Peak oil: Will we see it coming?
By Edward Duggan and Steven Rothman
Published: February 3, 2008 05:38AM
--------------------------------------------------------------------------------
President Bush recently came back from his meeting with the leader of Saudi Arabia, King Abdullah, where he made a personal plea for the Saudis to put more oil on the market. The Saudis refused, claiming that the market is adequately supplied with oil.
In a later interview with ABC news, Bush cast doubt on whether the Saudis are even capable of producing more oil, saying, If they dont have a lot of additional oil to put on the market, it is hard to ask somebody to do something they may not be able to do.
Bushs trip confirms the end of a role that Saudi Arabia has long played: the swing producer. Historically, the Saudis stabilized the price of oil and calmed world markets by increasing output when necessary, as in the days after Sept. 11, 2001, and during the invasion of Iraq.
The question for the world economy is: Have the Saudis abandoned their role as the swing producer because their fields have peaked and are in irreversible decline? Even more disheartening: Will we even know if the fields are drying up due to those who have a strong interest in hiding the potential for peak oil? If we do not know, how can we prepare?
We have heard many explanations for the rising price of oil. We have heard about damage to refineries after Hurricane Katrina, the manipulation of supply by oil companies and the influence of conflicts in the Middle East and Nigeria (the so-called terror tax). Perhaps traders have simply inflated the price and created a bubble oil market.
Although some or all of these explanations are potentially true, the fact that oil may be simply running out is conspicuously lacking from these accounts. Why?
Today, some of the most powerful countries in the world are those with good supplies of oil to sell to the oil-dependent West. Without steady supplies of oil, their power would certainly diminish.
Oil exporting countries have a strong incentive to produce oil for as long as possible and to maintain the illusion that their oil supplies are endless in order to maintain their positions of power in the world economy.
The problem is compounded by the fact that these mostly monarchial countries rely on oil revenue to provide a generous welfare state to their populations. Any doubt among their people about the continuation of domestic services funded by the sale of oil could lead to insurgencies and perhaps even regime change.
We are least certain about how much oil exists underground in these nations. The national oil companies in many countries have closed books. And they control 90 percent of the worlds oil reserves. The U.S. Securities and Exchange Commission audits oil reserves for international oil companies, but these companies control only 10 percent of the worlds reserves. If we are going to know when the peak arrives, we must demand more transparency from national companies.
Businesses also have a strong incentive to maintain the illusion of unlimited oil. Oil is many companies primary source of revenue, either directly or indirectly. Automobile manufacturers, for example, rely on cheap oil to sell their expensive cars. They have an incentive to promote the idea that oil is not running out in order to maintain a customer base that does not consider the potential costs in the future.
Oil companies as well have huge capital investments in oil that are not easily transferred to other forms of fuel. The investment required to move from oil and gas production to ethanol or other energy is large and may be accomplished only through government assistance.
The few groups that have incentives to look at the potential for peak oil, such as environmentalists or companies involved in alternative energy, do not have the power or resources to demand attention.
One day, oil-producing countries will declare that they have run out of oil, and we will know then that oil had peaked long before. Should we wait until that day before we believe that production of oil will peak?
Maybe oil production already has peaked. The world economy rests on the honesty of the House of Saud and other oil producing states unless we have more transparency or reduce our dependence on oil.
HHHH
Edward Duggan and Steven Rothman are doctoral candidates in the Department of Political Science at the University of Oregon.
www.registerguard.com/csp...=1&p=print
By Edward Duggan and Steven Rothman
Published: February 3, 2008 05:38AM
--------------------------------------------------------------------------------
President Bush recently came back from his meeting with the leader of Saudi Arabia, King Abdullah, where he made a personal plea for the Saudis to put more oil on the market. The Saudis refused, claiming that the market is adequately supplied with oil.
In a later interview with ABC news, Bush cast doubt on whether the Saudis are even capable of producing more oil, saying, If they dont have a lot of additional oil to put on the market, it is hard to ask somebody to do something they may not be able to do.
Bushs trip confirms the end of a role that Saudi Arabia has long played: the swing producer. Historically, the Saudis stabilized the price of oil and calmed world markets by increasing output when necessary, as in the days after Sept. 11, 2001, and during the invasion of Iraq.
The question for the world economy is: Have the Saudis abandoned their role as the swing producer because their fields have peaked and are in irreversible decline? Even more disheartening: Will we even know if the fields are drying up due to those who have a strong interest in hiding the potential for peak oil? If we do not know, how can we prepare?
We have heard many explanations for the rising price of oil. We have heard about damage to refineries after Hurricane Katrina, the manipulation of supply by oil companies and the influence of conflicts in the Middle East and Nigeria (the so-called terror tax). Perhaps traders have simply inflated the price and created a bubble oil market.
Although some or all of these explanations are potentially true, the fact that oil may be simply running out is conspicuously lacking from these accounts. Why?
Today, some of the most powerful countries in the world are those with good supplies of oil to sell to the oil-dependent West. Without steady supplies of oil, their power would certainly diminish.
Oil exporting countries have a strong incentive to produce oil for as long as possible and to maintain the illusion that their oil supplies are endless in order to maintain their positions of power in the world economy.
The problem is compounded by the fact that these mostly monarchial countries rely on oil revenue to provide a generous welfare state to their populations. Any doubt among their people about the continuation of domestic services funded by the sale of oil could lead to insurgencies and perhaps even regime change.
We are least certain about how much oil exists underground in these nations. The national oil companies in many countries have closed books. And they control 90 percent of the worlds oil reserves. The U.S. Securities and Exchange Commission audits oil reserves for international oil companies, but these companies control only 10 percent of the worlds reserves. If we are going to know when the peak arrives, we must demand more transparency from national companies.
Businesses also have a strong incentive to maintain the illusion of unlimited oil. Oil is many companies primary source of revenue, either directly or indirectly. Automobile manufacturers, for example, rely on cheap oil to sell their expensive cars. They have an incentive to promote the idea that oil is not running out in order to maintain a customer base that does not consider the potential costs in the future.
Oil companies as well have huge capital investments in oil that are not easily transferred to other forms of fuel. The investment required to move from oil and gas production to ethanol or other energy is large and may be accomplished only through government assistance.
The few groups that have incentives to look at the potential for peak oil, such as environmentalists or companies involved in alternative energy, do not have the power or resources to demand attention.
One day, oil-producing countries will declare that they have run out of oil, and we will know then that oil had peaked long before. Should we wait until that day before we believe that production of oil will peak?
Maybe oil production already has peaked. The world economy rests on the honesty of the House of Saud and other oil producing states unless we have more transparency or reduce our dependence on oil.
HHHH
Edward Duggan and Steven Rothman are doctoral candidates in the Department of Political Science at the University of Oregon.
www.registerguard.com/csp...=1&p=print
