BUSH: Saudi Oil Supply May Have Peaked
Thu Jan 17, 2008 at 05:58:21 AM PDT
The free market is efficient, but it is not subtle. $90/barrel oil is how the market signals "More oil. Stat."
But the Saudis and Opec have refused to pump more oil. Earlier this week, Saudi Oil Minister Ali al-Naimi said "We will raise production when the market justifies it."
Why won't the Saudis pump more oil? Maybe they realize it will be more valuable in a few years. Maybe they want to weaken the US. Maybe they want to strengthen their bargaining position in some behind-the-scenes negotiation. Maybe they want to set the scene for a large pre-election decrease in the price of oil.
But there's an elephant in the room, which was acknowledged by President Bush on national television on Tuesday. Maybe they're not pumping more because they can't pump more.
If they [Saudi Arabia] don't have a lot of additional oil to put on the market, it is hard to ask somebody to do something they may not be able to do.
The implications of Bush's statement are astounding and disturbing.
The remark was made by Bush during an interview with ABC news. You can see the original interview here- Click on "Exclusive Presidential Interview." The above quote is about 1:55 into the interview. Hat tip to Gail the Actuary at the Oil Drum; Bush's remark is also being extensively discussed over there.
If Saudi Arabia can not significantly increase its oil supply than, for practical purposes, it has peaked. There may be lesser jiggles, peaks and noise in the data, but "peak oil" is what happens when you can not increase the oil supply, even if you want to.
Saudia Arabia was for decades the world's biggest supplier of oil, although I think it recently edged out for #1 by Russia. But nearly all of the growth in oil supply over the next few years is supposed to come from Saudi Arabia and Opec. If Saudi Arabia can't increase its supply, then we've got a problem, Houston.
The problem is that demand is going to increase. That's what happens when millions of poor people take on rich-world lifestyles, like eating more meat, and are finally able to afford new mass-produces $2500 cars.
If the world ignores-- or can not fulfill-- Mr. Market's $90/barrel "price signal" for more oil, then Mr. Market will scream louder than a spurned two-year old. A few years ago, the "good old days" meant double-digit gas prices; a few years from now, the "good old days" may mean double-digit oil prices.
And if supply doesn't rise, demand must fall.
Implications and questions
So its rather important to understand whether Saudi Arabia can not supply more oil, or whether it is choosing not to.
A great deal has been written about this in the public domain. Of particular note is Matt Simmons' Twilight in the Desert and the work of Stuart Staniford. What is happening behind closed doors?
Are our intelligence agencies attempting to determine whether Saudi Oil has peaked? Are they infiltrating ARAMCO? Are our signals interception agencies too busy tapping our phones to tap Saudi communications? If not, the failure to note a clear threat to our lifestyle may one day be seen as intelligence failure on par with finding the non-existing WMDs or failing to predict the collapse of the Soviet Union.
Is Bush using whatever leverage he has with the Saudis (oil connections, arms sales, etc) to find out what is going on?
The Democrats know about Peak Oil. Bill Clinton said in March, 2006, "We may be at a point of peak oil production. You may see $100 a barrel oil in the next two or three years." Why isn't congress holding hearings to look into how much oil Saudi Arabia has?
Why weren't Bush's remarks noted by the media? They hardly show up in Google news. Two Presidents have now publicly discussed peak oil (even if Bush did so obliquely). When will this news become fit to print?
I don't want to turn this into a primary battle, but why has your favorite primary candidate been largely silent on this issue? Why have all the others?
Many companies depend on cheap oil (car companies, agribusiness, etc). It will make a big difference to them whether oil costs $50 or $150 in a few years. Why aren't their CEOs pushing the government to look into this? Why aren't their shareholders?
This will effect numerous long-term state and local initiatives. Should your city build that new highway, runway or rail line? Again, it depends on the price of oil when it is completed. This will also affect the budgets of municipalities (money spent buying fuel for buses and asphalt for road-work, property values of houses with long commutes). Why aren't local and state governments leaning on the Federal government for answers.
Markets work by sending price signals. The price signals sent by $90 oil are largely being ignored.
For a representative government to work, the representatives must address and (when possible) anticipate future problems. Carter, to his immense credit, anticipated the problems of limited oil supply and tried his best to address them.
He failed.
The lesson both parties have learned is that this problem is best ignored.
When will this change? What will it take?
(Note: As always, please check out Energize America to understand and help work on this problem.)
Permalink | 18 comments