SEPTEMBER 2005

by Dr.S.Tischler 
 
George Orwell has stated in <1984>  that  who rules the past controls the future; who controls the present, rules the past . When these sentences are read in a different order, the future is simply going to be a rehash of our present and past.  The operative word in all of it is  control .  How is the present  controlled ?  Simply by way of parsing out what is called  inform-ation .
 
In 1957, SHELL geologist M. King Hubbert presented his exhaustive sta-tistical treatment of oil production data for America,  combined it with systems theory to conclude that the American oil industry would  Peak  in the early 1970 s.  History seemingly proved him right   or, we might con-clude in the light of recent history   the  oil crisis  of the 1970 s caused the fundamental change of the oil industry.  At the turn of the New Millennium Hubbert s concepts were applied to the global oil industry to presage a global oil peak at round about our present time. 
              Michael Ruppert  sums up neatly the argumentation of the <Peak Oil> believers, that is very successfully polarizing the minds of the powers that are running the "horror-show" of our contemporary history:  There is no more serious oil left to find or extract, even at a ridiculous cost. [ ] We need three new Saudi Arabias today just to replace the impossible-to-hide-anymore global decline rates, especially in Norway, Indonesia and Mexico. They aren t there. The world has not discovered a single 500 million-barrel field for more than two years .  
 
That he used the words  not a single 500-million barrel field in two years  makes it easy to refute his argumentation: 
 
· Central Asia  (the region centered on Uzbekistan) is reported to hold  re-serves  of in the order of up to 243 billion barrels of crude  - that can explain why there are  regime changes  happening; American military bases in the region ostensibly are there to help fight  terrorists - which in this day and age has become synonimous with people who are intent of using their own natural resources.  
· A curious footnote to "history": AMOCO has since 1992 made significant dis-coveries of oil in Herzegovina (near Drenice - 2.5 billion bbl)  which could have provided enough oil to supply the country for up to a century. In retro-spective the desire for Bosnia-Herzegovina for independence is explicable with potential autarchy in terms of energy.
· Recent calculations by the British Geological Survey and the Shell Oil Company indicate that organic-rich source rock has probably formed up to 60 billion barrels of oil within the North Falkland Basin .  The war between the U.K. and Argentina over the Malvinas (Falklands) surely was not over sheep-pastures in the middle of the Atlantic ocean.
· Iran has discovered two new oil and gas fields in the south of the country. One of the new oil fields, with an estimated capacity of 5.7 billion barrels, is located in the southern province of Khuzestan, 40 km northeast of the provincial capital of Ahvaz .  
· 120 miles (200 kilometers) southeast of New Orleans in the Gulf of Mexico  an estimated one billion barrels of oil 19,000 feet (5,600 meters) below the sea-floor have been recently discovered. That makes it the biggest oil field discovery in United States territory in decades. BP plans to drill 25 holes into the giant field, called Thunder Horse, which sprawls over 54 square miles (140 square kilometers) of seafloor .  
· The oil expected to flow from the vast oilfields under the Caspian Sea, disco-vered about 20 years ago remains largely undrilled and untapped. That field is rumoured to contain about 500 years worth of oil at present world consumption rates. According to Kazak oil officials, Kashagan has the potential to produce more oil per year as the total proven reserves of Saudi Arabia's Ghawar field, the largest onshore field in the world, which has remaining reserves of 70 billion barrels, while its Safaniya field, the world's largest off-shore field, holds 19 billion barrels.  The only possible oil pipe-line routes at the present time to handle the massive flow of oil from the Caspian Sea region und Chechnya is either through Kosovo to the Mediter-ranean Sea, or through Afghanistan and Pakistan to the Indian Ocean. If that were known generally, recent world history would be  far less enigmatic. 
 
If we tally up the numbers on oil discoveries since the 1970 s oil crisis, then the talk of <Peak Oil> dissolves into nothing in terms of volumes.
 
The second part of the argument,  that no mega-oilfield in excess of 500 mbbl has been found   within the two year time-frame   falls apart if viewed in conjunction with the first part:
 
A simple illustration can explain what is actually happening:  up until fairly recently, oil exploration did not test regions to a depth greater than some 5,000 feet. when we consult the 1950 Textbook <Oil Production Engineer-ing> , we see on p. 433 a table that relates drilling cost to drilling depth. From this graph we learn that half a century ago the oil industry did not normally drill any deeper than about 5,000 feet.  Now they are drilling to four times this depth and tap the "bigest find" in decades. One does not need to be a "rocket scientist" to discern a causal relation! But then again -  why incur high costs for deep drilling, when one can ask the Pentagon to go and  liberate  the oil industry of another country?
                 A  back-of-the-envelope  calculation shows, that the volumes which drill-holes test do not increase linearly with depth, but what the Revered Malthus has argued for the dichotomy of exponential population and linear food-supply also applies in this case.  A drill-hole to 4 times the depth does not test a 4 times larger volume   it indicates the oil content of a volume that is some 64 times larger.
 
So why is it, that despite the fact that the most important aspects of the <Peak Oil> paradigm dissolves into nothing within   how long have I been talking?   some 5 minutes - people still religiously believe in what they are told regarding the coming peaking of oil production?
 
That is where the  Crude Oil Price  comes in.  We are witnessing not the peaking of oil (as in oil production), but the peaking of oil in terms of price! In a truly free market economy, the oil price were surely less than US $ 30 per barrel!  
 
No oil shortage exists. Figures from the Paris-based International Energy Agency (IEA), the central collection point for world oil information, show that for the first quarter of 2004, world oil supplies were in the range of 82.3 million barrels a day (mbd), with consumption lower, in the range of 80.5 mbd to as high as 81.5 mbd. Thus, the world was in surplus during the  first 90 days of the year, during the very period that world oil prices leapt by $7 per barrel."   It is quite obvious, that "there is no relationship between the price of oil and the amount of oil being produced. Over the past several decades, oil production has increased slowly and predictably." 
 
If we analyze the  round-the-clock  news and take the  explanatory  parts of  reports on the oil price, then we get 
 
· refinery closures (temporary / permanent   but a slacking of demand should   if anything   then depress the price),
· accidents on production or transport facilities (they should in most cases be cushioned by the oversupply that I have mentioned),
· the Russian portion of global oil supply   in the order of 10% of the grand total - was  a given  as long as the USSR existed.  With the  take-over  of significant parts of the Russian oil industry by  western  interests, problems in Russia are factoring into the oil price significantly.  Curious   is it not?
· Terrorist attacks, insurgencies and wars are given as reasons for sky-rocketing oil prices - but never, ever -  do we hear lack of oil reserves   rather we are fed apocalypic warnings of dwindling supply.
 
 
What we are being told are symptomatic  reasons  rather than systemic problems of real importance.  It is pretty clear to anybody  with a logical mind-set, that  not only is the oil price manipulated - at the same time the public is driven to total hysteria.
 
Why can the  man on the street  be enticed to willingly pay a multiple of the price that his purchase is actually worth?  Simple   he does not know what the stuff in the tank of his car is actually worth. 
 
We have watched the unfolding madness of the Middle Eastern situation.  Before the  liberation  of Iraq the oil price was less than half of what it is now.  If and when Iran (or Bolivia) will be given the same  treatment , we can expect a further price explosion.   We do not want to read tea-leaves   but have to try to prepare for what comes  afterwards .  Sooner or later, sanity will prevail and the present   totally unrealistic   pricing of oil will be succeeded by actual and meaningful prices.  It is an open secret, that oil companies calculate the viability of a field assuming a US $ 25.00/bbl oil price.  This shows, that production costs are substantially lower than US $ 25/bbl. 
 
If we again now take the daily production of around 80 mbbl and multiply it by the present profit margin of ~ US$ 45, then we get the DAILY operating profit of US$ around 3.5 BILLION DOLLARS or in excess of a TRILLION DOLLARS per year!  That buys a lot of expert opinions, newspaper articles, politicians, generals and whatnot! 
 
As Klett and Schmoker  have recently demonstrated, from 1981 to 1996 the estimated volume of oil in 186 well-known giant fields in the world [>0.5 billion barrels (Bbl) of oil, discovered before 1981] increased from 617 to 777 Bbl without new discoveries . Indeed, many studies have proved the phenomenon of "reserve growth"- i.e., that "additions to proven recover-able volumes are usually greater than subtractions". This occurs because of four fundamental elements: 
 
Ø Technology (improved recovery), 
Ø Price (allowing more costly oil reserves to be extracted), 
Ø political decisions, and 
Ø better knowledge of existing fields- the last of these being possible only through effective and intensive drilling.
 
The <Peak Oil> fear-mongers are highly successful   they manage to get regime-change  arranged  for them with tax-payers money and innnocent blood.  Over the last decade alone far more than a million people have died in order to keep the oil price at a level several times the production cost.  
 
New technologies of exploration and production of oil have changed the pre-1970 s oil industry to such a degree, that we can justifiably speak of an entirely new industry.  On top of that, the  going  paradigm of oil formation cannot anymore explain many (if not the majority) of significant new finds in the recent past.  In short   the most basic premise of predictive systems theory   is violated  .. the systemic ramifications have changed to such a degree, that we are not looking at the same system anymore.  No treatment by statistics is possible until such time as we get a better understanding of the governing parameters of the new oil industry.
 
The global economic growth over the last year was a comfortable 4.5%,  It is commonly ventured that an increase of the oil price of US $ 20.00/bbl shaves off one percentage point of global economic growth 6 months to a year later .  What happened over the last 2 years or so is not going to cause a global recession.  
 
But what will a widening of Anglo-American Imperialism do to the oil-price and global economy? The change in alert status of American military forces globally as of tomorrow is casting a deep shadow over all of our futures.  Again   I do not want to read tea-leaves, but an invasion of Bolivia is widely rumored. What will it do to humanity, to Life on Earth? 
 
Between conventional and unconventional oil deposits, there are reserves known for another almost two centuries of  future .  Somewhere along this line there will be another American president who will demand that  within ten years I want to see an American drive from coast to coast on five gallons of hydrogen .  Believe you me   it will be achieved!  The tech-nology to do so is aready in existence and proven .  A future where hydrocarbons are put to a better use than simply burning will be sustainable.
 
In the hope that sanity prevails, I thank for your attention!
 
 
 
 
 
 
 
Table 1: Projections of the Peaking of World Oil Production:
 
Projected Time Source of Projection Background & Reference
 
2006   2007 Bakhtiari A.M.S. Iranian Oil Executive 
2007   2009 Simmons, M.R. Investment Banker 
After 2007 Skrebowski, C. Petroleum Journal Editor 
Before 2009 Deffeyes, K.S.` Oil Company geologist (ret.)  Before 2010 Goodstein, D. Vice Provost, Cal Tech 
Around 2010 Campbell, C.J. Oil Company geologist (ret.) 
After 2010 World Energy Council Non Government Org. 
2010   2020 Laherrere, J. Oil Company geologist (ret.) 
2016 EIA nominal case DOE analysis/ information 
After 2020 CERA Energy Consultants 
2025 or later SHELL Major oil company
No visible peak Lynch, M.C. Energy consultant 
 
 Text: For my two Keynote Addresses to the Indian Oil & Gas Symposium in Mumbai, 5-6 September 2005.  There is a better (annotated and illustrated) paper available on the Internet at:
http://www.mosquito-verlag.de/weblog.php?p=1&id=162