While I was originally going to use this week’s post to comment on some of the long-standing issues facing international politics, particularly the situation in the Middle East, another news story broke that is just as, if not more important to the West than the Egyptian crisis.
After dismissing my classes on Wednesday I logged onto my computer to check on the latest developments from Egypt. I also needed to login to Yahoo to check my email there and when I did I saw a headline that almost made me fall out of my chair. It was a small banner story which read, “WikiLeaks: Saudis Running Out of Oil.” Whether or not you agree with the methods of WikiLeaks, which is a discussion in and of itself, the fact is that in a leaked cable that was sent from the U.S. Department of State Attache’s Office in Riyadh to Washington, a senior U.S. diplomat discusses a very troubling conversation that he had with Sadad al-Husseini, a geologist and former head of exploration for Saudi oil monopoly Aramco, sometime in 2007. In the meeting al-Husseini confided that the Saudis are unlikely to be able to keep to their OPEC-mandated target oil output of 12.5 million barrels per day much longer because, simply put, they are running out of oil. Husseini indicated that Saudi producers are likely to hit peak oil, which is the point where global oil output hit its high mark, as early as 2012.
What! Saudi Arabia is running out of oil? You don’t say? But there it was, staring at me on the page. This is a serious problem folks, let me explain why. Considering that Saudi Arabia has 1/5 of the world’s entire proven reserves of petroleum, and the United States relies on the Saudis for about 1,081 barrels of oil per day, it means that the entire setup of industrial society is in serious danger if Saudi oil is drying up. Urban land yachts and other similar luxuries that dot the streets of the United States are in serious trouble, as are other more pressing matters such as world food prices because without their lifeblood, cheap petroleum, entire systems will grind to a halt.
Before we get into all that though, let’s talk a bit about the concept that is known as peak oil. This concept, which was introduced by Shell geologist M. King Hubbard back in the late 1950’s, delineates the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. The pattern forms a bell curve and is explained pretty simply: the more oil we pump out of the ground, the less reserve there is, and eventually, since petroleum is a finite fossil fuel, production reaches a maximum apex and then falls off, eventually to zero, as there is less and less oil to pump. So what is the big deal you ask? Isn’t there plenty of oil to go around? Well the big deal is that given how dependant the industrial world is on cheap petroleum for transportation, food production, and industrial systems maintenance, any disruption to supplies would cause price shockwaves that could do significant harm to the global economy. Think back a bit to 2007-2008 when gasoline prices hovered around $4/gallon. The economic pressure that the price increase placed on American households had a fair amount to do with the global financial catastrophe that quickly followed, even if the media wanted to blame it all on Wall Street. Some, such as industrialist Richard Branson, even predicted the recession’s link to oil prices before the price spiral even occurred. In 2006, Branson wrote that rising oil prices could cause major damage to a weakened world economy in a piece that was largely shunned at the time by the masters of world finance but one that nonetheless proved to be deadly accurate.
As for whether or not there is more oil to find and pump, that is why this Wikileaks cable is so damning. The fact of the matter is that, no, there is no more oil to go around. While some have wet dreams of infinite fossil fuel, they can chant “drill baby drill,” until they are blue in the face but that will not change the numbers game in their favor. The world is running out of petroleum reserves, plain and simple. Why else do you think energy companies are spending billions of dollars to invest in deep water drilling of the kind that caused the BP fiasco, as well as expensive operations in tar sands, and chemical fracking for oil? It takes about $50/barrel to produce a single barrel of oil from Canadian tar sands, while it costs about $1/barrel to extract light sweet crude from a Saudi oil field. In another case, it costs a whopping $500,000 per day for oil companies to rent a deep-water rig that is capable of drilling at depths over 10,000 feet. That is a huge difference in price, and I don’t know about you but the last time I checked oil companies were profit-driven so it makes no sense for them to resort to more expensive practices unless of course, you guessed it, their cheap sources are drying up.
Take the Saudis for example; while they sit on 1/5 of the world’s proven reserves, including the famous Ghawar Field, they too have undertaken serious offshore drilling efforts in order to reach OPEC production quotas. This fact, coupled with data that clearly shows a significant drop in Saudi Arabia’s ability to deliver on its end of the bargain as far as oil prices are concerned, should give pause to anyone concerned with global energy security. That however is only the beginning of the story. The Wikileaks document proves that the Saudis understand this and American and Saudi officials alike are scared shitless about the implications for global commerce. This is because they understand that while peak oil does not mean the end of petroleum by any stretch of the imagination, it does signal the onset of an era of petroleum production that will result in wild price swings that will easily throw the global economy off balance in the coming years.
You do not have to run out of fossil fuels to be in a world of hurt. From a standpoint of macroeconomics the situation is quite clear. When you start with production estimates following peak oil and subtract this number from both current global demand as well as projections for the burgeoning petroleum needs of strong emergent economies such as India and China, the solution you get from the equation is not very rosy given that supplies will be short and prices will be astronomically high. In essence, if you can produce 4 million barrels of oil per year but the global economy demands 6-7 million barrels, then there is a serious problem because you are at a net loss of about 3 million barrels.
Unfortunately for industrialized society, this is exactly where we are headed. Indeed, if Saudi peak oil is as imminent as all the data suggests, then the $4/gallon that Americans paid for gas a few years ago will suddenly seem like the good old days and global food prices, which are already soaring, will hover at levels unheard of in the modern era.
The industrialized world has gotten itself into quite a mess with its addiction to cheap oil. No amount of solar, nuclear, or wind energy will alleviate this situation either (more on this next week). We need to look for alternative solutions and change our thinking to see that we can live quite comfortably without all the trappings of modern society. If we practice now, the transition will be livable, but if we continue to cling to the fool’s hope of a future of limitless progress on a limited planet, there will be many long winters ahead.
More next week, until then I remain,
The Heirloom Troubadour