 3 mins. Bush of all people knew that.
Plane hit one tower off center, tower began to fold, then suddenly collapses from bottom.. so fast tower straightens out....
Bldg 7 was "pulled" squibs and all....
Takes months to prep a bldg like these for demolition...
Response to 9/11 was to attack a country other than the one the "hijackers came from"
Plane which hit pentagon too big to fit into the "hole", not enough fire damage..... no wings..... no tail.... only one engine.....
9/11 was a false flag black op.....
Everyone outside the USA knows this....
"as well as being personally invovled in the ANG F-16s that were scramble out of Langley AFB. "
Is Langley tasked with P56A/P56B coverage Jeff?
davebygolly- you speak soothe. And the endnote, of an effect you caused while in Peace Corps in Nigeria, is marvellous,firsthand anecdote.
Westexas' Export Model predicts political change undoing intolerable suppression of persons on a global scale, who share common desires of freedom from tyrants.
Hopefully, real leaders will replace the misleaders.
When the masses are in power ,they do only one thing:they lynch.
--Ortega y Gassett
Jeff,
Thank you for your ideas and contributions to TOD.
The extent to which development (clean water, housing, education, health) has been abandoned in favor of kleptocracy in Nigeria is amazing and avoidable.
The magazine Foreign Affairs has an essay this month about Nigeria, ("Nigeria's rigged democracy") which includes some eye opening stats.
More than 70% of the people live on less than $1 per day. (This with a per-capita income of something like $1000).
The mortality rate for children under 5 in Nigeria is 217 deaths per 1000 births. This is astoundingly high.
During Obasanjo's eight year tenure, the country earned $223 billion. Essentially all of it was wasted or invested overseas in the personal accounts of the rulers.
"The real obstacle to progress in Nigeria is not a lack of resources; it is who controls them and how they are used"
http://www.foreignaffairs.org/20070701faessay86409/jean-herskovits/niger...
* Nigeria's political problems existed before oil production
* The vast majority of oil wealth has been funneled out of the country and was directed into the personal accounts of the rulers
* What happened in Nigeria does not have to happen in other societies either with a) viable democratic institutions, or b) a flatter income distribution and/or c) less corruption, but it could happen.
The US is explicitly and implicitly supporting the status quo, an extraordinarily corrupt regime (122nd in transparency) with rigged elections, for the sole purpose of maintaining light sweet crude flow to the US. And like most other shortsighted policies it is backfiring.
Obasanjo's priorities in 2001 were symbolized by his plans to build a $330–million national soccer stadium, an extravagance that exceeded the combined budget for both health and education.
http://www.infoplease.com/ipa/A0107847.html
We made this worse than it had to be, and we continue to do nothing to make it better. It's arguably the case that Nigeria with oil is worse off at the individual level than it would be without the oil. This is what a broken political system does for its people.
NR
LONDON (Reuters) - Oil was steady on Thursday after a steep 2 percent fall a day ago on data showing a surge in U.S. crude stocks, with the market's focus back on the general strike in Nigeria.
Oil supplies from Africa's top oil exporter were as yet unaffected on the second day of the strike, with loading of tankers at export terminals continuing normally, ship agents and oil company officials said.
Unions had threatened to withdraw key staff from loading terminals on Thursday to stop exports and exert more pressure on the government to reverse an increase in fuel prices.
"We are not seeing any impact on loadings at the moment," a shipping agent said.
Reuters Pictures
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from the last 24 hours.
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But the market remained anxious.
"The situation in Nigeria looks precarious ... All commercial marine services in Nigeria were cancelled on Wednesday further raising the likelihood of more disruptions to the country's oil sector and more oil price volatility," Citigroup analysts said in a research note.
London benchmark Brent crude was 2 cents down at $70.40 a barrel by 0841 GMT, off highs of $70.80 as it regained some poise after a $1.42 plunge on Wednesday. Prices had touched a 10-month high of $72.25 on Monday.
U.S. light, sweet crude was down 11 cents at $68.75.
From FT. Nigerian instability is going to have to be factored in as the norm, and with grain continuing to accelerate in price, the poor there,will have many more reasons to feel discontent.
www.giftofireland.com
For a good website on Nigeria, go to
oyibosonline.com
The photogallery is excellent.
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