Those Supposedly Ballooning OPEC Oil Reserves

A slew of reports have been populating my feed reader recently announcing the growth of OPEC oil reserves, first from Iraq, then Iran, and now Kuwait.

Before everyone starts jumping for joy, there are a few things that need to be taken into account.

First, OPEC countries — which include Iraq, Iran and Kuwait — are on the honor system when it comes to reporting their reserves. There is no independent audit to confirm whether their reported reserves are accurate or not.

Second, OPEC nations sell their oil according to quotas, which are based partially on their reported reserves. The more reserves a nation reports, the more oil it is allowed to sell. This particular quota system went into effect in the 1980s, and almost immediately all OPEC nations’ oil reserves jumped significantly. These nations have a direct, vested interest in exaggerating their reserves , not only to make more money, but because petroleum income directly translates into regional power. The chart below is well known to those who follow peak oil issues, but everyone should be aware of how this works when OPEC countries start announcing big new finds or growth in existing reserves.



Third, according to this news article, Kuwait’s latest reserve growth added 12 billion barrels of petroleum to its existing reserves, bringing its total reserves to 113.5 billion barrels. That sounds like a lot — until it is measured against global consumption. According to the U.S. Energy Information Administration, the world consumes 85.5 million barrels of oil per day. That means all of Kuwait’s reported reserves can feed global consumption for about three and a half years, assuming no growth in demand from China, India, the United States, or any emerging economy.

So is it time to bust out the champagne and buy a new Excursion? Absolutely not. Oil prices may be fluctuating in the short-term, but the long-term trend is up, up, and away.

Link -
http://gantdaily.com/2010/10/21/those-supposedly-ballooning-opec-oil-reserves/

The 2008 crude oil price, $147 per barrel, shattered the global economy. The “invisible hand” of economics became the invisible fist, pounding down world economic growth to match the limitations of crude oil production.
—Kenneth Deffeyes (petroleum geologist)

We have just seen why, since 2007, growth has languished for reasons internal to the world financial system—the system of money and debt.

Problems arising from speculative overreach, real estate bubbles, and the inherent Ponzi dynamics of our global debt-based financial structures are endemic and profound. Still, if these were our only difficulties, we might reasonably expect that eventually, once they are sorted out (however painful the process may be), growth will return.

Indeed, that is what nearly everyone assumes. It’s a matter of “when,” not “if” growth resumes.

But there are seldom-acknowledged factors external to financial and monetary systems that are effectively choking off efforts to restart growth. These factors, whose impacts are worsening over time, were briefly alluded to in the Introduction; here we will unpack them in more detail, discussing limits to oil and other energy sources, as well as to food, water, and minerals. We will also explore the increasing cost of industrial accidents and environmental disasters—and why, in the wide wake of global climate change, those costs are likely to escalate to the point that disaster avoidance and recovery will constitute a major portion of future government and private spending. Along the way, we will examine how markets respond to resource scarcity.


When discussion turns to the economy, most of the ensuing talk tends to focus on money—prices, wages, and interest rates. Yet as important as money is to economies, energy is even more basic. Without energy, nothing happens—quite literally. Energy is not just a commodity; it is the prerequisite for any and all activity. No energy, no economy.

The massive worldwide economic growth of the past two centuries was enabled by humanity’s newfound ability to exploit the cheap, abundant energy of fossil fuels. There were of course other factors at work—including division of labor, technological innovation, and increased trade. But if it weren’t for oil, coal, and natural gas, we would today all probably be living an essentially agrarian existence similar to that of our 18th century ancestors

Growth requires not just energy in the most general sense, but forms of energy with specific characteristics. After all, the Earth is constantly bathed in energy—indeed, the amount of solar energy that falls on Earth’s surface each hour is greater than the amount of fossil-fuel energy the world uses every year.

Economies need sources of energy that are concentrated and controllable, and that can be made to do useful work. From a short-term point of view, fossil fuels proved to be energy sources with highly desirable characteristics: they could be extracted from Earth’s crust quite cheaply (at least in the early days), they were portable, and they delivered a lot of energy per unit of weight and/or volume—in most instances, far more than the firewood that people had been accustomed to using.

Oil has the particular advantage of being a liquid, which means that it (and its refined products like gasoline and jet fuel) can easily be stored in tanks and pumped through pipes and hoses. This effectively maximizes portability. As a result, oil has become the basis of world transport systems, and therefore of world trade. If the oil stops flowing, global trade as we know it grinds to a standstill.

The phrase “Peak Oil” is often misunderstood to refer to the total exhaustion of petroleum resources—running out. In fact it just signifies the period when the production of oil achieves its maximum rate before beginning its inevitable decline. This peaking and decline of production has already been observed in thousands of individual oilfields and in the total national oil production of many countries including the U.S., Indonesia, Norway, Great Britain, Oman, and Mexico.

In 2010, the International Energy Agency settled the matter. In its authoritative 2010 World Energy Outlook, the IEA announced that total annual global crude oil production will probably never surpass its 2006 level.

Scientists who study oil depletion begin with the premise that, for any non-renewable resource such as petroleum, exploration and production proceed on the basis of the best-first or low-hanging fruit principle.

The largest oilfields—nearly all of which were identified in the decades of the 1930s through the 1960s—were behemoths, each containing billions of barrels of crude and producing oil during their peak years at rates of from hundreds of thousands to several millions of barrels per day. But only a few of these “super-giants” were found.

As the era of the super-giants passes, it becomes ever more difficult and expensive to make up for their declining production of cheap petroleum with oil from newly discovered oilfields that are smaller and less accessible, and therefore on average more costly to find and develop.

...and its good to know that Australia has the best quality Coal in the form of the Illawarra Coal (and Emu meat with 2% fat )

The world is beginning to look a lot like the August of 1914 or perhaps the summer of 1939 all over again. This time instead of the great powers of central Europe dragging the rest of us into a European affair, it seems that nearly every corner of the earth is facing some sort of imminent disaster that could combine into a very unpleasant situation.

In America, where we have been living beyond our means for decades, the time has come to pay the piper. Trillion dollar deficits, rising unemployment, printing of money, $4 gasoline, a weakening dollar and entitlements are combining into a grim outlook for our immediate future. Add to this the toll taken by climate change - unprecedented outbreaks of tornadoes, massive floods, and record droughts - throw in a hurricane or two and we are on the way to serious disruptions.

Politically America is split over what do about all this. Many are simply unwilling to admit that numerous forces are trending towards disaster and keep talking about the return to prosperity. Some favor still more tax cuts until there is little left of government, or increased oil well drilling as the universal balm; some favor Keynesian pump-priming and emissions controls. Still others are totally confused by events that are foreign to the way of life they have known and seek solace in demagogic claims to return the country to growth and prosperity.

The EU too is beset by problems. Although Germany and France seem to have avoided the excesses that are besetting others, most of the EU members, like the U.S., are suffering from living beyond their means. The Union has been bouncing from economic crisis to crisis for months. Regional sources of energy -- coal, oil, and natural gas -- are playing out and the continent will soon be even more dependent on imported energy to keep moving about and the lights on. Germany's and Switzerland's recent decisions to foreswear nuclear power stations only add to the problem.

The steadily increasing global population, currently growing by circa 70 million each year, with rising expectations brought about by the communications revolution, is putting an increasing strain on supplies of food, water, and electricity. Shortages of these essentials are becoming increasingly common, and these shortages in turn are leading to increased turmoil and violence. Climate change is taking its toll across the underdeveloped world with droughts and record temperatures being seen across much of the world.
In America, where we have been living beyond our means for decades, the time has come to pay the piper.

There are some areas of temporary respite. Things in Russia are moving along pretty well with oil production and exports hitting post-Soviet highs and global oil prices are keeping the coffers well filled. There was a little problem with a drought last summer, which took out so much of the crop that Moscow had to stop exporting grain, thereby playing a behind the scenes role in the Egyptian uprising.

Still the Russians have their troubles: their oil fields should be going into depletion in the next few years and the remaining separatist groups are still blowing up things in Moscow.

South Asia - Pakistan, India, Nepal and Bangladesh - seem to be suffering the most at the minute. Available power supplies are not sufficient to cope with unusually high temperatures and still keep factories and vital infrastructure such as water pumps running. Even India with 1.2 billion people and an economic growth rate almost as impressive as China's is running into trouble as water and coal supplies are running short. It seems inevitable that economies across southern Asia will be going into decline shortly likely coupled with increasing political turmoil.

Asia is still doing well, except in Japan where tales of its nuclear meltdowns seems to grow worse every day. It is increasingly obvious that the tsunami/nuclear events have dealt Japan a considerable economic blow which even in normal times would take many years for recovery. Given the increasing costs of fossil fuels, all of which must be imported, Japan may be on course to becoming a shadow of its former self.

The other economic power houses of Asia - Korea, Taiwan, and Singapore - are relatively small and have for the most part little or no sources of fossil fuel. Eventually high energy costs will lay them low, but in the interim, they may be bright spots in an otherwise dismal global economy.

Now we get to China, which has enjoyed phenomenal economic growth in recent decades. Although the numbers still look good for another year of rapid economic growth, just below the surface are some serious troubles. The aquifers that supply water to 440 million people living in the north China plain are about to run dry. Beijing is rushing to bring water from the Yangtze basin to the north in an effort that has been likened to diverting the Mississippi River to New York and New England.

At the minute parts of China seem to be simultaneously beset by the worst drought in 100 years and the worst floods in 200. When the serious environmental problems are coupled with the current power crisis, a case can be made that the years of rapid growth in China are nearing an end.

Link -
http://www.energybulletin.net/stories/2011-06-09/peak-oil-crisis-gathering-storm

We live in what historians may some day call the Fossil Fuel Age. Today coal, oil, and natural gas supply 93% of the world's energy; water power accounts for only 1%; and the labor of men and domestic animals the remaining 6%. This is a startling reversal of corresponding figures for 1850 - only a century ago. Then fossil fuels supplied 5% of the world's energy, and men and animals 94%. Five sixths of all the coal, oil, and gas consumed since the beginning of the Fossil Fuel Age has been burned up in the last 55 years.

Fossil fuels did not become a major source of energy until machines running on coal, gas, or oil were invented. Wood, for example, was the most important fuel until 1880 when it was replaced by coal; coal, in turn, has only recently been surpassed by oil in this country.

Once in full swing, fossil fuel consumption has accelerated at phenomenal rates. All the fossil fuels used before 1900 would not last five years at today's rates of consumption.

Nowhere are these rates higher and growing faster than in the United States. Our country, with only 6% of the world's population, uses one third of the world's total energy input; this proportion would be even greater except that we use energy more efficiently than other countries.


Truly, the humblest American enjoys the services of more slaves than were once owned by the richest nobles, and lives better than most ancient kings. In retrospect, and despite wars, revolutions, and disasters, the hundred years just gone by may well seem like a Golden Age.



Before I go into this question, let me review briefly the role of energy resources in the rise and fall of civilizations.

Possession of surplus energy is, of course, a requisite for any kind of civilization, for if man possesses merely the energy of his own muscles, he must expend all his strength - mental and physical - to obtain the bare necessities of life.

Surplus energy provides the material foundation for civilized living - a comfortable and tasteful home instead of a bare shelter; attractive clothing instead of mere covering to keep warm; appetizing food instead of anything that suffices to appease hunger.

What lifted man - one of the weaker mammals - above the animal world was that he could devise, with his brain, ways to increase the energy at his disposal, and use the leisure so gained to cultivate his mind and spirit.

A reduction of per capita energy consumption has always in the past led to a decline in civilization and a reversion to a more primitive way of life. Another cause of declining civilization comes with pressure of population on available land. A point is reached where the land can no longer support both the people and their domestic animals.

It is a sobering thought that the impoverished people of Asia, who today seldom go to sleep with their hunger completely satisfied, were once far more civilized and lived much better than the people of the West.

Asia failed to keep technological pace with the needs of her growing populations and sank into such poverty that in many places man has become again the primary source of energy, since other energy converters have become too expensive.

When a low-energy society comes in contact with a high-energy society, the advantage always lies with the latter.

From one sixth in 1650, the people of European stock increased to almost one third of total world population by 1950.

Meanwhile much of the rest of the world did not even keep energy sources in balance with population growth. Per capita energy consumption actually diminished in large areas.

Almost all of today's low-energy countries have a population density so great that it perpetuates dependence on intensive manual agriculture which alone can yield barely enough food for their people.

Theirs is a bitter choice; it accounts for much of their anti-Western feeling and may well portend a prolonged period of world instability.



They were created by solar energy 500 million years ago and took eons to grow to their present volume.



Fossil fuels resemble capital in the bank. A prudent and responsible parent will use his capital sparingly in order to pass on to his children as much as possible of his inheritance. A selfish and irresponsible parent will squander it in riotous living and care not one whit how his offspring will fare.

Underdeveloped nations with fossil fuel deposits might be coerced into withholding them from the free world or may themselves decide to retain them for their own future use. The effect on Europe, which depends on coal and oil imports, would be disastrous and we would have to share our own supplies or lose our allies.

Barring atomic war or unexpected changes in the population curve, we can count on an increase in world population from two and one half billion today to four billion in the year 2000; six to eight billion by 2050.

It is an awesome thing to contemplate a graph of world population growth from prehistoric times - tens of thousands of years ago - to the day after tomorrow - let us say the year 2000 A.D. If we visualize the population curve as a road which starts at sea level and rises in proportion as world population increases, we should see it stretching endlessly, almost level, for 99% of the time that man has inhabited the earth. In 6000 B.C., when recorded history begins, the road is running at a height of about 70 feet above sea level, which corresponds to a population of 10 million. Seven thousand years later - in 1000 A.D. - the road has reached an elevation of 1,600 feet; the gradation now becomes steeper, and 600 years later the road is 2,900 feet high. During the short span of the next 400 years - from 1600 to 2000 - it suddenly turns sharply upward at an almost perpendicular inclination and goes straight up to an elevation of 29,000 feet - the height of Mt. Everest, the world's tallest mountain.

In the 8,000 years from the beginning of history to the year 2000 A.D. world population will have grown from 10 million to 4 billion, with 90% of that growth taking place during the last 5% of that period, in 400 years. It took the first 3,000 years of recorded history to accomplish the first doubling of population, 100 years for the last doubling, but the next doubling will require only 50 years. Calculations give us the astonishing estimate that one out of every 20 human beings born into this world is alive today.



Life in crowded communities cannot be the same as life on the frontier. We are no longer free, as was the pioneer - to work for our own immediate needs regardless of the future. We are no longer as independent of men and of government as were Americans two or three generations ago. An ever larger share of what we earn must go to solve problems caused by crowded living - bigger governments; bigger city, state, and federal budgets to pay for more public services. Merely to supply us with enough water and to carry away our waste products becomes more difficult and expansive daily. More laws and law enforcement agencies are needed to regulate human relations in urban industrial communities and on crowded highways than in the America of Thomas Jefferson.



It means that we must reconcile ourselves to continuing higher taxes to build up and maintain at decent salaries a greatly enlarged corps of much better trained teachers, even at the cost of denying ourselves such momentary pleasures as buying a bigger new car, or a TV set, or household gadget. We should find - I believe - that these small self-denials would be far more than offset by the benefits they would buy for tomorrow's America. We might even - if we wanted - give a break to these youngsters by cutting fuel and metal consumption a little here and there so as to provide a safer margin for the necessary adjustments which eventually must be made in a world without fossil fuels.

One final thought I should like to leave with you.

High-energy consumption has always been a prerequisite of political power. The tendency is for political power to be concentrated in an ever-smaller number of countries. Ultimately, the nation which controls the largest energy resources will become dominant. If we give thought to the problem of energy resources, if we act wisely and in time to conserve what we have and prepare well for necessary future changes, we shall insure this dominant position for our own country.

Link -
http://www.theoildrum.com/node/4394
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I suggest Rickover has got quite a few things correct!

However, the 1957 estimates of Global Population growth proved to be much too low.

Even with China opting for a one child policy, Rickovers 2000 estimate of 4 Billion, wound up at an actual figure of 6 Billion and we are already at 7 Billion now.

This has put additional & undue strain on everything and it is simply unsustainable!  

Limits To Keynesianism

While Keynesianism appears to have a benevolent, humanistic intent it is greatly disappointing that so many of its advocates do not also recognize its destructive aspects. Yes, free markets misallocate capital routinely. But Keynesianism as a policy also distributes capital unevenly, and unfairly. First receivers of government capital gain competitive advantages. First receivers of easy monetary policy also gain, and become predatory. The housing bubble was perhaps the most spectacular example of the destructive force of easy money, which resulted in a huge transfer of risk and wealth, recycled through society.

But the greatest flaw with Keynesianism now is that, like the economy itself, it has run squarely into the energy limit. As the most recently updated data shows, 2011 will be the 6th year that world production of crude oil was unable to increase beyond the ceiling established in 2005.

Oil remains the primary energy input to OECD economies. OECD economies are of course where the Keynesian experiment has flourished longest, first in Japan, then the United States and now Europe. It is hardly, hardly the case that the current financial crisis in the OECD is “simply a matter of accounting.” Instead, the crisis is one of systemic, structural growth now permanently limited by energy costs as OECD economies try to service debt loads that have escaped their ability to manage. Change all the digits, and the energy limit remains.

The redoubling of government efforts to distribute paper capital to society will not bring forth the cheap energy required to spur the growth Keynesians either assume, or have failed to even consider.

Link -
http://seekingalpha.com/article/293689-limits-to-keynesianism?source=email_macro...
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There are other problems with the Keynesian model, as there is with the Austrian model, but Peak Energy is certainly one of the major stumbling blocks, as are the Demographic issues currently going thru the system!

That said, this graph makes it clear that we are now at Hubbert's Oil Peak plateau and have been since 2005 and that creates an enormous array of problems, Economic & otherwise!