Monthly Archives: October 2010

Willing blindness about oil: Continued

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In response to my previous post, my verbal adversary said this in regards to the new oil reserve estimates:

Alternative sources are nowhere near prime time, delaying the inevitable for as long as possible is prudent.

Basically, his theory boils down to this: We’re speeding towards a brick wall. We can see the brick wall even though there are people in the back seat telling us there is no brick wall. He proposes that we continue at current course and speed to maximize fuel efficiency and then when we reach the brick wall, if it’s there, we’ll magically wish it away and speed right on through.

We KNOW the Saudis are lying. Their own numbers PROVE it. Once Mexico’s Cantarell and the large Saudi fields deplete, we’ve lost the two largest sources oil we know of. Iraq’s recent “update” still brings their reserves to about 5/8ths of what Saudi Arabia’s max number ever was. But the current economy depends on believing these lies so we can maintain lower oil prices. The Saudis are willing to lie to us and we’re all too willing to believe it.

But if these lies are so transparent that a random I.T. guy in Pittsburgh can see it, why hasn’t the market priced oil accordingly? To be honest, I have no idea what’s going on. my only guess is that the depletion for the Saudi fields is still far enough off that it isn’t priced into the market. As long as the Saudis can maintain shipment on current orders, the alarm hasn’t been sounded yet.

But maybe, just maybe, there is some awareness of the lies recently.

The Saudis were the first to say that their reserves had gone up sometime back in August I believe, magically, it happened without any new finds.
Iraq followed a few weeks later with a 25% increase in it’s reserve estimates.
Iran, cheating off it’s neighbors, declared that it’s reserves were higher than previously thought.
And Kuwait, not to be left out, increase their reserves by 12 billion barrels.

All in the span of about 60 days.

Yet the price of crude has risen fairly steadily over that same time period. With all these increased reserves (nearly 150 billion barrel increase) in existing fields (save for Iraq), you’d think “The Market” would have started to price oil lower. Perhaps they didn’t buy the lie this time? This article really drives that last point home.

Money Quote:

“I don’t think it’s possible accurately and confidently to look at the reserves for many Middle Eastern countries with a great deal of confidence,” said Paul Harris, a natural resource analyst at Bank of Ireland, referring to numerous previous substantial revisions to reserves by OPEC members.

Some countries, including some OPEC members, are in fact reporting total oil reserves discovered instead of oil still to be extracted, several analysts have said.

And then comes the *facepalm* from my adversary:

How do you know they weren’t under-reporting before?

The problem with that theory is that OPEC’s actions have been inconsistent. Back in the 80’s and 90’s there was a race to show “proven” oil reserves in order to get lots of investment dollars from oil companies to come build up the infrastructure. So back then, if there was false reporting, it was because they were over reporting their reserves. The problem for Saudi Arabia is getting caught in the lie. They’ve been pumping 8-9 billion barrels of oil a year from the 260 billion reserve, yet their official reserve hasn’t decreased in 2 decades.

Today the problem is reversed. If they admit their reserves are a lot smaller than declared, the price of oil will skyrocket, suddenly the entire world will be on the alternative fuel bandwagon, and their influence will be greatly diminished once a solution is found. They have nothing once their oil is gone, they will shift from being an exporter of oil to being an importer of whatever the new fuel is that gets adopted. Instead of being a massively wealthy mid-east state, they will fall into poverty, and they will do anything they have to do to maintain their current position.

Willing blindness about oil

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Over on my other site, I was having a conversation about the coming oil bust and our need to push now to find an alternative to oil as our primary fuel for transportation. My jaw dropped with this response:

Free trade relies on entrepreneurs using their creativity to make a lot of money. Nothing about the idea of relying in the ingenuity and the allocation of resources through millions of voluntary transactions is based on oil. If oil were actually running out, futures prices would shoot up and there would be a large profit opportunity to invent alternative energy sources, and companies a large incentive to spend their money wisely on the best technology. The free market will save us from any impending disaster created by the free market.

Wait…. what?! First off, we don’t have a free market on oil. The vast majority of oil production is controlled by an oil cartel who has a direct interest in lying to the consumer about their supplies so as to prevent a mass switch away from their product.

Someday I fully expect to hear about an area in Saudi Arabia where they are having trouble with some wells. “Just a little snarl!” declares the Saudi oil minister (looking vaguely like the Iraqi information minister), “We’ll have production back online in a week”. That week turns into a month… and then a few more wells pop offline… still “We’re ok! We have 260 billion barrels in reserve! Keep driving your Hummers! We’ve had a couple setbacks but we’ll be back online on Wednesday”

Two weeks later, the same thing happens in Kuwait.

Mexico announces that their Cantarell oil field (the second largest oil field in the world) production has fallen so far, they are no longer able to export oil, and in fact will start importing it.

Oil shoots up to $300 a barrel which makes it about $15 a gallon of gas.

Global shipping grinds to a sudden and catastrophic halt. Suddenly and without warning, it is less costly to make goods in the U.S. than it is to make them in China and ship them half way around the world. The only problem is: No production capacity of any meaningful amount is available in the U.S. anymore. 4 billion Chinese, faced with sudden unemployment, begin rioting in the streets. There is a Tiananmen 2.0, only not as pretty.

Conspiracy theories abound.

Republican’s propose, on national TV, invading Saudi Arabia to take the oil, but with China in turmoil, there is no way to fund such an invasion.

And so the economy collapses into a depression that makes 1929 – 1941 look like a walk in the park. Multiple countries default on their sovereign debts, this collapses just about every bank on the planet. I won’t even go into what happens to the stock market… that should be fairly self evident at this point.

Eventually a few countries find something to fight over and we all go back to war.

But sure….. we’ll be saved by “The Market”

“The Market” doesn’t have foresight… and it doesn’t have the ability to tell if someone is lying…. and even when it’s blatantly obvious they are lying, “The Market” ignores it if it’s financially inconvenient (need proof? look at the blatant lying in the mortgage crisis)

Switching off oil as a fuel cannot be left up to market forces alone, because when it becomes absolutely necessary to make that switch, it will already be too late.

The upcoming elections? I’m not worried.

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A lot of Democrats are very worried about the upcoming election on November 2nd.  They should be. A good many of them stand to lose their job. I, however, am not that worried. I think this country really needs the good shellacking the Democrats are about to get. Here’s why:

The Democrats need a swift kick in the ass. They’ve squandered the 6 months or so they had a majority. (Due to various deaths of Senators, they haven’t had the full 60 votes the whole time). I like some of what they’ve done, but their big accomplishments have still only been half assed. They keep walking around in their majority, saying to the Republicans, “Please don’t hurt me!”

Meanwhile, the Republican’s have gone off the lunatic fringe!

In Delaware, we have Sarah Palin 2.0, also known as Christine O’Donnell, who once was a witch… but then not… and wanted to be a Harri Krishna, but couldn’t give up cheeseburgers. She’s also single and doesn’t believe in masturbation….. or paying taxes.

Then there is Sharron Angel, the Tea Party backed candidate for Senate running against Harry Reid in Nevada. This is a woman that has suggested, repeatedly, that if the election doesn’t go her way, people should resort to their “2nd Amendment rights” to take Harry Reid out. I don’t know if there is a specific law against calling for the assassination of Senators, but there should be.  Sharron Angel has also said she wants to end Social Security and Medicare…. except when she’s questioned about it, she says “No! I want to SAVE social security!”

Then there is Rand Paul, who was against Medicare before he was for it…. but stay tuned on this one because I’m sure it will change again.

But here is why I fully support all of the above candidates. They are so extreme and so unqualified that the electorate will finally see the Tea party and Republican party for what they really are.

Even the Republican’s “Pledge to America” is painful to read… not because of the meat of it’s content (it has very little of that), but because it’s 64 pages of the Republicans clearly not getting it. Even in House Minority Leader John Boehner’s words “American’s aren’t ready for solutions”

If the Republicans get a majority in this election, we’re going to have 2 full years of congressional investigations into whether President Obama lied to his 2nd grade teacher about needing to go number 1 or number 2 and absolutely none of the Republican agenda will be able to get done. (They aren’t able to take enough seats for a filibuster proof majority)

At the end of 2 years of Republican pettiness, they’ll proudly march into the Presidential election fielding such candidates as Mitt the Plastic, Palin the GILF, DeMint the Mean, or Huckabee the Dope to go up against an embattled but still smart President Obama.

It will be two years of dark ages, but at the end of it, the Tea party will be capsized and the Republicans will hopefully be smart enough to reform into the socially libertarian/fiscally prudent party I’d like them to be.