Too fearful to publicise peak oil reality

[CHIMO]

It is very hard for the average person in the street to come to a sensible conclusion on peak oil. It's a subject that prompts a passionate polarisation of views. The peak oilists sometimes sound like those extraordinary Christians with sandwich boards proclaiming that the end of the world is nigh. In contrast, the the international economic establishment – including the International Energy Agency (IEA) – has one very clear purpose in mind at all times: don't panic. Their mission seems to be focused on keeping jittery markets calm.

Faced with these options the majority of people shrug their shoulders in confusion and ignore the trickle of whistleblowers, industry insiders and careful analysts who have been warning of the imminent decline in oil for over a decade now.

Remember the Queen's question – that uncannily accurate and strikingly obvious question she put to economists at the London School of Economics a year ago after the financial crisis: did no one see it coming? Apply that question to peak oil and the answer is that many people did see it coming but they were marginalised, bullied into silence and the evidence was buried in the small print.

Take the 2008 edition of World Energy Outlook, the annual report on which the entire energy industry and governments depend. It included the table also published by the Guardian today, and the version I saw had shorter intervals on the horizontal axis. What it made blindingly clear was that peak oil was somewhere in 2008/9 and that production from currently producing fields was about to drop off a cliff. Fields yet to be developed and yet to be found enabled a plateau of production and it was only "non-conventional oil" which enabled a small rise. Think tar sands of Canada, think some of the most climate polluting oil extraction methods available. Think catastrophe.

http://www.guardian.co.uk/commentisfree/cif-green/2009/nov/10/peak-oil-fear-economic-establishment

[iamtechus]

1. What effect will this "revelation" have on the price of oil?

Forget the bullshit. Follow the money.

[bhikkhu]

2. The price of oil is not really the point

"Peak oil" is about how much oil is in the ground and how much we can get out of the ground. "Following the money" has been a part of the whole "bullshit" problem - economists tend to treat the problem as a supply and demand equation, and so treat the resource as potentially infinite, depending upon price.

You get better answers and information if you ask a geologist.

[happyslug]

3. Unpredictability, which upsets the powers that be

Remember if peak oil occurred in 2005 (The consensus outside of the EIA) and then plateaued till 2009.

We have to remember the high price of 2008 was the result of the two interrelated but separate situations, first peak oil production in 2005. Then from 2005-2008 the slow but steady reduction of oil stocks held by the oil companies (and others). When those stocks started to hit Zero, they was no more oil to meet demand, so the price started to zoom till the economy cracked and total oil consumption dropped like a rock (Speculators help in pushing the price up and then down, but that is what speculators do, the real problem was the lack of oil which no one wanted to address and when people started to blame the speculators everyone jumped on that wagon rather then say, how could the speculators drive up the price UNLESS THERE WAS A REAL SHORTAGE OF OIL?).

Anyway, economist have long found out that given a option between price stability (even at a high price) and rapid fluctuation in the price of an item (even if overall the price is cheaper) people opt for price stability. The Energy Information Agency (EIA) understand this as does Wall street, thus both groups want prices to be stable (That the stable price is high or low is unimportant, it is the stability of price that is the concern).

The price of oil has been "stable", it has had some ups and downs, but as a whole tend to be stable (it may go up every year, but no sudden jumps up and down in price). When oil was first drilled for in 1859 by Colonel Drake, the price of oil could vary widely till John D. Rockefeller proceeded to provide price stability in the form of his almost total control of oil production and distribution. He developed his monopoly the old fashioned way, he undercut other producers till they went bankrupt and then bought them out. Now how did he get the money to undercut his competitors? By providing guarantees to buyers of oil of a set price, no matter if the going price was higher then he had promised to sell it for (and buyers would be compelled to buy oil from him even when the market for oil was cheaper). This permitted buyers to set a budget for their costs and thus was preferred to being at the mercy of the market. Standard oil provided this "Service" from the 1860s till it was broken up in 1912 (AND the Texas oil fields opened up, both together let to a drop in the price of oil from 1912 till the 1950s when the price of oil bottomed out). People preferred a high, but stable price over a rapidly fluctuating price, even if the later is overall cheaper.

Now, with the break up of Standard oil in 1912, Standard oil could no longer control the price of oil. This was compound by the fact Gulf oil Company and other producers had opened up the Texas oil fields which Standard oil had little control over (Mostly do to trying to avoid the 1912 anti-trust action AND a lack of belief in Texas oil). Now price WWI increased the demand for oil and the subsequent boom in rural America (Do to the fact Russian wheat was no longer on the market for sale in Western Europe) lead to a boom in prices, but as Russian Wheat returned to the world market after 1927 (and the buyers of New Cars in rural America stopped in the late 1920s) the price started to fluctuate again. Into this mess stepped the Texas Railroad Commission. After the finding of the Texas fields in the early part of the 20th Century, Texas became the single largest producer of oil in the world. The Texas Railroad Commission had the power to regulate oil production (Fields overlapped many properties and each owner had the right to pump oil, to avoid one producer stealing the oil from his neighbors the Texas legislature gave the Texas Railroad Commission the power to regulate how much oil any pump could produce, thus sharing the oil with everyone who owned land over that oil field). Now this power of production could also be used to restriction production to keep the price of oil stable and this is what the Texas Oil Commission did from the 1920s to the late 1960s. During that time period, only during WWII was people to pump all the oil they could out of their fields, if the price started to drop, the Commission would order the amount of oil produced down, if the price went to high, they would open up the pumps. Thus the Texas Railroad Commission set not only US oil prices from the 1920s to 1969, but also the rest of the world (The US was a net oil EXPORTER till 1969). OPEC was founded in 1960 and the joke at the time was OPEC was formed so that the Seven Sisters could tell all of the OPEC members what the Texas Railroad Commission had set as the price of oil and thus how much each OPEC member was going to get from the seven sisters.

This price stability survived till 1969, when do to increase demand for oil the Texas Railroad Commission opened all of the pumps, but the price kept on going up (Going from about 25 cents a gallon in 1968 to 35 cents a gallon by 1972). People were upset about that price increase, but what happened next brought it home, the oil embargo of 1973 which pushed the price to 80 cents a gallon. No one had a problem with these high prices, even the higher prices at the time of the Iranian Revolution in 1979. The problem was the post-1982 oil glut, caused by the following:
1. The Russians, the English (The North Sea) and the US (The North-slope of Alaska) all had very large oil field come into production (These are the last three oil fields of this side, all findings since that time have not even been close in total size).
2. Iraq and Iran were in the middle of a war, and both sides were cheating extensively of their OPEC quota so they could buy more guns to kill each other with.

Together the above two facts lead to a huge oil glut and a drop in the price of oil (Not necessarily in Dollar terms, but in real terms given the steady 6-8 % inflation rate we had under Reagan and Bush I). I was in Texas at that time and all you read about was how the price of oil was dropping and how it was hurting Texas. While everyone blamed Iran and Iraq, English Price Minster Margaret Thacher also wanted the extra money from the oil so she could break the English unions. Thus a pattern developed, Thacher would cut the price of North Sea oil to increase market share, Saudi Arabia would cut its price to match Thacher new price (sometime it was Nigeria or another producer but Thacher was always the person to move first. Finally after 2-3 years of this, Saudi Arabia had enough, it dropped its price of oil below the cost of production of North Sea oil. Thatcher did not know what to do, she was now looking at PAYING to keep her oil production up, instead of getting money from those wells for other things. After about three months, Saudi Arabia upped its price and Thacher had learned her lesson, she matched that price not undercut it. From that date onward it was understood that Saudi Arabia would be setting world wide oil prices in the same manner as had the Texas Railroad Commission did earlier in the Century, if the price goes up to high, Arabia would increase oil production to bring the price down, if the price went to low, it would cut production. Technically OPEC was to follow Saudi Arabia's lead, but those bunch of cheaters, cheated on how much oil they were exporting and cheat on production to this day. Saudi Arabia knows this, but till recently only Saudi Arabia had the excess production to play the game it was playing (and the Texas railroad Commission and Standard Oil had done previously).

Notice the key demand is price stability, Saudi Arabia is believed to have lost control over price about 2005 as it went into full production (This is denied by Arabia but matches the price of oil since that date). Like the period after the Texas Railroad Commission lost control over world wide oil prices, the prices slowly went up, but sooner or later you hit a snag and it becomes clear that no one controls the price of oil (The 1973 oil embargo showed this to be the case, for it lead to gas lines even in the US, which had avoided such lines in the previous 1956 and 1967 Arab Oil Embargoes, during 1956 and 1967 the US was still a net exported of oil and the effect of both embargo was so minor that the Texas Railroad Commission did NOT open up full oil production till 1969). The 2008 price increase was like the 1973 Oil Embargo, it showed the world no one controlled the price of oil and it scared everyone.

The problem is with world wide peak oil we can NO do what the US did after 1969 when US lower 48 states production peak, i.e. import oil from abroad (There is no oil to import from, this is a world wide storage). What happens to the price of a product when there is no one to control the price? Coal in the 1800s was such a commodity and we can see what happened in that industry (as opposed to the oil industry which tended to get some sort of control over its entire history). Prices slowly goes up till production no longer meets demand then it spikes. The Spike forced people to stop buying coal (Reduce production or even learning to live in a cold house). This drop in demand drops the price of coal so production stops till the low price of coal get people to buy coal again and the whole process re-starts again. It is hard to get equilibrium when no one can set or control the price through production. You left with an up and down situation. A situation it is hard to budget for, a producer does NOT know what his cost of production will be next year, it could be $10 it could be $100. If you do NOT know the cost of production how can you set a price? Furthermore some people will produce items at the low cost people and still be selling them at the high cost period. How do you compete with such a person? We are talking about rapid price changes within a year (if not a few months) how do you set price?

Another factor is what do you do when your employees, which you need to do operate your business, can NOT get to work for they can NOT afford to buy Gasoline? You may need them most at times of high gasoline prices, but not need them at all when the price of gasoline drops and your employees can afford to buy the gasoline to get to work?

Alternatives are limited, in 2008 the Railroads basically maxed out themselves as shippers moved shipment to trains as opposed to trucks to save money on fuel and the demand for fuel still existed and oil went up till the entire economy tanked. Some Truckers dropped out of being truckers in 2008 for they were losing money on what shipments they did get (and people who wanted to ship things had a hard time finding a truck to ship the shipment in for the same reason).

It will take YEARS for the price to stabilize once it become clear we are in a period of oil production decline. Doing that period NO ONE WILL KNOW WHAT THE PRICE FOR MANY ITEMS SHOULD BE (a lot of guesses, but most guesses being wrong, either to high or to low). Alternatives to Oil will take decades to come into play (The quickest would be to electrified the Train system, but that would take at least 10 years AFTER the any Federal Government mandate and that is assuming the Federal Government sets the present Amtrak Electrical System, originally developed by the Pennsylvania Railroad about 1905, as the standard, longer if another standard is set for you have to change the Northeast corridor in addition to the rest of the country to the new standard).

The Federal Government could even extend that standard to the Interstate Highway system, so that most trucks that use the Interstates could derived power from overhead cables instead of a diesel engine (Meters could be set on each truck, read as the truck exit the Interstate system). Given the volume of truck traffic most productive then any battery system, but would take 10-20 years to fully set up.

People will look at their own lives and the increase price of oil and decide to move closer to their work (and work places will look to more centralized locations for the place of work, to make it easier for workers to get to the work place). These two pushes will kill suburbia and local suburban planners will oppose it (even if there is nothing they can do about it). Land Developments is the number source of revenue for people seeking local office, with suburban development dead, such revenues will dry up and thus reduce the ability of politicians to run for office on the local level.

And I go on and on, but the people who would OPPOSE any such announcement of Peak Oil even after it became clear to almost everyone on the street is so large that most people will avoid the whole dispute for as long as possible. Today, we are no where near the time period when most people accept peak oil, thus we have even GREATER number of people who would oppose such an announcement (even if true, the old English Common law Rule, "the greater the truth, the greater the Libel" while NOT the law today contains a good bit of truth, people do NOT want to hear things that are unpleasant and will avoid them till there is no way to avoid them. That is the problem we are facing and why the US Government oppose any release on anything that indicates Peak Oil. We can discuss it, for we can be dismissed as crackpots, but facts from the EIA, the agency set up to watch such things can NOT be called Crackpot and thus must be suppressed for as long as possible.