The Growing Signs of Energy Trouble

While high-priced media pundits focus on nonstories like the price of John Edwards' hair cut, there are troubling signs that we cannot keep putting off dealing with energy. I want to start with a post over at The Oil Drum by regular contributor Stuart Staniford who has been analyzing whether Saudi Arabia's recent cutbacks in production are voluntary or a result of oil depletion:

...Saudi oil production has been falling with increasing speeed since summer 2005, and overall, since mid 2004, about 2 million barrels of oil per day in production has gone missing (about 1mbpd in reduction in total production, and about another 1mbpd in that two major new projects, Qatif and Haradh III, failed to increase overall production). That's 2.5% of world production and, if that production hadn't gone missing, gasoline in the US likely would still be somewhere in the vicinity of $2/gallon instead of well over $3.

(snip) [What follows is after several thousand words of analysis that included many graphs]

As you can see, the whole of North Ghawar is either off plateau already, or getting close. That is something like 3.9mbpd of production based on last known figures. Whatever of this decline has not already occurred will mostly occur during the next decade.

Southern Ghawar, by contrast, can maintain plateau for decades to come, but there is only 1.7mbpd of production there on last known figures.

While we cannot attribute an exact fraction at this time, it seems likely that not-altogether successful attempts to maintain the north Ghawar plateau to the bitter end explain a significant fraction of the sharp increase in oil rigs that began in 2004, as well as the production declines since that timeframe...

Bottom line: while Saudi Arabia still has significant reserves and will remain a major oil producer for many years to come, Saudi Arabia's oil production may be in decline or soon will be. There are few projects worldwide that combined can make up for the potential losses resulting from Saudi Arabia's growing production problems; the downward spiral may be already here or coming quickly. This will only aggravate the growing worldwide energy crisis.

The post by Staniford is well worth reading, along with the ongoing discussions that have been going on within The Oil Drum community. I've been following the Saudi Arabia discussion for some time but I'm not an oil expert or geologist; the current post, by the way, is over 16,000 words long: consider browsing it before deciding whether to read it. But it's well-reasoned and Staniford tries to help out lay readers from time to time (and many of the comments that follow the post are helpful). I should point out that the post is something of a serious collaboration by a number of oil experts.

Staniford's study is not conclusive and he is forced to infer a great deal of information because of the unwillingness of Saudi Arabia to be forthcoming with its hard data. But it strikes me that Staniford's analysis is somewhat similar to what the analysis division of the CIA or the Energy Department might do if they too did not have a full set of data. That begs the question. What analysis, if any, has the Bush Administration being doing in the last six years and, if there have been studies, what are their results? And if there have not been studies, why haven't there been? Congressman Henry Waxman has his work cut out for him on this issue.

Speaking of the CIA, let me go back to an article from a year and a half ago by Greg Gordon of McClatchy Newspapers:

Former CIA Director James Woolsey paints a dire scenario: A terrorist attack causes a months-long, 6 million-barrel reduction in Saudi Arabia's daily petroleum output, sending the price of oil skyrocketing past $100 a barrel.

Matthew Simmons, an industry banker and author, says the kingdom's oilfields are deteriorating anyway. And a recent New York Times story cited an intelligence report suggesting that the Saudis lack the capacity to pump as much oil as they boast they can.

Even if nothing disrupts the projected flow of Middle East petroleum, Energy Department consultants warned earlier this year that "the world is fast approaching the inevitable peaking" of global oil production - a problem "unlike any faced by modern industrial society." They wrote that the United States and other nations are in a race with the clock to find alternative sources for oil, "the lifeblood of modern civilization," and avoid potential economic disaster.

I'm no fan of former CIA director James Woolsey (a Clinton neocon, he endorsed the war in Iraq far too enthusiastically) but it is interesting to see him talking about the problem of too little oil and the effects it would have on the US. Note too that this was right after Hurricane Katrina when the information spigot opened somewhat on energy issues; however, since then, the mainstream media (the one with the short attention span) has been behaving sluggishly on the story and the Bush Administration has hardly addressed the issue in any comprehensive way beyond favors for Bush's oil friends. If nothing else, Congress needs to push the Bush Administration for an answer to two questions: what's our energy situation and what are you doing about it? We talk about energy independence as if it's a problem that won't be here for twenty years. But our problems have apparently already arrived.

We are a superpower (though damaged somewhat by Bush's incompetence and lack of credibility) and we are still a powerful economy (a bloated, increasingly dysfunctional economy that tilts towards protecting the wealthy regardless of whether they're productive or not). For some time to come, we have the capacity to deal with the issues that will soon be impacting our nation in ways that even media figures earning seven figures can no longer ignore. But it's not certain how long we will have the capacity to act if we continue to ignore these problems.

I've been quietly watching the impact of energy prices and shortages on the poorest nations of the world. I've been hoping to see a comprehensive analysis of slowly shifting oil distribution around the world but nothing has come my way yet. But the anecdotal evidence is building and it's sobering. Part of the reason we're not fully aware of the growing energy crisis may be the result of the poorest countries of the world absorbing the impact as the wealthier nations wind up with excess oil that poor countries can no longer afford. So far, this is an unproven hypothesis but, as I said, the anecdotal evidence is building; here's an AP story by way of Forbes:

An Indian company has cut off oil supplies to landlocked Nepal because it has not been paid millions of dollars, causing widespread fuel shortages across the Himalayan nation, a government spokesman said Thursday.

Vehicles lined up outside several petrol stations still distributing gasoline and diesel in Nepal on Thursday, as Ichcha Bikram Thapa, a spokesman for the Nepal Oil Corporation warned it would soon run out of all reserves.

(snip)

Nepal imports all its oil products from neighboring India through the government-owned Indian Oil Corporation, but NOC has failed to pay up to 5.9 billion rupees ($90 million) in back payments.

George W. Bush seems to be working hard to provide us with multiple reasons for believing he will be remembered as the most failed president in American history. His energy policy has been and remains a travesty.

Saudi Arabia and George W. Bush

Although Bush has had a close relationship with a number of powerful individuals from Saudi Arabia, his strange 'can't do' presidency has done damage to our relationship with Saudi Arabia and the Arab world. Because the Iraq fiasco is in their backyard, the Saudis have particular reason to be disturbed. We continue to be allies with Saudi Arabia and several other Arab countries though of course it is a difficult relationship at times.

Several bits of news in recent days have come to my attention and they highlight the complexity of our relationships and the dangerous damage Bush has done to our foreign policy (without the president having any clue where to go next). For all of Bush's posturing, the question hangs dismally in the air: how is Bush's war on terruh going? Here's Mary of The Left Coaster reminding us that Bush's war on terror has unfortunately done an effective job of creating more terrorists:

Based on the State Department report that the number of terrorist incidents in the world were up 29% in 2006, it would appear the answer is not so good.

Then there is that report from McClatchy today that the Saudis are unhappy to find that the detainees emerging from Gitmo are more extreme than when they went in. Enough so that the Saudis are providing them extensive help including counseling, financial aid and even match-making in order to woo them away from their attachment to terrorism.

Give the article and links a read. Bush's pretentious and ultraconservative ideas about how to do things are obviously not working. But Bush is not the only president who has ever made blunders. Among various presidents who have made blunders, we have to include Franklin Roosevelt, the greatest president of the 20th century. The difference between Bush and Roosevelt is that Roosevelt was a pragmatist; if he made a mistake, he talked to some experts and tried something else until he got it right. When Bush makes a mistake, he simply repackages his policies, tries a new public relations campaign and gives us more of the same.

Saudi Arabia is not pleased with Bush and one can hardly blame them. Among other things, we have made Iran stronger in the region and that does not make the Saudis happy. Saudi Arabia's former ambassador to the US and close friend to the Bushes, Prince Bandar, appears to be in eclipse thanks to Bush's mangling of our foreign policy. Here's that part of the story from Helene Cooper and Jim Rutenberg of The New York Times:

Bush administration officials have been scratching their heads over steps taken by Prince Bandar’s uncle, King Abdullah of Saudi Arabia, that have surprised them by going against the American playbook, after receiving assurances to the contrary from Prince Bandar during secret trips he made to Washington.

For instance, in February, King Abdullah effectively torpedoed plans by Secretary of State Condoleezza Rice for a high-profile peace summit meeting between Prime Minister Ehud Olmert of Israel and the Palestinian president, Mahmoud Abbas, by brokering a power-sharing agreement with Mr. Abbas’s Fatah and Hamas that did not require Hamas to recognize Israel or forswear violence. The Americans had believed, after discussions with Prince Bandar, that the Saudis were on board with the strategy of isolating Hamas.

(snip)

Since the Iraq war and the attendant plummeting of America’s image in the Muslim world, King Abdullah has been striving to set a more independent and less pro-American course, American and Arab officials said. And that has steered America’s relationship with its staunchest Arab ally into uncharted waters. Prince Bandar, they say, may no longer be able to serve as an unerring beacon of Saudi intent.

(snip)

Robert Jordan, a former Bush administration ambassador to Saudi Arabia, said the Saudis’ mixed signals have come at a time when King Abdullah — who has ruled the country since 1995 but became king only in 2005 after the death of his brother, Fahd — has said he does not want to go down in history as Mr. Bush’s Arab Tony Blair. “I think he feels the need as a kind of emerging leader of the Arab world right now to maintain a distance,” he said.

Arab Tony Blair? Ouch. It's appear the British Prime Minister will be appearing as a metaphor for political poodles for some years to come. That never described the Saudis, even in the best of times. One cannot ignore that our relationship with them has always been complex just as our relationships with other Arab countries on the Saudi peninsula have also been complex.

Today we read in the paper that after the devastation from Hurricane Katrina, the Bush Administration ignored, mishandled or botched almost a billion dollars of aid from various countries around the world. The aid from those countries included generous offers from Kuwait, United Arab Emirates and Bahrain. Kuwait eventually acted on its own and donated large sums to the Red Cross and to the Katrina fund headed by Bill Clinton and Bush's father. Call it aid from friends, call it good public relations, it's worthy of note and should be remembered.

Even our oil relationship is becoming curiously more complex. The Saudis were not happy when Bush talked about ending our dependence on foreign oil a couple of years ago but the Saudis understand the oil situation better than anyone given that they're still sitting on the world's largest reserves and they know the numbers better than anyone. But note that a curious thing has happened in Kuwait. Years ago, the Kuwaitis raised the total of their oil reserve by a significant amount; the economists were happy with the numbers but various geologists and oil experts always considered the numbers suspect. Kuwait's recent trend towards democracy, as slow as it is, has apparently led to something of an accounting because the Kuwaitis themselves want a say in their own energy policy and they need facts to develop that policy. The result is that, practically speaking, the Kuwaitis now assume a smaller total reserve of oil left and they're pragmatically thinking, from their own point of view, of how they can stretch the time that they can make their reserves last for the benefit of their country. There are hints that the Saudi may be quietly doing the same thing: moving towards the long view instead of simply pumping as much wealth as they can as they move closer to a time when their oil production begins to significantly decline as all oil producers eventually do in a given region. The long view for the Saudis means not producing as much as they can, but holding back reserves for their own future. That may or may not be happening but it is in the interest of Saudi Arabia. Not suprisingly, if one is paying attention, that is also in the interest of the United States: it will force us make transitions in our energy policies while there is still oil to pump and a reasonably healthy economy (flawed though it is in some ways) to facilitate such a transition.

Iraq is a fiasco, and a foreign policy blunder of historic proportions, but both Democrats and Republicans are going to have to continue to pay attention to what is going on in the Middle East and particularly along the Persian Gulf. It is in our interest to keep paying attention, but it is important to be realistic and recognize we may not always get our way, particularly until the United States restores its credibility, preferably without resorting to reckless military adventurism. In fact, the time is rapidly approaching where war is far more expensive than simply working on partnerships with various countries throughout the world, whether they are friends, competitors or foes.

Saudi Oil Production Down: Production Problems or Just Propping Up the Price?

It's now clear that North Sea oil production and Mexico's large oil fields are in decline. It's also clear that discoveries of light sweet crude are simply not keeping up with worldwide demand. Increasingly, oil companies are saying we have enough oil while they look to other sources of fossil fuels such as oil sands and heavy crude. This is not good news. World oil production is now heavily dependent on Saudi Arabia's capacity to keep up with world oil demand and the entire Persian Gulf factors in this as well. A general war in the region would endanger the world's oil supplies and certainly send oil prices into new territory.

Saudi Arabia has never had a transparent oil industry. We cannot verify anything they say about future production or the size of their oil reserves. Ten years ago, the secrecy of the Saudis was not that crucial but it is now. We consider them our allies but it's probably more correct to say that they are the allies of various people in our oil industry and other wealthy Americans first, and American allies second. Of course, any number of factors, including our relationship with Israel and other countries in the Middle East complicate the relationship and then the Saudi royal family have problems of their own to consider. Nevertheless, not knowing much about Saudi Arabia's long-term oil picture is real cause for concern.

Stuart Staniford of The Oil Drum has done a serious analysis using what information we have available to come up with an educated guess about Saudi oil production:

Overall, I feel this data is clear enough that I'm willing to go out on a limb and conclude the following:

• 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 [his book] 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.

I also looked at the question of whether there is any evidence for the idea claimed by OPEC that the Saudi's deliberately cut production starting in November. ...

(snip)

... This excess decline [by OPEC, which includes Saudi Arabia] does not exceed 200 thousand barrels per day. On the whole, media coverage of OPEC production cuts appears to be almost completely unmoored from the data the agencies are reporting. The entire "production cut" may be a public relations exercise to disguise other processes.

(snip)

I'll bet $1000 with the first person who cares to take me up on it that the international oil agencies will never report sustained Saudi production of crude+condensate of 10.7 million barrels or more.

Current Saudi oil production is around 8.75 million barrels a day and the Saudis are claiming that the are putting in the infrastructure to increase to 10.7 million barrels but do not say when. I'm mildly skeptical of Staniford's analysis, but if I had that kind of money to bet, I don't think I would make it. However, looking at numbers too closely over a short period of time as Staniford has done can produce a false picture, particularly if the people in charge of Saudi oil production aren't particularly open about what they're doing. If Stuart Staniford is right, however, an unplanned 8% drop in Saudi oil production would be a major cause for concern.

Some argue that the recent high prices over the last two years has destroyed some demand and that too may explain the drop in production. We could ask the Saudis but we're not likely to get a straight answer, just as we're not likely to get a straight answer from Exxon-Mobil or some of the other oil giants. And we're not likely to get a straight answer from Dick Cheney or George W. Bush.

It might be a good idea to buy that hybrid.

Bush and Cheney's Foreign Policy: Oops!

According to Sy Hersh's article in the New Yorker (here's a copy in Truthout), it is hard not to draw the conclusion that the Bush Administration is:

1) No longer working hard to create a democracy in Iraq.

2) Somewhat reluctant as things now stand to turn Iraq over to the Shiites, the majority in Iraq. This is largely because of the administration's paranoia about Iran, a Shiite country. It should be noted that the Bush Administration has made no serious effort to engage in real talks with the Iranians, though both sides have been guilty of unhelpful posturing.

3) Funding Sunni organizations in Iraq (and elsewhere for that matter) despite the fact that most American casualties in Iraq were caused by Sunnis, many of them leftovers from the Saddam Hussein regime.

4) Allowing the Saudis to fund Sunni organizations that fund other organizations with ties to al Qaida, the organization that is responsible for the 9/11 attack. Let us remember that the Saudis, although our allies, were never open about how so much funding went to al Qaida in the first place.

5) Hiding money and covert activities from Congress.

6) Insisting they have no intention of going to war with Iran but creating conditions that may make war with Iran more likely.

Oh, one other thing: Bush and Cheney have absolutely no idea what they're doing. Except that it seems to have dawned on them that they're creating a bigger mess in the Middle East and there is the potential of a regional conflict with Shiites and Sunnis, courtesy of the mess that Bush and Cheney have created. Bottom line: the damage they are doing to America's national security is worse than we thought. And in many ways they are working hard to kick the can down the road for the next president rather doing what they need to do to start cleaning up the mess in ways that are meaningful.

We need to get Bush and Cheney out of foreign policy business now rather than two years from now. Congress knows what it has to do and Republicans better start jumping aboard.

Bush's War and Iran

Over time, there are ways that Democrats in Congress can start reining in Bush. But it's possible that time is growing short and significant numbers of Republicans will have to join Democrats to put a crimp in Bush's continuing gambles in foreign policy. As the blunders continue, things are getting complicated.

One complication is Israel which seemed to let it be known recently that it might take out Iran's nuclear program on its own. Another complication is Saudi Arabia which has been making noise in recent weeks (Cheney has had a role in this though I'm still not convinced one way or the other whether he is a listener or doing the talking). Raw Story has a post on the possibility that Saudi Arabia may raise its profile in Iraq:

NBC News' Andrea Mitchell reported on MSNBC that Saudi Arabia is mulling whether or not to send troops to Iraq, to "protect their interests" there.

According to Mitchell, Saudi Arabia is "deeply skeptical" that Iraq's government will be able to quell the unrest. Over a hundred Iraqi civilians died today, including at least 15 from a bombing at Baghdad University.

But a leading Saudi Arabia official warns that Saudi Arabia can not be expected to "solve Iraq's problems."

And then there's Iran and the possibililty that Bush will escalate the tensions, if not unilaterally attack Iran without Congressional approval. Steve Soto of The Left Coaster has an update on Iran:

The Arab Times in Kuwait says a source of theirs confirms that the White House will hit Iran between now and the end of April, confirming what Sam Gardiner told us over the weekend. Note that for some reason, the attack planning involved not only suspected nuclear targets, but also attacks against Iran’s oil industry, which would not only cripple the country’s economy but also send worldwide oil prices into the stratosphere and make it certain that Iran would retaliate in kind. (Hat tip to Michael Carmichael at PlanetaryMovement.org)

To this end, the Russians have sold and will sell more anti-aircraft missile systems to Iran in the coming months. Do not be surprised if our forces will be going up against Russian and Chinese equipment and advisors. A senior Russian naval official concludes that the Bush Administration is positioning submarines for an attack. (Hat tip to Raw Story)

The most disturbing new aspect about the story is the possibilitly of an attack against Iran's oil industry. If true (and that's a big if), perhaps Bush wants to cripple the world's oil industry and wants to force the United States turn to dirty sources of fuel like offshore drilling, coal and oil shale with a moratorium on environmental regulations while paying lip service to clean energy. I'm not sure how reliable the Arab Times are but stories about possible action are circulating elsewhere and something to consider is that it's possible that some members of the Bush Administration are circulating the stories in an effort to provoke Iran into a response (Cheney?). Something to keep in mind about Iran is that it is some years from developing a bomb and is not an imminent threat but it is possible that when it comes to Iran another mushroom cloud scam may be underway by the Bush Administration and its neocon allies in the media. Certainly the usual neocon suspects have been making noise about Iran over the last few months.

Laura Rozen has an article in American Prospect Online concerning Bush's possible intentions towards Iran:

President Bush's Wednesday address to the nation on his new Iraq strategy delved heavily into an alleged uptick in Iranian support for terrorism and attacks on coalition forces in Iraq, and his plans for confronting it. The speech was followed the next day by the dramatic U.S. raid on an Iranian office in the Iraqi city of Irbil. Speculation is now intensifying: Has Bush signed a finding authorizing covert action on Iran? If so, what specifically does it say? Alternatively, has he authorized a more aggressive Iran strategy through a presidential directive that doesn't explicitly require informing Congress -- or the public -- of action?

(snip)

U.S. officials interviewed by the Prospect would not reveal whether they had been briefed on such a finding, or if one even exists. But there is evidence that, while Bush probably has not signed such a finding regarding Iran, he has recently done so regarding Iranian-supported Hezbollah in Lebanon; further, there is evidence that he may have signed an executive order or national security presidential directive regarding a new, more aggressive policy on Iran. Such directives are not required to be reported to Congress -- they are more in the realm of the president communicating to authorized people inside the administration his expectations for a policy.

Whatever Bush has put in writing or not about Iran, he is required to consult with Congress on such a important issue. I'm not sure what it takes these days to convince Americans that we have a constitutional crisis on our hands. I'm convinced we're already in one but I doubt a majority of Americans see it that way yet. But if Bush launches a war against Iran without Congressional approval, how will Americans react? And will it be too late? Now would be a good time to write your representatives in Washington.

Saudis Involved in America's Foreign Policy

I have many questions about what the Saudis are doing these days and what it is they want to accomplish. Here's an important story by Helene Cooper of The New York Times:

Saudi Arabia has told the Bush administration that it might provide financial backing to Iraqi Sunnis in any war against Iraq’s Shiites if the United States pulls its troops out of Iraq, according to American and Arab diplomats.

King Abdullah of Saudi Arabia conveyed that message to Vice President Dick Cheney two weeks ago during Mr. Cheney’s whirlwind visit to Riyadh, the officials said. During the visit, King Abdullah also expressed strong opposition to diplomatic talks between the United States and Iran, and pushed for Washington to encourage the resumption of peace talks between Israel and the Palestinians, senior Bush administration officials said.

I would certainly support returning to talks with Israel and the Palestinians but the rest is baffling to me. One could argue that most of what the Saudis are saying amounts to interference in America's foreign policy. Or perhaps the Saudis are seeing things that Bush and the media are not seeing. There's also the question in my mind of whether Cheney was doing the talking or doing the listening. If he was listening, then I want to know why the Saudis were not saying this to Condolezza Rice, or even possibly Stephen Hadley, if they wanted someone with a lower profile. The Saudis ought to know by know that Cheney has a trust factor among the American public pretty much in the negative zone.

Juan Cole of Informed Comment and Steve Clemons of The Washington Note have their own thoughts on these developments. Please feel free to put any links on the Saudis in the comments. All I can say is that something doesn't feel right about all this. And of course it doesn't help that Iran is behaving more erratically.