Not sure I agree with all this but it makes for an interesting discussion. Lovely place Charlottesville. I am going to the "Miller Center" at U. Va, next Monday to speak.
4 September 2006
I appreciate the invitation to expand further upon my view regarding the transformation of oil from commodity to strategic asset. Indeed, in much the same way quantum physics proposes that light behaves both as a particle (photon) and a wave (light wave), a duality that exists at a level I unfortunately do not understand all that well. But, the science of physics, being what it is, is an unforgivable one. Alas, every geophysical report, scientific paper and industry review I have read of late would reveal a significant and real worry amongst a number of policy makers in other countries regarding access to oil for their own domestic needs.
Further, I would like to mention some of the excellent work on this very subject of oil depletion with regards to fueling the major exporting nations own economies (and protecting a strategic resource that will be needed for their own populations) done by West Texas on The Oil Drum WWW.Theoildrum.com for a much more comprehensive and comprehensible view of decreasing exports from major oil producing regions over the next several years.
Which brings me back to Hugo and Vlad. Hugo is using his oil resources to fund his ‘Bolivian’ vision of Latin America and the Caribbean basin, which I would very well argue allow him to use his strategic asset in a very powerful way, economically. With regards to Vlad, I have to admit to a significant dislike of the man, mostly having to do with the fact that he was once a KGB goon (alas, poor Mother Russia, what cruelties and utter crimes you must suffer due to the lies and violence of little men). Reports regarding the gas crisis in Europe last year was directly related to the amount of natural gas, a fossil fuel often associated with petroleum, that Russia had shut in, off line or weren’t selling. This remains a very serious problem with both Ukraine and Georgia, and Moscow can use access to fuels as a strategic lever in the area, if they can maintain production. Given an aging and poorly managed energy supply (Soviet era fields and equipment are in great need of investment and repair, for starters). This is occurring while at the same time Russian domestic oil consumption is increasing, which is in itself a function of how the Russian economy is doing. If the price of fuel goes up, there is more money in the Russian economy, that money gets spent on, among other things, consumer goods. A lot of those consumer goods are cars…specifically, big cars…SUV’s…Hummvees…that sort of thing. Thus, the need for gas at home goes up as well.
It is in the interest of any country to husband their own fossil fuel resources. The role that these fuels play on an economic and financial level should not blind us to a strategic need to control a substantial resource for ourselves. We have allowed Market Forces to dictate the price of oil for so long because the world had relatively cheap and easy access to it. But the world’s, and in particular The United States, relationship to cheap oil is at an end. Though we do have huge reserves of hydrocarbons on this planet, there is still a finite supply of them, making their extraction or production increasingly expensive, in terms of money, environmental destruction and even blood.
A barrel of oil produced today in Kuwait is a barrel of oil they won’t have 10 years from now, when same barrel of oil will be so much more valuable. All things being equal, of course, assuming that modern society will continue to consume our resources at present rates. If there were to be a serious economic downturn (something the lines of a Depression, which may very well happen) that would naturally decrease the demand for oil, and with it, production. But that only stretches out the plateau of oil production.
Eventually, the production curve will begin to decline. That is only a matter of time.
North Sea oil production is a case in point. Last year, the UK nearly froze and was down to just a week’s worth of natural gas supplies. Businesses had to shut down and the cost of NG was upwards of (USD
equivalent) $40/ 1000 cubic feet, a huge increase from previous rates. The UK used to be completely self sufficient when it came to oil production, primarily from the North Sea oil fields produced along with Norway. However, North Sea production peaked in 1999, and is experiencing 8 to 15% decline rates on yearly basis. A lot of oil and natural gas was produced by the UK back when oil and gas was pretty cheap ($10-20/ barrel/ $3-5/ 1000CCft). If they had decreased exports and committed themselves to a program of energy self sufficiency, including significant conservation measures and investment in renewable energy during those years (late 70’s to 2000), they would still have a significant reserve of hydrocarbons for energy and industrial use that would be under their strategic control and allow their society to function without too much disruption, allowing some breathing room as a fossil fuel economy was changed to a sustainable, renewable energy economy.
We could have, should have, done the same thing here in our own country, but unfortunately, our democratic republic has been captured by a cadre of malcontents, miscreants and mental defectives. Those persons now in power, running our country (and the planet)into the ground (in much the same way a drunken frat boy from Yale would run his dad’s Cadillac into a tree at high speed) seems intent on following the "War at any price" doctrine (Neville Chamberlain’s government pursued "Peace at any price" using pretty much the same tactics). No, the pack of yapping mongrel curs that currently occupy the White House and Capital Hill are too busy growling, snarling and making lots of bad noise for the likes of Fox News to be of any use. The problems our country is facing is not the work of one person or party, and if blame needs to be affixed, we should blame only ourselves for the mess we are in. Our addiction to oil, cheap energy, indeed our very wasteful and destructive way of life that many in our country call "The American Dream" is, like any addiction, turning into a nightmare.
Your most humble servant,