The Yergin Puzzle

August 1, 2005
     We begin this ominous month with the curious case of Daniel Yergin, who won the Pulitizer for his 1992 epic history of the oil industry, The Prize, later turned into a PBS megadocumentary. Since his big score, Yergin has set up a public relations firm called Cambridge Energy Research Associates (CERA) which, in the spirit of the PR profession, seems to have become the main disinformation organ for its clients, the major oil companies.

      In a piece published in yesterday's Washington Post, Yergin takes the position that there is no problem with the global oil supply. Over the next five years, he says, both OPEC and non-OPEC producers will come up with an extra 16 million barrels a day, taking the world from its current 85 m/b/d to 101 m/b/d in 2010. This will happen, he says, because of "new technology" used to exploit unconventional sources of oil such as tar sands, ultra-deep-water developments, and natural gas liquids.

      More than a few elements of Yergin's pitch are shifty. The slyest one is that he does not mention that unconventional oil tends to be very uncheap, and since it is cheap oil that enables America's "non-negotiable" easy motoring way of life, and the debt-fueled suburban sprawl-building economy that has evolved to serve it, there may indeed be a problem further along in the pipeline, so to speak.

      Yergin also leaves out the fact that most (and perhaps all) of the world's major conventional oil fields are past peak and now depleting at between three and twenty percent a year -- and, ironically, as in the case of the North Sea, the more advanced the drilling technology, the more efficiently the oil is recovered, the greater the rate of depletion.

      The big question mark, of course, is Saudi Arabia, which until recently was believed to be years short of peak. A new analysis by Matthew Simmons, chief investment banker to the US drilling industry, and author of the just-published Twilight in the Desert, concludes that Saudi Arabia is peaking now. Simmons adds that the Saudi's 30-year-old super-giant Ghawar oil field (from which SA gets more than half its crude) has been structurally degraded by aggressive over-production and by the practice of injecting sea water into the geological strata in order to keep the pressure up in the wells.

        Saudi oil reserve figures have been guarded as "state secrets" since they nationalized their industry in the 1970s, so nobody, including Mr. Yergin, knows for sure what is left under the desert. But we do know what is coming out of the Kingdom in its tankers, and despite repeated promises to increase production in order to goose down prices over the past year, the Saudis have failed to do so. This we know.

      Among the other things Yergin's rosy analysis leaves out is that oil is inequitably distributed among the nations of the world. It is a generally accepted fact that roughly two thirds of the remaining oil lies under the Middle East, and another substantial fraction is in Central Asia. That is to say, it belongs either to people who hate us, or to landlocked countries on the farthest side of the globe (next door to China). Another significant pool (though past peak) belongs to Venezuela, run by Mr. Hugo Chavez, who remains irked by American attempts to overthrow his regime and have him bumped off. These facts ought to give pause to the confident.

       The conclusion that a reasonable person might draw is that the West, and America in particular, is liable to have trouble getting its mitts on all the oil it needs, and that the industrial nations altogether are headed straight into a fateful geopolitical scramble for whatever's out there. That's exactly why we are in Iraq, by the way. It is our central forward base to secure Middle East oil supplies. And it also why we have embarked on the somewhat crazy and dubious project of setting up bases in several former Soviet republics. (Kyrgystan has just asked us to pack up and leave.) A great game is underway and the patriotic steroids that America has been taking since 9/11 are no guarantee that we will end up the winners.

      Along these geopolitical lines, we note today the death of King Fahd of Saudi Arabia. Fahd had been disabled by a stroke for years, and the Kingdom has been effectively ruled during this time by his half-brother Prince Abdullah, who now becomes king. Abdullah himself is 82 years old, and whatever his abilities have been, he would not now seem destined for a long reign. What follows Abdullah --with Arabian oil entering its arc of depletion, and the kingdom's oil welfare disbursments shrinking among an exploding population, including a large number of unemployed, futureless, non-royal angry young Arabian men occupied in the study of a militant wahhabism -- may be a very turbulent chapter in the history of that region.

      These are the things that Daniel Yergin's public relations escort service to the oil industry doesn't want to talk about. By the way, the price of oil this morning: $61.02 a barrel as I close.

Comments

[Jeroen Polak]

Jim, thanks for once again a great post.

With the P.O. information and news flashes thrown at us at the moment, one starts feeling more and more uncomfortable...

Today i finally understand the full meaning of the saying "Ignorance is Bliss"...

[Blaine]

Even if Yergin is correct it only delays the day of reckoning viz.Peak Oil--doesn't it?

So, now is the time to start building on solutions. If oil is not to be found in our future, what then?

Shall suburbanites start tearing up the lawn and plant sorghum?

[bud4wiser]

"Arabian men occupied in the study of a militant wahhabism --"

Maybe if the US troops in Iraq hand out enought CDs and candy to Iraqis, it will counter the influence of all the middle eastern "schools" sponsored by SA teaching Islamic dogma to the kiddies... Yeah, maybe.

[Teräs Koura]

Ghawar is actually over 50 years old. It was discovered in 1948, if I remember correctly, and production begun in 1951.

It's true that conventional oil production will probably soon enter into a period of decline. The decline will fortunately be cushioned by coal liquification and gasification and unconventional recovery techniques such as pumping supercritical CO2 into old fields to coax stranded oil out. There is also ultra-heavy oil in Venezuela that could be upgraded using hydrogen from nuclear power plants. (Hydrogenation is a standard technique of oil refinement.)

But, as you say, unconventional oil is uncheap. The age of dirt cheap petroleum will soon be over.

[speedbird]

In a 'post-peak' world, the price will rise until demand matches (dwindling) supply. How high will that price be? Are there other problems associated with trying to reduce demand? There's a lot on this site suggesting that the answers to these two questions might not be pleasant...

[steve duncan]

Americans have no concept of the size of foreign economies, their populaces and the growth they're experiencing. China and India alone will outstrip the U.S. in oil consumption in another generation. The Chinese are entering an era of more widespread automobile use. Even a small percentage of a billion+ people owning cars eats a lot of oil. As they further industrialize and democratize additional consumption from trucking, air travel, leisure and waste will compound world demand problems. Wars are inevitable as the U.S. refuses to aggressively pursue alternate fuels and conservation. Our grandchildren face a bleak future.

[Jussi Hämäläinen]

"(Kyrgystan has just asked us to pack up and leave.)"

Surely, you mean Uzbekistan?The one with the President-for-Life Islam "Boiler" Karimov?

[jvangi]

Steve Duncan wrote "Our grandchildren face a bleak future".

As long as we think like that, we won't try to act quickly...

I'd rather write : "WE face a bleak future".

PS: Jim Kunstler... Try not to give amunition to your detractors about your lack of reference in your comments (which are good), please. It is Uzbekistan that asked the USA to leave not Kyrgystan.

[phonono]

And it also why we have embarked on the somewhat crazy and dubious project of setting up bases in several former Soviet republics. (Kyrgystan has just asked us to pack up and leave.)

At the risk of passing off as an annoying fanatic of nitpicking, I just wanted to say that it was actually Uzbekistan that decided to do away with the American base on its land, not Kyrgyzstan. Whether it is because Islam Karimov is still in power and has judged that the presence of American military is undermining his regime is subject to speculation.

[kd]

Good point, Steve, about the growing rate of oil consumption by China & India. I wonder if "experts" like Mr. Yergin have taken that into account.

We've given a lot of attention to the End of Sprawl, but the military ramifications of--Jim's fine phrase--a "fateful geopolitical scramble" for what's out there are even scarier.

[steve duncan]

Ivangi, I wasn't downplaying the perils this generation faces. Time passes quickly though and I'm betting we'll cobble together enough oil for us 40 & 50-somethings to reach our graves with mostly minor discomforts and upheavals in our lifestyles. If by bleak you mean failing to act responsibly and thereby screwing over future generations than yes, we are in bleak times.

[speedbird]

So what we're saying is that the price of oil is going to be beyond money pretty soon...

How soon? I'm not sure I want to pay that much.

[Dave]

This past week posted on the Energy Bulletin web site was a map of Florida later in this century when sea levels have risen 23 feet. Its not pretty. Miami, Tampa, Clearwater, Bradenton, Fort Meyers, the Keys and the everglades gone forever ! That is only Florida the rest of the planet is not shown and it projects only if the Artic and Greenland continue to disintegrate at the rate presently witnessed. What is not factored in is the Mother of All Meltdowns- Antartica.
There is no future get it ! Its done ! The Cenozoic age is over and something else is coming into its place. The sooner we face that reality as a species the sooner we can begin to close down the doomsday machine to partially lessen the consequences of our past acts.
In the meantime the doors of the the Last Barrel Saloon remain open and Dr. Karma still sits on his stool to tell you straight on "Payback is a bitch !"

[Si]

One of your best Jim!
We can as like the Times or The New York Post be positive, luckygo, happy..., but the situations says otherwise.Here's a wonderful quote that sums up the cluelessness man is about to face.
And the key?

"Beyond this single trait of hers . . . I set nothing further down for his remembrance . . . " I thought of the children of two bemused generations. I could set nothing further down for them.

I heard a knock, the door to my study opened and my wife stood on the threshold smiling wryly. I wondered about that smile, and I wondered still more when she spoke.

"What a waste!" she said.

Could she be referring to a waste of time? Had she perceived my purpose and deemed it hopeless? Then I noticed she was looking over my shoulder, so I turned to follow her glance and understood.

I had been sitting with the lights still on, at my desk and around the room . . .

Yet here it was, broad daylight!

[john @ blogenlust]

Why is this month more ominous than others?

[Max]

With the death of King Fahd I fully concur with Jim that SA is now in for a possibly very turbulent future. Trouble is, given our now complete dependence on hydrocarbon fuels to keep our modern society running so are the rest of us. Even without the possiblity of an Islamic revolution in SA that country is already looking very shaky as far as its oil output is concerned. To those who doubt me please read Twilight In The Desert; I have just finished it and it left me feeling distinctly uneasy as far as the future of SA oil goes. Or, more to the point, its ability to continue being the worlds' sole swing producer of oil.

[lazlo pink]

mr. kunstler, i wish that you would post more frequently, your voice needs to be heard. we seem determined to follow the path of fools and gluttons and we shall reap what we have sown. in the mean time, there are those of us who seem to be able to perceive the forest in spite of the trees. perhaps you could rally together a discussion of alternatives to petroleum, geothermal heating and cooling, solar assisted heat exchange, monolithic construction methods and with persistance we might just aid in shifting the current paradigm. here's to hope, here's to the future, here's to you sir.

[Mauricio Babilonia]

For those commenters who have written about JHK's Y2K warnings, you might be interested in this bit comparing Y2K and Peak Oil...

http://www.worldchanging.com/archives/003224.html

...the point of which is that we did something about Y2K.

[xenotype]

Y2K was a relatively cheap fix (despite which Kunstler freely postulated an unavoidable apocalypse). The problem with all you Jeane Dixon wannabes is that you really DO NOT know what the future will bring. I am in full sympathy with anti-sprawl, anti-SUV, and pro-conservation policies. But Schadenfreude is not a policy. Indeed, it's closer to nihilism. Think a bit more deeply about your eagerness to see 80% of the human population erased in a post-petroleum die-off. The arguments we need to be making are about energy and the future, not getting lost in Kunstler's boutique outrage about suburban crapola and tastelessness. Cassandra is a very easy role to play but it's much harder to love it the way it actually is.

[ross]

I read Daniel Yergin's book years ago and found it fascinating. However, Yergin is indeed a shill for the Oil industry, and his analysis on the whole amounts to a best case scenario which no sensible person should put any stock into. As JHK points out, the Saudis have shown their inability to expand production time and time again. The only thing that forestalls the imminent arrival of PO is the poisonous cure of a Great Depression brought on by an implosion in the financial realm which could be self induced or made possible by, for example, a worldwide avain plaugue which would severely disrupt worldwide commerce. Just call me Mr. Sunshine.

[Weaseldog]

Xenotype, the universe doesn't care one whit what we think or what we want. And I haven't seen the glee in this predicament that you see. Perhaps, you're just opening a window to your own soul in such a post?

[Weaseldog]

The King is Dead. Long Live the King!

It's now time for Bush and Rice to got to Saudi Arabia, and kneel down to kiss some rings.

[biztheclown]

I don't know, xenotype. I have not read JK's other books, but "The Long Emergency" has a host of really good arguments about suburbia that have nothing to do with that landscape's aesthetic horrors. It's mostly about the buildings--where they are, what they're made of, how far apart they are from each other. There's one bit in there about the big box store type buildings; how they all have flat roofs that are pierced through by plenty of mechanical devices. These roofs are only kept intact by the liberal application of petrochemicals. To me it was one of the scariest lines in a scary book.

I do agree that this subject does push one to nihilism. I feel it some myself, though I am filled with revulsion at anyone who is "eager" to see the die-off happen. (no one in this thread meets that description that I can see...)

As JK says at the beginning of "The Long Emergency," talking about the things you theorize could very well happen does not mean you endorse or welcome them.

[Weaseldog]

I think what Xenotype is trying to say is that if you're standing on a railway track and a train is coming, ignore it and it will go away. To acknowledge the oncoming train, would be to grovel in the excesses of self pity and the hibris of narcsissm.

Only a Cassandra would point to an oncoming train and argue that getting run over by it, would be a bad thing.

[Weaseldog]

hibris = hubris