A Paradigm Shift

Dave Cohen has written an exceptional piece on OPEC and what the future holds. Peak oil will occur, but Dave's piece focuses on some economic realities that the rest of us haven't thought about.

On June 13th I said:

One must wonder what karmic forces are at work when Russia, once our worst nightmare as leader of the Soviet Union, is now a leading source of oil and gas on a global basis. Imagine the irony of being at their mercy for more imported oil and gas!

Given what Dave has to say about OPEC's apparent strategy, I may have been right on target.

After quoting the movie The Graduate Dave launches right into his essay:

In a recent personal communication sent to ASPO-USA, former Saudi Arabian exploration and production head Sadad Al-Husseini made the following statement.

'There has been a paradigm shift in the energy world whereby oil producers are no longer inclined to rapidly exhaust their resource for the sake of accelerating the misuse of a precious and finite commodity. This sentiment prevails inside and outside of OPEC countries but has yet to be appreciated among the major energy consuming countries of the world.'

Saudi Arabia's production declined 8% in 2006. This is a fact which requires interpretation, and there are two opposed views: they can't or they won't raise exports. Matt Simmons has doubts about current Saudi capacity, most prominently raised in his book Twilight in the Desert. At The Oil Drum, Stuart Staniford's analysis appears to buttress Simmons' position, but is hampered by a lack of current production data from Ghawar, which the Kingdom will not reveal. The "won't" position has gotten scant attention in the peak oil community. Al-Husseini's statement points to a fundamental reorganization of the world's future oil supply. Downstream investments in the Persian Gulf states lends support to his view that these producers will exert greater and greater control over their fossil fuel resources in the future. (emphasis mine)

More from Dave:

A paradigm shift means that OPEC nations are determined to never see the low prices of the late 1990's ever again.

and

The desired price today is whatever OPEC thinks the market will bear, not the fair price of $60/barrel back in 2006. This is a dangerous game because the downward demand pressures on consumer economies created by even higher prices (about $80/barrel) could be severe.

and

The Persian Gulf countries are planning for a future where global oil spare capacity stays tight and refining margins remain high. They will increasingly export gasoline and ethylene, not crude oil.

About 20 years ago I listened to a motivational speaker talk about the 'torpedo of change.' We had 2 options; stick our head in the sand and let our butts get blown off, or plan for its arrival and deal with it. There is a torpedo coming straight at us. Right now option 1 seems to be in full swing, and that includes the fig leaf of federal lawsuits against OPEC. Can you just imagine what OPEC's reaction will be if some doofus goes down that road?

Folks, OPEC is in the driver's seat, and they are busy building additional refineries and petrochemical plants. It won't be too long (as the oilpatch marks time) before they are exporting fertilizer and gasoline in lieu of crude oil. Passing silly laws to authorize Federal lawsuits is not the answer. Focusing on improved vehicle fuel efficiency, improved mass transit, and alternative transportation (ex. hybrids), are options we can and should act on.

I haven't decided how to approach this with Schakowsky, Obama, and Moore. I'll probably kick out some letters, but the writing is on the wall now. Cohen is one of the most conservative writers about Peak Oil. He acknowledges it, but he is also data driven and this article is chock full of references that make his point, and are difficult to argue against. The Drummers are expecting a recession this year and serious price bidding (with resulting higher prices) next. We won't have to wait too long before finding out if they are right. The impact on the national economy, and the resulting impact on Chicago specifically, could be quite painful.