I Never Cease To Be Amazed

Jim Brown
 
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I read a column today from an analyst in Australia questioning if we were going to see a repeat of $147 oil. His conclusion was no spike. That was a freak event and won't happen again.

Some people are just too focused on the facts for today they ignore the facts for tomorrow. In their lifetime we have always had oil so they believe we will always have oil. "Technology will prevail" or "There are billions of barrels left to discover." These people need a quick refresher in math and statistics.

I wrote a couple months ago about the Brazil offshore discoveries and how little impact they would have on global production. I went into a lengthy explanation about the 10-15 years needed to build up production to 2 mbpd and how depletion in that same period from other fields around the world would be 50-75 mbpd. Lose 50, gain 2, hardly sounds like a winning tradeoff. Various estimates put the Tupi field at 5-15 billion barrels of oil. If Petrobras pumps that field at 1 mbpd and assuming 10 billion barrels it would take 27 years to produce at level production. Obviously production won't be level and will begin to decline very quickly. They won't be able to produce all of it because the facilities will begin to deteroriate well before they run out of oil. There will be a point where declining production will not be worth the maintenance of the platforms and infrastructure and they will plug it and move on. If they get 7-9 billion barrels out of Tupi over 25 years that would equate to roughly FOUR MONTHS of global consumption. We consume 32 billion barrels of oil per year.

After I explained all of these facts in a much longer article I received an email from a consultant to OPEC saying "thank you." He said for years they had been trying to convince OPEC oil ministers to quit being paranoid about the Brazilian discoveries. Something in the way I phrased the problem gave him a way to explain it to OPEC so they could understand it and no longer be afraid of Brazilian oil killing their market.

I thanked him for his email and it drove a specific point home for me. OPEC is not as secure in their global dominance of the oil market as you would think. If I was sitting on 79% of the world's oil (1064 trillion barrels) why would I care if somebody discovered another 10 billion? It makes no sense. However, if you don't have 1 trillion and maybe that number is closer to 200-300 billion then a 10 billion barrel find is significant.

There are analysts who believe the more mainstream estimate for OPEC is 540 billion barrels. There are also analysts who believe even that number is severely inflated and the real number of "recoverable and marketable" oil is in the 220-250 billion barrel range. That would knock those giants in the OPEC kingdom down to size if we found out that was the real number.

Remember, OPEC members produce dozens of grades of crude from light, sweet to heavy, sour and not all grades are saleable to all buyers. This is what is going to bite us when demand returns to higher levels.

Refineries around the world have been slowly converting a portion of their capacity to process the heavier crudes but with Europe and the U.S. forcing the change to low sulfur diesel and less polluting gasoline the majority of refineries still process mostly light crude. We are going to reach a point over the next couple years where light crude runs short and like last time OPEC will continue to say there is plenty of oil just not enough of the right kind of refineries.

Saudi Arabia is building two refineries at $6 billion each to process heavy crude into gasoline and diesel. This is a wise move on their part. They have plenty of heavy crude nobody wants but everyone wants gasoline and diesel. Saudi has room to store the millions of tons of sulfur it will extract in the process and no EPA looking over their shoulder with a video camera.

Back to my original topic and those writers who are blind to the facts and are unaware their surface analysis of the problem did not actually cover all the points. I wish I could write the perfect editorial explaining it so clearly that anyone reading it would instantly understand the predicament we are facing. Unfortunately the entire peak oil community has been trying to write that article for the last five years and everyone who needs to reed it has no interest in it.

In their opinion we are all crazy and are obviously ignorant of their "facts." It is the facts that they are overlooking that will eventually bite them in the wallet. They will be riding a bicycle to work or the car equivalent of a golf cart and living in a closet apartment and those of us that planned for peak oil and invested wisely will be enjoying the fruits of our investments. In the land of the blind the one eyed man is king.

Are you prepared?

Jim Brown

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