Date: Wed, 07 Jan 1998 09:18:07 +0000
From: Mark Jones <Jones_M-AT-netcomuk.co.uk>
Subject: Re: M-I: oil depletion


It must be easy to get a job at SUNY these days, especially as an oil 'expert'.

Most of the canards, sloppy thinking and hoary old myths Greg Nowell serves up, I
already dealt with in voluminous earlier postings, and I will revisit them.
But a few first thoughts, and thank you Doug for taking notice of my
efforts.

Nowell:

> I don't doubt that there is a quid pro quo between non-aggressive oil pricing
> andU.S. provision of a defense shield for the Persian Gulf.  BUT,  this is
> a facile view of OPEC interests.  They are major bondholders and stand to
> lose in inflation or stagflationary price scenarios.

What is facile? That there can be political upheavals in the middle east which can
effect oil prices? What distant galaxy was Nowell visiting in 1973, 1986, 1991?

Nowell:

> Moreover they have
> seen that major price spikes lead to permanent changes in consumption
> patterns, such as U.S. CAFE legislation.

CAFE legislation has not resulted in much lowered average mpg figures: if anything
the trend is down again, as Americans buy 4-litre 4 wheel drives. Compare European
figures and see the difference a different oil tax regime makes. But in any case
Nowell misses the real point: US imperialism is dependent on its military grip over
Persian Gulf satrapies, and the mid-east is a fault-zone in the heart of world
capitalism. What would hapen if a fundamentalist regime succeeded the present
courrupt Saudi government? As usual with such 'experts' Nowell is comfortable with
the thought that nothing ever changes, ever. If you read Tom Clancy and see
everything from the bridge of the USS Enterprise, the world can seem like that.

Nowell:

> We would be LUCKY if the world were running out of petroleum.  There
> areplenty of
> substitutes to keep vehicles rolling.  No such luck.   This writer also ignores
> huge tar-sand oil deposits in Canada and elsewhere.

Why would we be lucky? What an odd thing to say! And I do not ignore tar sands, but
this is a discussion about CONVENTIONAL (cheap) oil. People have been trying to
make money out of Canadian tar, Venezuelan crude, forever, and not succeeded. 
The Russians have just now abandoned their Venezuelan project. When we come to 
depend on those sources (and we shall) then the price of oil will at least
quadruple: and there is also a huge enviornmental cost from using these 
polluting substitutes.

Nowell:

> As energy maven Morris Adelman writes, oil reserves are primarily an
> inventoryproblem.  If you were running a sheet supply store would you invest in
> acquiring
> more sheets if you knew your warehouse had a 25 year supply?

Of course, you wouldn't, and as I disucssed in earlier postings, that is why oil
reserves AS REPORTED are always mysteriously just enough for the next 20 years: 
oil corps are capitalist companies and work out their IRR's
on a 20 year basis like all companies using normal accountancy procedures.

What Nowell does not do is address the fact that oil reserves ARE
geologically, physically finite. He is not a geologist, obviously. The question is,
how finite are the reserves? This he does not address, other than by a very typical
kind of oil-industry hype: "even when they drill for water, they come up oil". I
have been looking very carefully at the figures, and I have been following the
geological interpretations of Laherrere, Campbell, Ivanhoe and others who actually
know the subject (I have also worked in the oil industry, enough to guess when oil
men are telling the truth, and when they are hyping their claims).

Even the USGS does not claim that the world's original endowment of conventional
oil was more than about 2200 bn barrels. That puts an ultimate ceiling on 
recoverable oil, even from Kuwait water-wells. And we are fast approaching 
the half-way mark. If the Hubbert model is right, once that point is reached, 
oil production wil begin to decline, gently at first, than sharply. Why does 
Nowell not address these well-known facts, instead of repeating 
oil industry hype?

Nowell:

> ??? Does he know what he's talking about???  An exponential curveis NOT a
> gentle
> decline--though I suppose it can be at the tail end as
> you approach zero.

The Hubbert Curve is exponential as it approaches zero. Nowell perhaps does not
believe in the reality of the Hubbert models of reserve depletion. If so, he 
should explain why.

Nowell:

> But in any case if a gentle tapering of production is
> forecast than there is even less to worry about.  That would leave plenty
> of time for 60 mpg vehicles to be introduced (such as hybrid eleectric/
> gasoline cars already under developme3nt for California).

Well, they have 60 mpg tricycles thoughout Asia now, so in this respect India
 is ahead of the US. 

Unfortunately this does not solve the energy shortage for people on
Asian average per capita incomes. When 60 mpg vehicles become the norm in
California -- and this is the unstated bit of Nowell's argument, and the key bit:
it means the oil price will have quadrupled. That's because (a) non-OPEC sources
will dry up and OPEC swing producers like Iraq will not be able to cover the
shortfall and (b) the world will be moving to highly expensive, last-resort
non-conventional sources (tar sands etc). Given present demand-trends, this
situation will be upon us within a decade. This may not matter very much in
California, but it wil be an economic disaster for 2/3 of the world which has
already effectively missed out on the cheap-oil era. And as long as California is
still part of world capitalism, then you better believe that even there they will
notice something is wrong.

US oil production will fall to about zero within 2 decades -- where will the US
take/steal its oil from then? And solar, fuel cells, hydrogen etc are NOT effective
technical or economic substitutes, so here too Nowell is wrong. Anyone who
thinks that the end of the cheap-oil era does not represent at
best a massive transformational problem for world capitalism, and at worst an
economic disaster worse than the Thirties, is wrong.

Nowell:

> Yes, but he's taking the low end figure for Caspian production and measuringit
> against forecast high-end consumption.  Stupid.  Consumption patterns can
> and do change.

Why do consumption patterns change? What Nowell means is that Asia will not after
all continue to grow, that Chinese and Indian demand projections are too high. So
he already condemns them to economic failure, yes?

As for 'low-end' figures for Caspian production, if Nowell like the Wall Street
Journal is capable of passing off reserves which have from a geological/technical
point of view, a 5% chance of being recovered, as 'reserves' like those which are
already known, accounted for, and likely to be 90% recovered, then yes, mine is the
'low-end'Caspian take. But until those 5%-possible reserves become something more,
they are not credible.

Nowell:

> But Caspian production is probably closer to Saudi Arabia
> than to 26 bbls.

Why? He does not say. I repeat there is only a 5% chance that Capsian reserves are
as big as Saudi reserves.

Nowell:

> And there are other major resources in Russia.

Oh, really? As it happens, my scepticism about the oil industry springs directly
from my Russian experience of it. I should like to know what Nowell bases his
optimism on. I have posted considerable statistical detail in the past and
conscientiously tried to comment it, perhaps Nowell will do the same. It's what
he's paid for, after all.My take on RECOVERABLE Russian oil reserves is much less
than 100 bn bbls.

Nowell:

> And
> Iraq has so much oil that the world's major oil interests are more interested
> in keeping production controlled rather than letting it come on line and force
> prices down.

On the contrary, Iraq is the key swing producer and it is heavily under-invested,
altho it is now spending a lot on beefing up production and downstream activities,
but not enough to satisfy projected world demand.

Nowell:

> >The US IEA 1997 report says Caspian oil will flow at between 1m and
> >4m barrels per day, ie between one and four percent of world supply.
> >But most observers do not expect more than 1m bbls a day. The
> >neighbouring Tengiz field onshore in Kazakhstan was supposed to be
> >delivering 1m a day by 1990, but still is not.
>
> Yes, well the *political* dimension of production are not predictable: by this
> guy or anyone else.

That is just my point. Except that Tengiz problems are more technical than
political. Tengiz is a classic example of oil-industry hype not working out.
I was in Russia when Bush signed the deal with Gorby. Remember Tengiz oil,
anyone? It was supposed to save capitalism, back in 1986 after the Iran-Iraq
war price hike. The real point is that PER CAPITA world oil consumption
seems already to have peaked about 1993. Think about it.

> I've been reading this kind of junk since the late 1960s,> and since I became
> more "professionally" interested I've found similar materials for nearly every
> decade since the oil age began.  In fact, the world running out of oil was
> one of the coal industry's arguments against developing petroleum powered
> fleets pre-WWI.  Indeed, even the coal industry had its resource-shortage
> scares.  Jevons running-out-coal book was published int he 1860s.  As with
> today's oil futurists, it involves an assumption of linear technological
> development.

As usual in these cases, Nowell does not bother to answer detailed
argument. I have been reading Nowell's kind of junk for a long time too, and he
does not explain why it is that in the era of cheap-oil, two-thirds of the world
has to manage without it. That's because oil is not really cheap at all, just that
the world economy is skewed to make it a cheap input for imperialist countries
which control it, starting with the US where it is cheapest, despite the US having
to import half its oil. Oil is an extremely finite resource, and it is also
irreplaceable to the capitalist world system in its present incarnation. The
change from coal to oil, which Nowell thinks proves his point, proves the 
opposite: it resulted in a world war and the collapse of the British imperium,
and that led to 1917 EVEN THOUGH a far better substiute to coal was at hand, namely
oil AND a hugely-powerful new imperialism, untocuhed by war, was also at hand.
Where are those things waiting in the wings today?

Yes,  Jevons wrote a book and he did not anticipate the oil era.
Nor did Lenin as late as 1916. But the world has moved on a little since those
times, and we know a lot more geology, and a lot more about the physics and
economics of energy. We understand the nature of the problem more, and we have been
scouting the alterantives to oil: nuclear, solar, wind, cold fusion, methane from
chicken shit about exhausts the list. None of them will solve the problem of
impending oil shortages, and if all Nowell has to pin the future of capitalism onto
is the gleam in the eye of some thirteen-year old high school Einstein, then we are
all in for a bumpy ride.

Nowell:

> In my book, finite resource depletion theory is a very poor and undependable
> model.  I wouldn't give it two cents.

But finite resource depletion is not the model, actually. What is at issue is
energy prices and their effect upon the capitalist world economy. As I've
repeatedly said, it's entirely possible that world capitalism will overcome the
wrenching difficulties posed by impending oil shortages, just as it might overcome
the problems of greenhouse emissions. But it will only happen thru crises, which
are going to big and which are already inevitable. Nowell sneers at the very
possibility of crisis, but then he isn;t a marxist, and that's just why we are,
isn't it?

Mark Jones




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