BIKE: The big picture

[rcbaker]

http://www.rigzone.com/news/article.asp?a_id=10335

What? Lowest oil inventory since the fuel crisis of the 1970's? There's a problem that
this link captures pretty well. Natural gas is critical because of Yankee cold wave, so
the joblessly expanding economy tries to substitutes fuel oil instead, but that shorts
the SUVs, right?

So we need to get more oil from the Saudis, ASAP, right?

But wait! The Saudi kleptocracy is on the verge of a revolution, (see story
immediately below) that would send the price of oil soaring, so we would have to
invade them too, to protect our national interests in keeping the corporate empire
profitable. Which could all get expensive since we are already strapped for cash
enough to threaten the dollar just from trying to steal Iraq's oil.

Which all means that TxDOT needs to get all its billions in Texas toll road bonds
sold, before the New York bond houses fronting the cash understand the big picture.
And where do the NY bond houses get their cash? Well by coincidence, it just
happens that a lot of the money needed to build Texas toll roads to serve future
Williamson County sprawl is actually recycled oil dollars deposited in Wall Street
banks by the Saudi royal kleptocrats. -- Roger

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http://www.asponews.org/ASPO.newsletter.031.php

214. Realistic views from Canada on Saudi Arabia and N.American Gas Depletion
by Bill Powers, Editor, Canadian Energy Viewpoint
June 29, 2003

    One of the most important political and economic events of the first decade of the
21st century is the coming regime change in Saudi Arabia. Predicting the fall of
governments is very similar to shorting stocks, one gathers all the fundamental facts
about the situation, checks and re-checks all facts and figures, and then takes action.
While it is impossible to predict the time and date of the fall of the House of Saud, a
preponderance of evidence suggests it is inevitable. Let's examine several of the
myths surrounding the current state of affairs in Saudi Arabia and what the country's
downfall will mean for investors in the Canadian energy sector.

    One of the greatest myths regarding Saudi Arabia is that it is a wealthy country.
While it's true that Saudi Arabia has the world's largest oil endowment and a royal
family that leads the world in conspicuous consumption, the country's financial health
continues to deteriorate. The country's severe economic problems are a result of an
exploding population and a lack of economic growth outside of the oil industry. The
country's population has grown from 10 million citizens in 1980 to over 22 million
today. The below quote from the US Energy Information Agency's website succinctly
describes today's economic challenges in Saudi Arabia. (The quote can be found at
the following URL: www.eia.doe.gov/emeu/cabs/saudi.html)

    "Slow economic growth is not good news in a country with a rapidly increasing
(and young -- 50% under age 15) population, many of whom cannot find good jobs
outside of the public sector (which is overstaffed and a drain on the country's
budget). Over the past two decades or so, Saudi real economic growth has fallen far
behind population growth, resulting in sharply reduced real per capita incomes and
higher unemployment (officially estimated at 15%, with the true level likely much
higher). Per capita oil export revenues (in inflation adjusted dollars) remain far below
high levels reached during the 1970s and early 1980s (around $2,563 per person in
2001,versus $23,820 in 1980, for instance). Saudi Arabia also has a high level of
domestic debt (around 100% of GDP) which it hopes to pay down."

    Despite many protestations by the royal family that Saudi Arabia has invested its
oil money in infrastructure, defense and an economic diversification plan, the country
has little to show for all of its spending. Saudi Arabia is burdened with more military
equipment than it could possibly use, woefully uncompetitive state supported
industries and poor infrastructure. Where did all of the money go? It was frittered
away by the thousands of dependents of the royal family and stashed in overseas
bank accounts.

    With little exploration success since the 1960s and many of its fields showing signs
of decline, Saudi Arabia is having an increasingly difficult time keeping production
flat. According to energy investment banker, Matt Simmons, head of Simmons and
Company International, many of the country's ageing fields are showing increased
water cuts. Water cuts, water produced along with crude oil that is later separated,
are a sure sign that a field is headed into decline. The country's largest field, Ghawar,
now produces over 1 million barrels of water a day along with its nearly 4.5 million
barrels of crude. With Ghawar accounting for 60% of the country's 7.5 million barrels
per day of crude production, there is little hope Saudi Arabia can keep production flat
if Ghawar continues to water out. Since Saudi Arabia cannot invest the billions of
dollars needed to maintain current production and develop smaller fields, Ghawar
has assured the world high oil prices are here to stay.

    Another great myth about Saudi Arabia is that the country has spare production
capacity. Many believe that Saudi Arabia's spare production capacity allows them to
"turn on the spigots" at times of high oil prices. It is extremely unlikely the country has
any spare capacity. There exists little incentive to restrict production at times of high
prices and low inventories. Unless human nature has changed substantially in recent
months, I doubt that the cash-strapped Saudis are producing much below their
production capacity.

    The situation in Saudi Arabia has caught the world in somewhat of a Catch-22 in
terms of oil prices. If oil prices were to fall anywhere near $20US and remain there for
a significant period of time, the quality of life for the average Saudi citizen would
deteriorate to such a degree that an overthrow of the royal family would be almost
certain. History tells us that when a country has a sudden regime change, oil
production drops precipitously. A few examples would be Iran in 1979 when oil
production dropped from 6 million barrels per day to zero almost overnight, the
collapse of the Soviet Union devastated oil production in Russia and more recently
the regime change in Iraq halted all oil production in that country.

    Some of the best insights into the current state of affairs of a country can be
gleaned from those who have gained first hand knowledge of the country through
travel. World-renowned investor and author Jim Rogers, who recently completed an
outstanding book titled "Adventure Capitalist," had the following to say about the
country after his visit to Saudi Arabia: (For more information about Jim and his
travels, please see www.jimrogers.com) "By the 1990's the Saudis were spending
much more money than they had, and the nation's debt began to skyrocket. Today,
despite its considerable assets, the country is one of the more indebted countries in
the world. If the price of oil drops, the government will ultimately go bankrupt. It will
no longer be able to support all of its princes much less its mullahs. Only if oil prices
remain high will Saudi Arabia be able to whether the storm-perhaps." Jim Rogers,
"Adventure Capitalist," p. 225

    The coming fall of Saudi Arabia is going to have a huge impact on investors in the
Canadian energy sector. The news that the royal family has been finally thrown out
will almost certainly send oil prices skyrocketing. The heights to which oil prices
would climb is anybody's guess. What is more important is that prices will climb to
unheard of levels almost overnight. As I mentioned earlier, predicting regime change
in a country is like shorting stocks, do your research, take your position and wait for
the wheels to come off. While it might seem like an eternity for your thesis to be
proven, its fruition is often well worth the wait. I believe we are already seeing signs
that the House of Saud is in trouble. With the recent bombing of an American
compound and the State Department's temporary closing of the US embassy in
Riyadh, it is clear that we are at the beginning of the end of the House of Saud.

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http://www.asponews.org/ASPO.newsletter.031.php

209. The crude truth

The following is a slightly abridged paper by Brian Fleay, a prominent analyst in
Australia.

    The USA’s hydrocarbon resources made it the world’s hegemonic power but it is a
position it can no longer sustain.

    Last month’s global anti-war marches, in which many Hub readers would have
participated, were the greatest expression of opposition to a war in world history.
Only a minority support war to end the brutal Saddam Hussein regime – with its
disastrous consequences for the Iraqi people exhausted by ten years of UN sanctions
– because everyone knows that the politics of oil underlie the aggressive stance of
George W. Bush. But exactly how does oil fit into this scene?

    The US is an extravagant consumer of oil. It produces less than 10 per cent of
world oil but consumes 26 per cent. It imports nearly 60 per cent of its consumption at
a cost of around US$330 million per day – the biggest component of its US$435
billion trade deficit.

    The post-1970s strategy to minimise dependence on Persian Gulf oil is coming to
an end. We are passing through the peak of cheap oil production outside the Persian
Gulf countries, which currently produce only 30 per cent of world supply, but now
control 60 per cent of the world’s remaining cheap oil reserves.

    World oil discovery peaked 40 years ago and has been in decline ever since. We
have been picking the 'plums' out of an extensive hydrocarbon resource but most
new oil development is expensive, being offshore in deep water or in remote and
hostile environments. Annually, production has exceeded discovery since 1980, and
is now four times the discovery rate. With little cheap oil left to find, the supply focus
is shifting back to the Gulf.

    A consensus is being reached that global oil production will peak and begin to
decline around 2010. The debate is being led mostly by well informed retired
petroleum geologists but even the major oil companies and industry associations are
now speaking out, though often in guarded terms.

    US oil production has been declining for 30 years and the former Soviet Union’s
production has been falling since 1989 (though with some recovery under Russian
President Putin). North Sea production has commenced a steep decline and
production in many small countries is falling off.

    There are over 30,000 productive oil fields, but 120 ageing giant fields produce
nearly half the world’s oil. Of these, 14 produce 20 per cent and just four 11 per cent!
Discovery of giant fields has collapsed since 1980, and very few are now being
found.

    Could Australia rely on its own oil? A year ago, Woodside Energy and the
Australian Petroleum Producers and Exploration Association (APPEA) publicly stated
that Australian oil production during the 1990s had been three times the rate of
discovery and that production was about to go into a steep decline. We were just self-
sufficient in 2000, but this was likely to decline to 50 per cent by 2010, with most of
the decline taking place by 2005. The three giant oil fields in Bass Strait have been
declining since 1986 but so far their output has been replaced by small offshore fields
that are here today and gone tomorrow.

    Imports can only come from the Middle East, and APPEA and Woodside were
extremely concerned at dependence on imports from this notoriously unstable region.
There were serious implications for the balance of trade and for government revenue
from royalties from Australian-produced oil. Transport was most at risk and the
Federal Government needed to urgently formulate a National Energy Strategy.

    At a recent Beyond Oil conference in Perth, Barry Jones from APPEA forecast
severe price shocks if Australia did not cut its dependence on oil and said
conservation would be more effective in the short term than fuel substitutes. He
expressed frustration at inadequate responses to the issue from the Federal
Government.

    Aside from the threat posed by a war against Iraq, how stable are the Persian Gulf
countries from which our supplies must increasingly come? Their population has
quadrupled since 1950 to over 100 million. Well over half depend on imported food
paid for by oil exports, but as their oilfields age, the Gulf countries must spend
billions on their petroleum industry just to maintain existing production levels. For
their people it’s food versus oil investment.

    Saudi Arabia, the biggest Gulf producer, is politically fragile. In an endeavour to
mute dissent, the Saudi elite have been financing the fundamentalist Wahabi Islamic
establishment. Nearly half its population is under 15 and it’s getting beyond the
capacity of the Saudi regime to avoid unrest by providing jobs and welfare. To make
matters worse, King Fahd is expected to die soon, unleashing a power struggle for
the succession among the 6000 princes of the royal family.

    If Saudi Arabia is fragile, what of its major client? The United States has major
supply problem with natural gas as well as oil. It consumes 25 per cent of world gas
and imports 15 per cent from Canada. But since 1994, 74,000 new US gas wells
(22,000 in 2001) have only maintained production at the 1994 level! Production
declined by six per cent in 2002 compared to 2001, and a similar decline is expected
this year. The US is running fast to stand still, and Canada is in a similar position.
Proposals for new gas from the north-west Arctic coast of North America will take five
to six years to build and will deliver less gas than the likely decline from existing
fields over the same period.

    Meanwhile, expecting the cheap gas to continue, the electric power industry has
been installing gas turbines at a fantastic rate. In the immediate future (possibly later
this year) the US can expect a simultaneous natural gas and electric power supply
crisis. This will be a big issue because natural gas is the principal fuel used to keep
Americans warm in winter.

    The USA’s hydrocarbon resources made it the world’s hegemonic power but it is a
position it can no longer sustain.

    Compounding its perilous energy situation, the US is bankrupt. Its annual fiscal
deficit of around US$540 billion is financed by an inflow of capital that absorbs 75 per
cent of all direct international investment. George Bush’s recent budget proposal will
lead to a cumulative deficit of US$1 trillion over three years, a situation that can’t
possibly continue for much longer. And the high-tech military-industrial complex
needed to maintain US global hegemony itself has become a cancer eating the heart
out of the economy, poisoning the political system and eroding the social structure.
The US can no longer afford the current US$400 billion cost, let alone the increases
projected by Bush. No country could.

    Over the near future it must reduce its energy consumption, with all that that
implies, but the mindset of George Bush and his oil industry cohorts cannot tolerate
the loss of global power their present position portends – hence the 'War on Terror';
hence the desperate attempt to assert their dominance by a war on Iraq.

    Which brings us back to the millions who marched against a war on Iraq and the
massive opposition arising from every other quarter. The USA is on the threshold of a
permanent decline of its military, political and economic hegemony: an historical
turning point.

    What might the consequences be? There are plenty of groups ready to exploit the
situation for nefarious ends. Now more than ever we should be planning our
responses to bring about the peaceful and just world we all want. People of good will
must seize the opportunity while this window of opportunity is open.

    Meanwhile Australians need to reduce their oil consumption - fast.

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