Beardy Guy Musings

I’m having a hard time keeping up these days. Oil now above $70 for an extended period and not likely to dip much below it. Global production is flat with various geo-political situations and a new hurricane season looming. Speaking of hurricane season did you know that the surface water temperatures in the Gulf of Mexico are currently 4-7 degrees above this time last year and are essentially equal to (slightly above) the normal temps of early June, the official start of the season? If this keeps up for another few years (and I think it will) seems logical that we’ll see an official lengthening of the season. We’ll soon realize that peak oil and peak climate have arrived at the same time. Interesting times indeed.

But on to the subject of oil, there are going to be many disappointed Americans this time next year when prices have continued to climb and they begin to realize that this was not mere “gouging”. The American way of life, based on cheap gas, is over. Let’s start with an excerpt from an Interview with Matthew Simmons, “Tough Times Ahead for Energy”:

JIM: Describe the origins of this crisis. How did we get into this predicament?

MATT: Well, if you wanted basically to go back and say when the seeds were really started: they were started when I was a kid in the ’50s, and the world began believing that the Middle East had unlimited amounts of oil that we had barely just started to find, and its costs were so inexpensive that our biggest problem was basically how do we keep the world from being flooded with too much of it. So we have some sort of diversity of supply. At the same time, we’re finalizing atomic energy. There was a debate going on – and this was long before I can remember about it, I’ve just gone and read about it out of curiosity – atomic energy was going to be so free that it didn’t actually warrant creating meters, the meters were way too expensive. Just give it to people for free.

So we kind of laid a foundation of an illusion that we could basically rely on effectively very expensive energy forever, and that the cornucopia of all cornucopias was in the Middle East. What amazes me is that it would appear to me now from a lot of feedback I’ve had that until I stumbled into the curiosity of finding these technical papers, and spent 2 ½ years working on what came out last June, and my book Twilight in the Desert, nobody had actually ever questioned the whole card. We just basically assumed. And so many people assumed it. It was one of those things. There’s no reason to ask how do you know that, because everybody knows it.

And then we made another egregious assumption or mistake – we created satellite TV, and out of that we let the whole world peek on how we lived. As a result China and India and Pakistan and Bolivia said, “I’d really love to live like those people in Canada and the United States do – and Europe. That really looks neat.” So we set the seeds [where] demand is going to grow forever and obviously we’ll be able to supply it because technology is making supply easier and easier to do, and we’ve always got the Middle East. And the problem is that demand was too young and supply was too old and we were giving the energy away for free.

I try to avoid the term “peak oil” because it has cultish overtones, and this is a serious socioeconomic issue, not a belief system. But it seems to me that what we are seeing now in financial and commodity markets, and in the greater economic system itself, is exactly what we ought to expect of peak oil conditions: peak activity.

After all, peak is the point where the world is producing the most oil it will ever produce, even while it is also the inflection point where big trouble is apt to begin. And this massive quantity of oil induces a massive amount of work, land development, industrial activity, commercial production, and motor transport. So we shouldn’t be surprised that there is a lot happening, that houses and highways are still being built, that TVs are pouring out of the Chinese factories, commuters are still whizzing around the DC Beltway, that obese children still have plenty of microwavable melted cheese pockets to zap for their exhausting sessions with Grand Theft Auto.

But in the peak oil situation the world is like a banquet just before the tablecloth is pulled out from under it. There is plenty on the table, but it is about to be overturned, spilled, lost, and broken. There’s more oil available then ever before, but also so many people at the banquet table clamoring for it that there is barely enough to go around, and the people may knock some things over trying to get it.

A correspondent in Texas writes: “On a four week running average basis, total US petroleum imports (crude + products) have been falling since 2/24/06, until last week, when we finally showed an increase of 1.3 percent, after bidding the price of oil up by about 20 percent. IMO, we bid the price up enough to (temporarily) increase our imports. We will see what subsequent weeks show, but I think that we are in the early stages of a bidding war for remaining net export capacity. The interesting question is what countries may not be importing because they can’t afford the oil."

Average daily oil production, by month, for OPEC countries (stacked). Click to enlarge. Runs from Jan 2002 to Feb 2006. Believed to be all liquids. Source: EIA.

The EIA came out with the latest International Petroleum Monthly yesterday, which allows us to update the plateau graph, and triggered me into a little investigation of what’s going on with OPEC production.

FRONT ROYAL, Va. — The sunrise turns the night sky pink Tuesday as four travelers meet at the Park ‘N Ride lot off Interstate 66 on the eastern edge of the Blue Ridge Mountains.

A nightmare has brought them together: the price of gasoline, which lists at $2.84 for regular, $2.94 for medium and $3.04 for supreme at the Shell and Exxon stations down the street. Their blue Kia van is bound for Washington, 60 miles away. Today, the one-way trip will cost $10.

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