Friday, March 02, 2007

Tho' Merlin sware the 60's should come again

The Oil Drum is suggesting that Saudi Arabian oil production is now declining due to depletion. It juxtaposes declining Saudi production against its rising recovery effort. They're running harder but they're slowing down. From the data, he reaches the conclusion that yes, the Kingdom is running out of oil. In particular Stuart Staniford concludes:

  • Saudi Arabian oil production is now in decline.
  • The decline rate during the first year is very high (8%), akin to decline rates in other places developed with modern horizontal drilling techniques such as the North Sea.
  • Declines are rather unlikely to be arrested, and may well accelerate.
  • Matt Simmons appears to be right in Twilight in the Desert, but the warning did not come until after declines had actually begun.
I suggest that this is likely to place severe political strains on Saudi Arabia within a year or two at most.

Oil Drum's prediction of declining Saudi Oil might be read in conjunction with Rami Khouri's piece in the Lebanese Daily Star, in which he argues that the state system created by European Powers at the end of World War 1 is now collapsing, in part because the fall of Saddam shook the region to its foundations, but also because it was unstable to begin with.

Do not pity or jeer Washington alone, for every single player in this tale - the United States, Hizbullah, the Lebanese government, Syria, Iran, and Saudi Arabia - wriggles uncomfortably in the mess they collectively created through their shortsighted policies of recent years. I suspect this mirrors something much bigger: We are in the midst of a potentially historic moment when the modern Arab state order that was created by the Europeans in circa 1920 has started to break down, in what we might perhaps call the Great Arab Unraveling.

Shattered Iraq is the immediate driver of this possible dissolution and reconfiguration of an Arab state system that had held together rather well for nearly four generations. It is only the most dramatic case of an Arab country that wrestles with its own coherence, legitimacy, and viability. Lebanon and Palestine have struggled with their statehood for half a century; Somalia has quietly dropped out of this game; Kuwait vanished in 1990 and quickly reappeared; Yemen split, reunited, split, fought a war, and reunited; Sudan spins like a centrifuge, with national and tribal forces pushing away from a centralized state; Morocco and the Western Sahara dance gingerly around their logical association; and internal tensions plague other Arab countries to varying degrees.

A learned British friend reminded me this week of the mixed legacy of countries manufactured by Europe at the Paris peace conference after World War I: Yugoslavia, Czechoslovakia, and Iraq. Not an inspiring record. The Anglo-American war to change the Iraqi regime has triggered wider regional tensions, unleashing powerful and often antagonistic forces of ethnic, religious and tribal identities, most of which have formed their own militias. All militias thrive on Arab, Iranian, or Western support. It is no surprise that Washington now may be indirectly assisting Sunni fundamentalist radicals of the ilk who attacked the US in recent years. America, welcome to the Middle East.

The end of Saddam demonstrated how the collapse of a Middle Eastern state -- so outwardly solid -- produced effects similar to that of a submarine whose pressure hull has failed at depth. Through every crack the seething currents of radical Islamism, ethnic hatred and the politics of terror sought their way in. America, having torpedoed Saddam found that patching the hull was not only difficult, but possibly hopeless. If oil begins to run out in the Middle East, whatever the schemes for American withdrawal, Iraq will not be so much past as prologue.

One of the tacit hopes of the antiwar movement is that the clock can somehow be set back to the late 1990s if only troop withdrawals from Iraq were begun today. If the two pundits above are correct, the Middle East will become more and not less volatile. Whoever becomes President in 2008 must come to terms with the possibility that the world has truly changed. Only with that realization will come the acceptance that new institutions and strategies are required to meet the challenges of the 21st century. The twentieth, the from which the vision of today's leaders springs, is gone forever.

Then loudly cried the bold Sir Bedivere:
"Ah! my Lord Arthur, whither shall I go?
Where shall I hide my forehead and my eyes?
For now I see the true old times are dead,
When every morning brought a noble chance,
And every chance brought out a noble knight.
Such times have been not since the light that led
The holy Elders with the gift of myrrh.
But now the whole Round Table is dissolved
Which was an image of the mighty world;
And I, the last, go forth companionless,
And the days darken round me, and the years,
Among new men, strange faces, other minds."

And slowly answer'd Arthur from the barge:
"The old order changeth, yielding place to new,
And God fulfils Himself in many ways,
Lest one good custom should corrupt the world."

26 Comments:

Blogger Pierre said...

So then I guess the idea of the Deep Hot Biosphere has come to naught?

Peak Oil

3/02/2007 05:59:00 PM  
Blogger wretchardthecat said...

Saudi Arabia will never "run out of oil" in absolute terms. But it may run out oil that can be lifted cheaply. There's loads of oil available at higher recovery costs and higher prices have made Canada a major producer by making certain deposits economically viable to exploit.

But if the Saudis begin to lose their price advantage they will have to sell at smaller and smaller profit margins. In the net the Kingdom will have progressively less disposable money. It won't be the end, but the beginning of the end of the Islamic money machine. This no doubt, will bring on immense feelings of humiliation and unrest. Incidentally, the same long term decline may afflict Iran, whose petroleum infrastructure is reportedly grinding down due to underinvestment.

In the short term a decline, if it exists, may paradoxically increase their importance as markets tighten but in the long term if the cost of incrementally adding a barrel of reserves in Canada or elsewhere becomes equal to adding a barrel of reserves in Saudi Arabia, then their special place at the center of the oil universe begins to decline.

3/02/2007 06:11:00 PM  
Blogger buddy larsen said...

Boone Pickens weighed in, this very day.

3/02/2007 06:23:00 PM  
Blogger buddy larsen said...

...also @ Boone Pickens link, scroll down, a link to a Financial Times article on Saudi efforts to diversify the economy.

3/02/2007 06:38:00 PM  
Blogger Fat Man said...

If Arabia runs out of oil, it will assume the salience in world politics that Sub-Saharan Africa occupies. Indeed it might be further down the list of things that the NYTimes clucks about, but nobody really wants to do anything about.

But that is an if.

My wife's cousin married into a family of gents who are, or formerly were, in the awl bidnis (oil business for you Yankees). At family affairs they have told me that the Saudis have enormous untapped reserves that are almost unknown outside the kingdom.

We shall see what we shall see.

I favor replacing all of the US electric generating capacity with nuclear and using nuclear driven FT processes to make deisel out of Alberta tar sands, lignite, sulphurious eastern coal and municpal waste for transportation. Oh yes, and prayer that the Arabs are running out of oil, speedily and in our day.

3/02/2007 07:42:00 PM  
Blogger allen said...

dan,

I saw that elderly Representative as well. He may have been from Texas; but I really can't recall. Indeed, the graphs were as graphic as he intended. We may have been the only two people in the US to see his soliloquy at the close of business. Sadly, other than staff the House was essentially empty. A small world, hey?

Unless memory fails, Pickens once said that it is not enough for your adversary to know you will fight; he has to believe you love to fight. That always struck me as pretty good advice for war as well as business.

3/02/2007 08:20:00 PM  
Blogger allen said...

If true, this is going to require getting our collective heads and hands wrapped around this potential for proliferation.

___Punch Line:

"Moreover, the authors state, the Pentagon and the defense industry are no longer 'at the leading edge of most of the militarily relevant technologies, having been displaced by international commercial industries and markets.'"

"The Defense Department should -- and could -- cut in half the time it takes to field major systems

Link

3/02/2007 09:07:00 PM  
Blogger allen said...

If factually accurate, the numbers for Medicare drug benefits payouts cited by the US Comproller will have an enormous effect on the future of American warfare.

U.S. Heading For Financial Trouble?

“[T]the law that added a prescription drug benefits to Medicare may be the most financially irresponsible legislation passed since the 1960s.”

3/02/2007 10:32:00 PM  
Blogger Charles said...

imho we're in for a great rebalancing. I think the hybrid cars will come onstream much faster than currently forcast judging by the way bush has battery & auto execs over regularly to the white house. The effect of large numbers of hybrids will be to greatly reduce demand for gasoline.

As well, I think within five years the cost of water desalination 1.) 2.)& transport will have collapsed--making it economically possible to turn all the world's deserts green and double the size of the habitable planet earth.

3/02/2007 11:19:00 PM  
Blogger cthulhu said...

The national productivity of any industrial input is based on the sophistication of the industrial system and the availability of other inputs.

In other words, productivity of oil is based on a combination of infrastructure, free capital mechanisms, economic structure and systems....and the availability of capital, skilled labor, technology, and other materials.

In order to improve and develop an industrial system, you have to run your existing system at your current level of productivity to improve the sophistication of your system. In other words, you hand-build the looms and the watermills that you will use to free your weavers to become machinists.

Our use (in the US) of oil is fairly unsophisticated -- most of it, we burn. Nevertheless, because of the sophistication of our economic system, the productivity of this oil in terms of Gross Planetary Product is higher than in other places in the world.

By contrast, the use of this oil in, say, China would result in less contribution to Gross Planetary Product....but would allow China to bootstrap parts of its economic system in the process, despite the drags of an unfree system of capital, non-transparent financial markets, labor misallocation due to patronage, etc.

If one posits the notion that peak oil has already occurred, the question immediately arises of where to use the oil? Should it be used to increase global wealth, or should it be used to increase the sophistication of sub-par economies? This can be especially poignant because those sub-par economies frequently are hampered by political or social factors which ensure that economic contributions to productivity never achieve 100% of the intended result.

In real terms, should consultants in the US drive 20 miles in an SUV to an engagement or should Malaysian farmers haul 100 kilos of rice to a plant on a motorcycle? Or should a plant in China produce 10,000 plastic bottles? They can all use the same oil.

Fortunately, there is an extremely useful tool for weighing contradictory economic influences in the form of dollars and cents. If we can afford to outbid China for oil in the absence of non-economic diktats, we should do so. If China’s future value of infrastructure improvements were improved by a better and more transparent access to foreign capital, then they could outbid us.

A sober discussion of peak oil, then, may bring about a better allocation of oil between nations. If this happens, it’s all to be saluted.

3/03/2007 01:08:00 AM  
Blogger Deuce ☂ said...

The world without Saudi oil will be a better place. No country has done more to spread the Islamic fever than Saudi Arabia.

I would love to return in one hundred years and see how historians treat this absurd petroleum period.
Well, maybe not. Should I return, I will have forgotten all about Saudi oil.

3/03/2007 04:48:00 AM  
Blogger Madconductor said...

There was a very good post about a week ago related to the oil reserves left in several North African and Middle Eastern countries, including SA. The estimate in that article (and I will have to find it now) was that only 3% - 3% - of the area had been used. And while wretchard points that "But it may run out oil that can be lifted cheaply", new sources can be installed without this overhead. The impression I took from the article is that even the Saudi's don't have any clue to what they have.

3/03/2007 06:56:00 AM  
Anonymous Anonymous said...

Charles said, As well, I think within five years the cost of water desalination 1.) 2.)& transport will have collapsed--making it economically possible to turn all the world's deserts green and double the size of the habitable planet earth.

And green growing things take CO2 out of the air to make their stems and leaves. But Greeny Weenies like al-Gore will oppose the desalting plants because they'll be nuclear, which they oppose on ideological principles without even bothering to glance at their new safety features like passive emergency cooling.

3/03/2007 07:26:00 AM  
Blogger DaveK said...

Argue about Saudi oil reserves all you want... they will eventually run into a production downturn, perhaps in a couple of years, perhaps in 20 years. Even so, they will continue to make a lot of money off of oil for the forseeable future.

BUT... what happens when the Kingdom runs out of water? Desalination cannot replace their needs. And the end of "cheap water" in Saudi Arabia is far closer than many would like to believe. Then you will see a serious cause of instability, since the House of Saud will be unable to buy themselves out of this problem.

When? Perhaps within a few years we will see the beginning.

Just my $.02
DaveK

3/03/2007 07:31:00 AM  
Blogger DaveK said...

Another comment about desalination...

Current major-scale desalination technologies rely on co-generation of electricity to make them economically viable. Unfortunately for the Saudis, to meet their water needs with desalination plants, they would need to provide electricity for most of Southwest Asia and a good part of Africa in order to get the balance right.

Rationing water would put a serious dent in industrial growth, as well as cause a lot of social unrest.

Another $.02
DaveK

3/03/2007 07:42:00 AM  
Blogger Boghie said...

One thing not discussed...

Could it be that Saudi Arabia might be undergoing - to a lesser extent - the same process that is spiraling Iranian production down the toilet?

The state owns the oil, the exploitation of the oil, and the transport of the oil. A very lovely Socialist Mecca we have there. Very corrupt... And, the state is tempted to use the oil wealth to tamp down internal conflict rather than ramp up production or find new fields or build a long term and modern education structure.

And, I'll bet Saudi Arabia is not a Mecca for foreign investment. Would Shell Oil rather invest in Canada or Iran or Saudi Arabia? They invest in all of these - but at the margins, eh...

So, maybe not oil depletion; but, instead oil knowledge and investment depletion...

3/03/2007 07:53:00 AM  
Blogger Boghie said...

Maybe Saudi Arabia is ready for an information and service economy!!!

Yuk, yuk...

The inevitable result of socialism is graft and corruption. I mean, what other result can you expect when politicians own and manage your economy. It really has proven to be the best way to prepare a nation for the future!!!

3/03/2007 08:10:00 AM  
Blogger Reocon said...

wretchard said...

The enemy can form coalitions too, just as the allied forces in Iraq consist of several nations, the US, Britain and Australia being the most prominent.

An observation which highlights the need to move beyond a singular identification of "the enemy" in favor a specificity. A good part of the reason for the Bush administration's rapidly shifting priorities is its uncertainty as to which branch of Islam composes the greater threat. Take for example:

Wretchard quoted . . .
All militias thrive on Arab, Iranian, or Western support. It is no surprise that Washington now may be indirectly assisting Sunni fundamentalist radicals of the ilk who attacked the US in recent years. America, welcome to the Middle East.

Wow. Wasn't this the sort of politics that got us to the present disaster? If the above quote was posted on the Belmont Club two years ago, the howls of outrage would've gone on for whole yards of commentary. Back then the "Belmot Consensus" on democracy's potential yet reigned, and the Sunni insurgents and the larger movement that funded them throughout the Muslim world were worse than the Nazis. The idea that the Bush administration would now be funding Sunni Islamists as a hedge to our lovely Shiite allies would've been regarded as treasonous. I'm not hearing alot of indignation, perhaps owing to the sullen drop of the Wilsonian fever that so gripped the conservative movement.

3/03/2007 08:17:00 AM  
Blogger Boghie said...

Wow,

I have been searching the web for cutting edge Saudi Arabian technology on de-salination plants.

Mother being the necessity of invention and all...

Certainly the Socialist (or Fascist) Saudi Family has bent their resource base toward technologies they need - and can thus produce later when their oil is depleted.

Yup, I'll keep looking!

3/03/2007 08:25:00 AM  
Blogger DaveK said...

Boghie...

Keep looking! It will take you a while to find anything the Saudis have invented for themselves.

Some few years ago, I had the opportunity to attend a conference, at which the Saudi Institute of Water Resources (or some such similar title) was arguing that all water resource research should be placed under their central control. Included in the presentation was a summary of what research accomplishments they had achieved in their past efforts. Near the top of their list was improving the efficiency of pumping groundwater from deep aquifers. Virtually nothing on conservation or reuse. I don't think much has changed since then.


DaveK

3/03/2007 08:44:00 AM  
Blogger xlbrl said...

The $.06 a barrel oil is playing out. The vast reserves of hydrocarbons above $25 are increasingly coming into play. It seems to be not yet accepted that they are literally without limit. It was the Saudis who opened the valves each time oil hit $40 in the past, to sink the investments in it and destroy confidence in those various schemes. It worked. Demand has now outstipped even the Saudis ability to do this, opening a new era. Not too soon. "A man's worst trouble begins when he can do whatever he likes." That has been our experience with oil economies. They will have a new experience coming, when once again work, invention, and industry are all that count. They don't have any. In Saudi Arabia, there are 11 million Saudis, and 9 million guest workers.

3/03/2007 08:50:00 AM  
Blogger Unknown said...

It is no surprise that Washington now may be indirectly assisting Sunni fundamentalist radicals of the ilk who attacked the US in recent years. America, welcome to the Middle East.


-- I thought we were assisting Sunni radicals to paradise where they can meet their virgins. I don't think the Sunni's in Iraq are appreciating our assistance.

http://www.strategypage.com/qnd/iraq/articles/20051030.aspx

I also doubt whether Sunni's in Saudi Arabia need our assistance very much - yet.

3/03/2007 09:04:00 AM  
Blogger www.blogs4arab.com said...

يسعدنا تشريفك
www.blogs4arab.com

3/03/2007 09:47:00 AM  
Blogger NahnCee said...

When queried, my Saudi penpal advises, "I hear that five new wells have been found in the empty quarter and are SEALED for future use since they don't 'need' them now. Plus, there is enough gold in the north mountains that if they actually go for it, the price on the markets will go down by 50%.

Conclusion: There is enough in this country for another Saud dynasty if they stay for a 100 years more. I don't know if this is good or bad news, but it is fact.

Come to think of it, it might (just might) be that the Saudis are putting this info out themselves. It takes the pressure off in some perverse way."


I like the concept that it might be a deliberate mis-information campaign. Now ... who would benefit by putting out that Saudi is running out of oil?

3/03/2007 10:23:00 AM  
Blogger NahnCee said...

so the West is looking for alternative energy sources so we don't need Saudi oil, and the Saud's are looking for alternative energy sources so they don't need electricity to desalinize their water. who will achieve independence from the other first?

3/03/2007 10:27:00 AM  
Blogger allen said...

Cedarford,

re: Israeli contributions

Do do know that you could not have written that last without the contributions of Israel? Well, you might have written it, but not electronically.

3/03/2007 11:27:00 AM  

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