Nix
01-22-2007, 01:21 PM
This was copied and pasted from an email that one of my co-workers recieved.
>Classification: UNCLASSIFIED
>Caveats: NONE
>
>Your info and editorially un-edited from the original sender.
>
>
>January 15, 2007
>The Cheap Oil Mirage
>
> The American public is understandably happy to see the bottom fall
>out of the oil futures market. But temporary circumstances are only
>sending them another false signal that everything is perfectly okay on
>the oil scene. And it only reinforces the foolish belief that when
>prices go up it is solely because corporate finaglers tweak them up on
>purpose. In fact, these days it's the other way around: often prices go
>down because corporate finaglers are tweaking the markets, dumping
>positions, playing shorts rather than acting like real oil users bidding
>on real contracts for delivery for real purposes like making gasoline.
>When oil goes up, as it certainly will again, it is primarily because of
>geology -- what's left in the ground -- and secondarily because of
>geopolitics -- where it's left in the ground (and what's happening
>there).
>
>
> The supernaturally warm winter temperatures have also played a
>part, keeping inventories high while the home furnaces idle. (Last week
>it was 70 degrees in Albany, NY.) There is surely some demand
>destruction in the background.
>Third World nations are increasingly dropping out of the bidding
>(meaning their generators quit making electricity and their trucks stop
>running). And a contracting US economy may also play a part. But even
>these circumstances may not overcome the supply problems in the real oil
>world. Here's what's going on:
>
>
>
> As a baseline, it helps to understand that the four largest
>super-giant oil fields of the world are now in decline. They have been
>responsible for producing 14 percent of the world's oil supply. They are
>now old and tired (thirty years is old in the oil world) and they are in
>depletion. These are The Cantarell field of Mexico, the Burgan field of
>Kuwait, the Daqing field of China, and the granddaddy of them all, the
>Ghawar field of Saudi Arabia.
>
>
> The Cantarell field is a horror story. Pemex, the Mexican national
>oil company, tried to conceal the dire developments, because Cantarell
>alone is practically the whole Mexican oil industry. But it is now
>self-evident that Cantarell is crashing, with a 40 percent annual
>decline rate projected ahead, meaning a couple of years and it's out.
>Mexico is America's second largest source of oil imports (after No. 1
>Canada and before No. 3 Saudi Arabia). When Cantarell crashes, the
>Mexican oil industry will crash and the US will be out a major source of
>imported oil. The US will also be out of imports that were so
>conveniently close they could be shipped by pipeline rather than tanker
>ships. For its part, Mexico will be out of a major source of export hard
>currency revenue and as its economy crashes will probably become even
>more politically unstable -- meaning more Mexican citizens desperately
>seeking to get out. Guess where.
>
>
> Burgan is in decline. The Kuwaitis announced it themselves last
>year.
>Daqing has been the major source of China's domestic oil, which is
>otherwise paltry, meaning Daqing's decline will only make China more
>desperate for imports. Ghawar remains shrouded in mystery, since Saudi
>Aramco does not welcome outside audits. But at 50 years old it is well
>past the mean age of peak production for oil fields and that alone
>probably tells the story. Beyond that, we know that Ghawar is producing
>with a (best case) 35 percent "water cut" (and perhaps much higher).
>They have to pump seawater into the field (a standard
>practice) to keep the oil coming out under pressure. The trouble is that
>they are getting this substantial water cut after redeploying their
>equipment for horizontal drilling -- an ominous sign. Saudi Arabia
>declared last year that it would increase production to 12 million
>barrels a day by 2009. By close of 2006, it appeared to have trouble
>producing 9 million, with prospects for a 4 percent annual decline rate
>in the years just ahead.
>
>
> Elsewhere, Iran is not only past peak, but its domestic demand is
>so high that it cannot maintain its export levels. The North Sea, which
>saved the West's ass through the 1990s, is now crapping out at a steep
>decline rate. Iraq is on track to Palookaville, despite substantial
>reserves, and even if, by some miracle, its tired old oil infrastructure
>survives the war, the US may lose access to future production for
>geopolitical reasons that should be obvious.
>
>
> Venezuela is past peak for conventional liquid crude and hurting
>badly for technical expertise to work its oil fields since Hugo Chavez
>purged the state oil company's management. Last year, Venezuela had to
>import Russian oil to avoid defaulting on contracts. Whatever the true
>condition of Venezuela's industry, Chavez is not disposed favorably
>toward the US -- he hosted Iran's president Ahmadinejad last week to
>signal that both of them were on the same page where the US was
>concerned.
>
>
> The situation in US production is grim. We peaked in 1970. East
>Texas is near total depletion, with a 99 percent water cut (it produces
>"oil-stained water). Prudhoe Bay in Alaska now has a 75 percent water
>cut. We're on track to produce under 5 million barrels a day in 2007
>(down from a 1970 high of about 10 million), and heading relentlessly
>further down year-on-year. We burn through more than 20 million barrels
>a day. Do the math and see above (re:
>potential imports) for our prospects.
>
>
> So, for now the US public (here in the East, anyway) is enjoying
>both a winter-of-no-winter and a season of comfortably lower oil prices.
>The financial markets are doing a triumphal dance in expectation of
>soaring equity values.
>And the news media is lumbering along with its head up its ass.
>
>
> Last week, however, the US Senate Committee on Energy and Natural
>Resources, in an extraordinary session, heard testimony that the nation
>is in grave danger of a permanent oil crisis. Some of these senators
>affected to be shocked and surprised. What planet have they been living
>on? What is the nation getting for the hundreds of million of dollars
>paid to their staffers? Outgoing Republican chair, Senator Pete Domenici
>(R-NM), said to the witnesses that "what you told us today is absolutely
>startling with reference to the future." Is it too early for a dumb****
>of the year award?
>
>
> Perhaps the most valuable message the committee got came from Dr.
>Flynt Leverett from the New America Foundation, who said: "...there is
>no economically plausible scenario for a strategically meaningful
>reduction in the dependence of the United States and its allies on
>imported hydrocarbons during the next quarter century." That's the
>straight dope and we'd better stop pretending otherwise.
>
> We'd also better stop pretending that alt.fuels such as ethanol,
>bio-diesel, coal liquids, or hydrogen will allow us to keep up the happy
>motoring.
>We have to make other arrangements for daily life. We don't have a
>moment to lose. Our "to do" list is very long. If we waste our time in
>recrimination or hand wringing we are going to lose the things we value
>most, including an orderly society. So, don't be fooled by the temporary
>fall in oil prices. We're in the zone of the long emergency.
>
>Classification: UNCLASSIFIED
>Caveats: NONE
>
>Classification: UNCLASSIFIED
>Caveats: NONE
>
>Classification: UNCLASSIFIED
>Caveats: NONE
>
>Your info and editorially un-edited from the original sender.
>
>
>January 15, 2007
>The Cheap Oil Mirage
>
> The American public is understandably happy to see the bottom fall
>out of the oil futures market. But temporary circumstances are only
>sending them another false signal that everything is perfectly okay on
>the oil scene. And it only reinforces the foolish belief that when
>prices go up it is solely because corporate finaglers tweak them up on
>purpose. In fact, these days it's the other way around: often prices go
>down because corporate finaglers are tweaking the markets, dumping
>positions, playing shorts rather than acting like real oil users bidding
>on real contracts for delivery for real purposes like making gasoline.
>When oil goes up, as it certainly will again, it is primarily because of
>geology -- what's left in the ground -- and secondarily because of
>geopolitics -- where it's left in the ground (and what's happening
>there).
>
>
> The supernaturally warm winter temperatures have also played a
>part, keeping inventories high while the home furnaces idle. (Last week
>it was 70 degrees in Albany, NY.) There is surely some demand
>destruction in the background.
>Third World nations are increasingly dropping out of the bidding
>(meaning their generators quit making electricity and their trucks stop
>running). And a contracting US economy may also play a part. But even
>these circumstances may not overcome the supply problems in the real oil
>world. Here's what's going on:
>
>
>
> As a baseline, it helps to understand that the four largest
>super-giant oil fields of the world are now in decline. They have been
>responsible for producing 14 percent of the world's oil supply. They are
>now old and tired (thirty years is old in the oil world) and they are in
>depletion. These are The Cantarell field of Mexico, the Burgan field of
>Kuwait, the Daqing field of China, and the granddaddy of them all, the
>Ghawar field of Saudi Arabia.
>
>
> The Cantarell field is a horror story. Pemex, the Mexican national
>oil company, tried to conceal the dire developments, because Cantarell
>alone is practically the whole Mexican oil industry. But it is now
>self-evident that Cantarell is crashing, with a 40 percent annual
>decline rate projected ahead, meaning a couple of years and it's out.
>Mexico is America's second largest source of oil imports (after No. 1
>Canada and before No. 3 Saudi Arabia). When Cantarell crashes, the
>Mexican oil industry will crash and the US will be out a major source of
>imported oil. The US will also be out of imports that were so
>conveniently close they could be shipped by pipeline rather than tanker
>ships. For its part, Mexico will be out of a major source of export hard
>currency revenue and as its economy crashes will probably become even
>more politically unstable -- meaning more Mexican citizens desperately
>seeking to get out. Guess where.
>
>
> Burgan is in decline. The Kuwaitis announced it themselves last
>year.
>Daqing has been the major source of China's domestic oil, which is
>otherwise paltry, meaning Daqing's decline will only make China more
>desperate for imports. Ghawar remains shrouded in mystery, since Saudi
>Aramco does not welcome outside audits. But at 50 years old it is well
>past the mean age of peak production for oil fields and that alone
>probably tells the story. Beyond that, we know that Ghawar is producing
>with a (best case) 35 percent "water cut" (and perhaps much higher).
>They have to pump seawater into the field (a standard
>practice) to keep the oil coming out under pressure. The trouble is that
>they are getting this substantial water cut after redeploying their
>equipment for horizontal drilling -- an ominous sign. Saudi Arabia
>declared last year that it would increase production to 12 million
>barrels a day by 2009. By close of 2006, it appeared to have trouble
>producing 9 million, with prospects for a 4 percent annual decline rate
>in the years just ahead.
>
>
> Elsewhere, Iran is not only past peak, but its domestic demand is
>so high that it cannot maintain its export levels. The North Sea, which
>saved the West's ass through the 1990s, is now crapping out at a steep
>decline rate. Iraq is on track to Palookaville, despite substantial
>reserves, and even if, by some miracle, its tired old oil infrastructure
>survives the war, the US may lose access to future production for
>geopolitical reasons that should be obvious.
>
>
> Venezuela is past peak for conventional liquid crude and hurting
>badly for technical expertise to work its oil fields since Hugo Chavez
>purged the state oil company's management. Last year, Venezuela had to
>import Russian oil to avoid defaulting on contracts. Whatever the true
>condition of Venezuela's industry, Chavez is not disposed favorably
>toward the US -- he hosted Iran's president Ahmadinejad last week to
>signal that both of them were on the same page where the US was
>concerned.
>
>
> The situation in US production is grim. We peaked in 1970. East
>Texas is near total depletion, with a 99 percent water cut (it produces
>"oil-stained water). Prudhoe Bay in Alaska now has a 75 percent water
>cut. We're on track to produce under 5 million barrels a day in 2007
>(down from a 1970 high of about 10 million), and heading relentlessly
>further down year-on-year. We burn through more than 20 million barrels
>a day. Do the math and see above (re:
>potential imports) for our prospects.
>
>
> So, for now the US public (here in the East, anyway) is enjoying
>both a winter-of-no-winter and a season of comfortably lower oil prices.
>The financial markets are doing a triumphal dance in expectation of
>soaring equity values.
>And the news media is lumbering along with its head up its ass.
>
>
> Last week, however, the US Senate Committee on Energy and Natural
>Resources, in an extraordinary session, heard testimony that the nation
>is in grave danger of a permanent oil crisis. Some of these senators
>affected to be shocked and surprised. What planet have they been living
>on? What is the nation getting for the hundreds of million of dollars
>paid to their staffers? Outgoing Republican chair, Senator Pete Domenici
>(R-NM), said to the witnesses that "what you told us today is absolutely
>startling with reference to the future." Is it too early for a dumb****
>of the year award?
>
>
> Perhaps the most valuable message the committee got came from Dr.
>Flynt Leverett from the New America Foundation, who said: "...there is
>no economically plausible scenario for a strategically meaningful
>reduction in the dependence of the United States and its allies on
>imported hydrocarbons during the next quarter century." That's the
>straight dope and we'd better stop pretending otherwise.
>
> We'd also better stop pretending that alt.fuels such as ethanol,
>bio-diesel, coal liquids, or hydrogen will allow us to keep up the happy
>motoring.
>We have to make other arrangements for daily life. We don't have a
>moment to lose. Our "to do" list is very long. If we waste our time in
>recrimination or hand wringing we are going to lose the things we value
>most, including an orderly society. So, don't be fooled by the temporary
>fall in oil prices. We're in the zone of the long emergency.
>
>Classification: UNCLASSIFIED
>Caveats: NONE
>
>Classification: UNCLASSIFIED
>Caveats: NONE
>