The Oil Drum

This is a repost of an article that ran a few weeks ago. It was linked to by Professor Deffeyes, so it seemed a good time to bring it forward again.

It is quite common to hear experts explain that the current tight oil markets are due to “above-ground factors,” and not a result of a global peaking in oil production. In reality, geological peaking is driving the geopolitical events that constitute the most significant “above-ground factors” such as the chaos in Iraq and Nigeria, the nationalization in Venezuela and Bolivia, etc. Geological peaking spawns positive feedback loops within the geopolitical system. Critically, these loops are not separable from the geological events—they are part of the broader “system” of Peak Oil.

Topics include:

Economy – UK and Europe; Geopolitics - Caspian; Coal / China / Kyoto Protocol; Natural Gas - Iran; Russia - Wheat Exports; ASPO-USA P.O. Conf. – Media Response; Economy - USA

It is quite common to hear experts explain that the current tight oil markets are due to “above-ground factors,” and not a result of a global peaking in oil production. In reality, geological peaking is driving the geopolitical events that constitute the most significant “above-ground factors” such as the chaos in Iraq and Nigeria, the nationalization in Venezuela and Bolivia, etc. Geological peaking spawns positive feedback loops within the geopolitical system. Critically, these loops are not separable from the geological events—they are part of the broader “system” of Peak Oil.

(Repromoted due to today's explosions in Pemex's pipelines and JHK's story and link to us today...originally posted 7/12/07)

In my annual new years predictions, I said that the most significant, and surprising, development of 2007 would be the collapse of both Mexico’s economy and its very existence as a viable Nation-State. While there hasn’t been a spectacular, single event confirming my prediction, there has been a steady erosion on all fronts—with five months left in the year, I’m not yet willing to push back my prediction of Mexico’s “collapse” to 2008. The decline of the Mexican Nation-State is a bellwether for the massively complex network of geopolitical influences sometimes termed above ground factors. It provides some insight into how symptoms of oil scarcity already being felt in poorer parts of the world will increasingly spill over into our own back yard…

UPDATE: After I wrote this story (July 7th), things took a serious turn for the worse with a series of rebel attacks on Mexican oil infrastructure: Bloomberg, Forbes (research credit: Dantes Peak).

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.

Angola is one of the few bright spots in global oil production—oil production is expected to increase by roughly 2 million barrels per day to around 3.4 mbpd within the next 10 years. Angola has been wracked by civil war and violence since its independence from Portugal, with perhaps 1.5 million people dying in conflict. That 27 year civil war ended, however, in 2002, and Angola is generally seen as a relatively stable host for oil production, a perception that is further enhanced because the far-offshore, deep-water nature of most Angolan oil production makes it a difficult target for local groups with an axe to grind.

Is there anything standing in the way of this “Angolan Oil Miracle?” Other than the majority of present and future oil production being locatdd in a small and ethnically separate territory, a territory with an active and violent independence movement, and with the budding capability to effectively disrupt oil production, no.

Is Angola a budding success story or the next Nigeria?

The following is a review of US Air Force Major Patrick Sullivan’s 2006 thesis for a Master of Science in Strategic Intelligence from the National Military Intelligence College (NMIC). The thesis examines China’s strategy to “buy equity oil interests” around the globe, the methods that they employ in that task, and the resulting impacts on global oil production and US national security concerns.

This review should also be of interest because it offers a window into the strategic thinking of the US intelligence community. NMIC is the training ground for the next generation of American strategic decision makers. I have searched every thesis paper in the NMIC system for the last 9 years—no paper deals specifically with Peak Oil. This is the only thesis that deals with the geopolitics of global energy scarcity—in this case, the rise of resource mercantilism in China.

Maj. Sullivan’s thesis is unclassified, however NMIC does not provide public access to their thesis database. I have scanned a hard-copy, and made the PDF available for download:

Wildcats And Tigers: China’s Oil Acquisition Strategy and Potential Outcomes (WARNING 3MB, 130 page PDF)

Professor Michael Klare addressed the Boston conference on the second day. Respected in the peak oil community for his two books Blood and Oil: The Dangers and Consequences of America's Growing Dependency on Imported Petroleum and Resource Wars: The New Landscape of Global Conflict, Klare spoke on the difference between easy oil and hard oil and the geopolitical implications of entering the second half of the oil age.

Michael Klare, ASPO-USA, Boston

Dave Roberts at Gristmill has a post that TOD readers will want to weigh in on, and since you may not all read Gristmill all day everyday, here's the capsule summary. It's often said that oil will become less fungible as the supply dwindles, but Roberts isn't so sure that's true. He notices that many countries simply don't have the expertise or technological capability to explore and exploit their own oil resources. Roberts concludes:

Fields are aging and declining all over, and the need for technological means to squeeze out the last drops is sure to devil any country that depends on oil revenue. They can't just shut the world out -- the world contains not only geopolitical rivals and consumers, but experts.

I'm still inclined to think that oil will be fungible as fungible can be (I sure do like the word "fungible") right up until a) it runs out, or b) nobody needs it any more.

Discuss.